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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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MARK ONE ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
[X] OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
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COMMISSION FILE NUMBER 1-13831
QUANTA SERVICES, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 74-2851603
(State or other jurisdiction of (IRS Employer identification no.)
incorporation or organization)
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1360 POST OAK BOULEVARD, SUITE 2100
HOUSTON, TEXAS 77056
(Address of principal executive offices, including ZIP Code)
(713) 629-7600
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
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Common Stock, $.00001 par value New York Stock Exchange
(including rights attached thereto)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF EACH CLASS
None
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 15, 2000, the aggregate market value of the Common Stock of the
Registrant held by non-affiliates of the Registrant, based on the last sale
price of the Common Stock of the Registrant was approximately $1,380,215,670
(for purposes of calculating this amount, only directors, officers, and
beneficial owners of 5% or more of the capital stock of the Registrant have been
deemed affiliates).
The number of shares of the Common Stock of the Registrant outstanding as
of March 15, 2000 was 35,607,769 (53,411,653, as adjusted for a 3-for-2 stock
split declared on March 8, 2000 and payable on April 7, 2000, to stockholders of
record on March 27, 2000).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Definitive Proxy Statement for the 2000 Annual
Meeting of Stockholders to be held on May 24, 2000, are incorporated by
reference into Part III of this Form 10-K.
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QUANTA SERVICES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999
INDEX
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PAGE
NUMBER
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PART I...................................................... 1
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 11
Item 3. Legal Proceedings........................................... 12
Item 4. Submission of Matters to a Vote of Security Holders......... 12
PART II..................................................... 12
Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters..................................................... 12
Item 6. Selected Financial Data..................................... 16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 17
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 22
Item 8. Financial Statements and Supplementary Data................. 24
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures................................... 49
PART III.................................................... 49
Item 10. Directors and Executive Officers of the Registrant.......... 49
Item 11. Executive Compensation...................................... 49
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 49
Item 13. Certain Relationships and Related Transactions.............. 49
PART IV..................................................... 50
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 50
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PART I
ITEM 1. BUSINESS
All share amounts and per share amounts in this report have been adjusted
to give effect to a 3-for-2 stock split declared by the Board of Directors on
March 8, 2000 and payable on April 7, 2000 to stockholders of record as of March
27, 2000.
GENERAL
Quanta is a leading provider of specialized contracting services, offering
end-to-end network solutions to the telecommunications, cable television and
electric power industries. Our comprehensive services include designing,
installing, repairing and maintaining network infrastructure. The Internet and
the resulting explosive growth in demand for increased bandwidth, coupled with
deregulation, increased outsourcing by our customers and the convergence of the
telecommunications, cable television and electric power industries have resulted
in significant growth in demand for our services. This growth in demand is
evidenced by our strong internal revenue growth. Operating units we owned at
December 31, 1999 had aggregate revenues on a combined pro forma basis of $1.15
billion in 1999 compared to $943 million in 1998, representing pro forma
internal revenue growth of 21.7%. Our pro forma revenue grew at a compounded
annual rate of 24.7% between 1996 and 1999. To leverage the growth in demand for
our services, we have made strategic acquisitions to expand our geographic
presence, generate operating synergies with existing businesses and develop new
capabilities to meet our customers' evolving needs.
We currently have principal offices in 37 states, providing us the presence
and capability to quickly, reliably and effectively complete turnkey projects
nationwide. We work for many of the leading companies in the industries we
serve. Representative customers include:
- AT&T
- Enron
- Time Warner
- Charter Communications
- PG&E
- US West
- Nevada Power
- Williams Communications
- UtiliCorp United
- Century Telephone
- PF.net
- Seren
- Sprint PCS
- Puget Sound Energy
Our reputation for speed, performance, geographic reach and comprehensive
service offering has also enabled us to develop profitable strategic alliances
with customers such as Enron and UtiliCorp United.
INDUSTRY OVERVIEW
Based on our review of industry sources, we estimate that network
infrastructure spending by telecommunications, cable television and electric
power providers was more than $45 billion in 1999 and will continue to grow. We
believe the following trends are fueling growth in our business:
Increased Demand for Bandwidth. To meet increasing demand for bandwidth
required for video, voice and data transmission, existing telecommunications and
cable television providers must expand and upgrade their networks. Cable and DSL
residential broadband subscriptions are projected to grow at an annual rate of
82% between 1998 and 2003. In addition, many new entrants into the local and
long distance telephone, Internet and cable television markets have an immediate
need to install and expand their networks to be competitive.
Deregulation. Deregulation of the telecommunications markets has spurred
significant additional investment by cable television companies, local exchange
carriers and long distance companies as they seek to protect and expand their
customer bases. Electric power companies have responded to deregulation of the
utility markets by seeking new lines of business and innovative methods to
reduce their costs. The movement from a regulated business environment to an
environment exposed to market forces has led our customers to
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increase outsourcing of non-core activities, particularly network development,
and has facilitated the convergence of the telecommunications, cable television,
and electric power industries.
Increased Outsourcing. Competitive pressures on telecommunications, cable
television and electric power providers caused by deregulation and an increased
focus on core competencies have caused an acceleration of outsourcing of network
services. For instance, although investor owned utilities have increased the
services they provide and the amount of power generated, total employment at
these companies has declined dramatically in the last decade. Outsourcing
network services reduces costs, provides flexibility in budgets and improves
service and performance for our customers.
Industry Convergence. Deregulation and demand for increased bandwidth has
encouraged local and long distance telecommunications, cable television and
electric power providers to leverage their rights-of-way and existing assets to
deliver comprehensive, value-added services to their customer base. For
instance, according to the Edison Electric Institute, over half of the investor
owned electric utilities have a telecommunications related subsidiary as part of
their corporate structure. As business lines between traditional
telecommunications, cable television and electric power markets continue to
blur, our target customers are increasingly seeking single-source providers who
have expertise in fiber optic, coaxial, copper and energized power networks.
Increased Demand for Comprehensive End-to-End Solutions. We believe that
telecommunications, cable television and electric power companies will seek
service providers who can rapidly and effectively design, install and maintain
their networks and continue to meet their needs as they enter new geographic and
product markets. The strategic and financial value to these companies of
geographically expanded and technologically improved networks has caused them to
place a premium on the provision of quick and reliable turnkey network solutions
within increasingly challenging scale, time and complexity constraints.
Accordingly, they are partnering with fewer proven full-service network
providers with broad geographic reach, financial capability and technical
expertise.
Increasing Need to Upgrade Electric Power Transmission and Distribution
Networks. We believe that the aging of many electric power networks and the
increase in competition in the electric power industry will spur increased
investment in electric power transmission and distribution networks. As
competition gives consumers and businesses more choice as to their provider of
electric power, concerns about power quality and reliability will result in
increased investment in transmission and distribution infrastructure.
Additionally, as deregulation accelerates the selling of electricity across
regional networks, capacity and reliability will become even more important.
STRATEGY
The key elements of our growth strategy are:
Focus on Internal Growth and Integration. We believe we can continue our
strong internal revenue growth by providing our customers comprehensive
end-to-end solutions for their infrastructure needs. Our operating units
cooperate in the spreading of best practices and innovative technology, and the
sharing of equipment and human resources. Accordingly, each operating unit is
well-positioned to deepen its relationship with current customers and develop
relationships with new customers. By cross-selling the capabilities of our
operating units, we offer our customers cost-effective, turnkey solutions to
their network needs.
Expand Portfolio of Services to Meet Customers' Evolving Needs. We offer an
expanding portfolio of services that allows us to develop, build and maintain
networks on both a regional and a national scale and adapt to our customers'
changing and growing needs. We intend to expand our geographic and technological
capabilities through both internal development and innovation and through
selective acquisitions.
Continue to Expand Operating Efficiencies. In 1999, we experienced
increases in our gross profit, operating income and net income margins. We
intend to continue to improve our profitability by:
- continuing to focus on growth in our more profitable services;
- combining overlapping operations of certain of the businesses we acquire;
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- using our assets more efficiently;
- increasing purchasing power to gain volume discounts in areas such as
vehicles and equipment, materials, marketing, bonding, employee benefits
and insurance;
- sharing of pricing, bidding, licensing and other business practices among
our operating units;
- developing and expanding the use of management information systems to
facilitate financial control and asset allocation.
Pursue Selected Acquisitions. We plan to continue to pursue acquisitions of
profitable companies with strong management teams and good reputations to
broaden our customer base, expand our geographic area and grow our portfolio of
services. Disciplined acquisitions allow us to cost-effectively meet our
strategic needs. We have successfully integrated 52 acquisitions since our
initial public offering in February 1998. We expect that there will continue to
be a large number of attractive acquisition candidates due to the highly
fragmented nature of the industry, the inability of many companies to expand and
modernize due to capital constraints, and the desire of owners for liquidity. We
believe that our financial strength and experienced management will be
attractive to acquisition candidates.
SERVICES
We design, install and maintain end-to-end networks for the
telecommunications, cable television and electric power industries as well as
commercial, industrial and governmental entities.
Telecommunications Network Services. We provide a variety of services to
the telecommunications industry, which generated 35% of our pro forma combined
revenues for the year ended December 31, 1999. Our telecommunications network
services include:
- fiber optic, copper and coaxial cable installation and maintenance for
video, data and voice transmission;
- designing, building and maintaining DSL networks;
- engineering and erecting cellular, digital, PCS(R), microwave and other
wireless communications towers;
- designing and installing switching systems for incumbent local exchange
carriers, competitive local exchange carriers, regional Bell operating
companies and long distance providers;
- trenching and plowing applications;
- horizontal directional boring;
- rock saw, rock wheel and rock trench capabilities;
- vacuum excavation services;
- splicing and testing of fiber optic and copper networks;
- cable locating.
Cable Television Network Services. We provide a variety of services to the
cable television industry, which generated 13% of our pro forma combined
revenues for the year ended December 31, 1999. Our cable television network
services include:
- fiber optic and coaxial cable installation and maintenance for voice,
video and data transmission;
- system design and installation;
- upgrading power and telecommunications infrastructure for cable
installations;
- system splicing, balance, testing and sweep certification;
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- residential installation and customer connects, both analog and digital,
for cable television, telephony and Internet services.
Electric Power Network Services. We provide a variety of services to the
electrical power industry, which generated 30% of our pro forma combined
revenues for the year ended December 31, 1999. These services include:
- installation, repair and maintenance of electric transmission lines from
69,000 volts to 760,000 volts;
- installation, repair and maintenance of electric power distribution
projects;
- designing and constructing substation projects;
- installing fiber optic lines for voice, video and data transmission on
existing electric power infrastructure;
- installing and maintaining joint trench natural gas distribution systems;
- trenching and horizontal boring for underground installations;
- cable and fault locating;
- storm damage restoration work.
Ancillary Services. We provide a variety of ancillary services to
commercial, industrial and governmental entities, which generated 22% of our pro
forma combined revenues for the year ended December 31, 1999. These services
include:
- installing intelligent traffic networks such as traffic signals,
controllers, connecting signals, variable message signs, closed circuit
television and other monitoring devices for governments;
- installing cable and control systems for light rail lines, airports and
highways;
- designing, installing, maintaining and repairing electrical components,
fiber optic cabling and building control and automation systems;
- installing and maintaining natural gas transmission systems;
- providing specialty rock trenching, directional boring and road milling
for industrial and commercial customers.
CUSTOMERS, STRATEGIC ALLIANCES AND PREFERRED PROVIDER RELATIONSHIPS
Our customers include telecommunications, cable television and electric
power companies, as well as commercial, industrial and governmental entities.
Telecommunications companies, in the aggregate, represent our largest customer
base. Our 10 largest customers accounted for 28% of our revenues in 1999.
Representative customers include:
- AT&T
- Enron
- Time Warner
- Charter Communications
- PG&E
- US West
- Nevada Power
- Williams Communications
- UtiliCorp United
- Century Telephone
- PF.net
- Seren
- Sprint PCS
- Puget Sound Energy
Management at each of our operating units is responsible for developing and
maintaining successful long-term relationships with customers. Our management is
incented to cross-sell additional services of other operating units to their
customers. In addition, our corporate marketing staff promotes and markets our
services for prospective large national accounts and projects that require
services from multiple business units,
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such as our recently announced contract with PF.net. Many of our customers and
prospective customers have qualification procedures for approved bidders or
vendors based upon the satisfaction of particular performance and safety
standards set by the customer. These customers typically maintain a list of
vendors meeting such standards and award contracts for individual jobs only to
such vendors. We strive to maintain our status as a preferred or qualified
vendor to such customers.
We believe that our strategic relationships with large providers of
telecommunications services and electric power providers will provide
opportunities for future growth. In September 1999, UtiliCorp invested $186
million in Quanta and agreed to use Quanta as a preferred contractor in
outsourced transmission and distribution infrastructure construction and
maintenance and natural gas distribution construction and maintenance in all
areas serviced by Quanta. In October 1998, in connection with a $49.4 million
investment in Quanta, we entered into a strategic alliance agreement with an
affiliate of Enron regarding the design, construction and maintenance of
electric power transmission and distribution systems and fiber optic
communications systems.
We also maintain strategic alliance agreements or preferred provider
relationships with several other leading companies competing in the
telecommunications and electric power industries. Strategic alliances are
typically agreements for periods of approximately two to four years that may
include an option to add one to two years at the end of a contract. Many of the
strategic alliance agreements we have secured include exclusivity clauses
providing that Quanta will be awarded all contracts for a certain type of work
or in a certain geographic region. None of these contracts, however, guarantee a
specific dollar amount of work to be performed by Quanta. Preferred provider
agreements typically indicate the intention to work together. Certain of these
agreements provide us with preferential bidding procedures. Certain of our
strategic alliances and preferred provider relationships are listed in the
following table:
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RELATIONSHIP RELATIONSHIP
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UtiliCorp United............................................ 1999
Enron....................................................... 1998
Washington Water & Power (Avista)........................... 1996
Century Telephone........................................... 1993
Nevada Power Company........................................ 1989
Mid American Energy Corp.................................... 1988
Western Resources........................................... 1979
Kansas City Power & Light................................... 1978
Intermountain R.E.A......................................... 1953
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ACQUISITIONS
During 1999, we acquired 40 network service or related businesses which
when combined with our existing operations resulted in pro forma combined
revenues for the year ended December 31, 1999 of $1.15 billion. We acquired
these 40 businesses for a combined consideration of $323.6 million in cash and
notes and 15.0 million shares of common stock.
We have developed a set of financial, geographic and management criteria
designed to assist management in the evaluation of acquisition candidates. These
criteria evaluate a variety of factors, including:
- historical and projected financial performance;
- experience and reputation of the candidate's management and operations;
- composition and size of the candidate's customer base;
- whether the geographic location of the candidate will enhance or expand
our market area or ability to attract other acquisition candidates;
- whether the acquisition will augment or increase Quanta's market share or
services offered or help protect our existing customer base;
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- potential synergies gained by combining the acquisition candidate with
our existing operations; and
- liabilities, contingent or otherwise, of the candidate.
EMPLOYEES
As of December 31, 1999, Quanta had 1,154 salaried employees, including
executive officers, project managers or engineers, job superintendents, staff
and clerical personnel and approximately 6,600 hourly employees, the number of
which fluctuates depending upon the number and size of the projects undertaken
by us at any particular time. We do not anticipate any overall reductions in
staff as a result of the consolidation of the businesses we acquire, although
there may be some job realignments and new assignments in an effort to eliminate
overlapping and redundant positions.
Approximately 33% of our employees at December 31, 1999 were covered by
collective bargaining agreements, primarily with the International Brotherhood
of Electrical Workers. Under our agreement with our unions, we agree to pay
specified wages to our union employees, observe certain workplace rules and make
employee benefit payments to multi-employer pension plans and employee benefit
trusts rather than administering the funds on behalf of these employees. These
collective bargaining agreements have varying terms and expiration dates. The
majority of the collective bargaining agreements contain provisions that
prohibit work stoppages or strikes, even during specified negotiation periods
relating to agreement renewal, and provide for binding arbitration dispute
resolution in the event of prolonged disagreement. None of our operating units
has experienced any strikes or work stoppages in the past 20 years; however,
there can be no assurance that work stoppages or strikes will not occur from
time to time.
Each of our operating units provides a variety of health, welfare and
benefit plans for their employees who are not covered by collective bargaining
agreements. We are currently considering replacing these various employee
benefit plans with a single plan covering all of our non-bargaining employees.
Effective February 1, 1999, Quanta adopted a 401(k) plan pursuant to which
eligible employees who are not provided retirement benefits through a collective
bargaining agreement may make contributions through a payroll deduction. Quanta
makes matching contributions of 100% of each employee's contribution up to 3% of
that employee's salary and 50% of each employee's contribution between 3% and 6%
of such employee's salary. Quanta also has an employee stock purchase plan which
provides that eligible employees may contribute up to 10% of their cash
compensation, up to $25,000 annually, toward the semi-annual purchase of
Quanta's common stock at a discounted price. Over 1,100 of our employees
participated in the initial offering period for this plan.
Our industry, like many industries, is experiencing a shortage of skilled
workers. In response to the shortage, Quanta seeks to take advantage of various
IBEW and NECA referral programs and hire graduates of the joint IBEW/NECA
apprenticeship program for training qualified electrical workers.
We believe our relationships with our employees and union representatives
are good.
TRAINING, QUALITY ASSURANCE AND SAFETY
Performance of Quanta's services requires the use of equipment and exposure
to conditions that can be dangerous. Although Quanta is committed to a policy of
operating safely and prudently, it has been and will continue to be subject to
claims by employees, customers and third parties for property damage and
personal injuries resulting from performance of its services. We perform on-site
services using employees who have completed our applicable safety and training
programs. Quanta's policies require that employees complete the prescribed
training and service program of the operating unit for which they work in
addition to those required, if applicable, by NECA and the IBEW prior to
performing more sophisticated and technical jobs. For example, all journeymen
linemen are required by the IBEW and NECA to complete a minimum of 7,000 hours
of on-the-job training, approximately 200 hours of classroom education and
extensive testing and certification. Each operating unit requires additional
training, depending upon the sophistication and technical requirements of each
particular job. Quanta intends to establish company-wide training and
educational programs, as well as comprehensive safety policies and regulations,
by sharing "best practices" throughout our operations.
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REGULATION
Our operations are subject to various federal, state and local laws and
regulations including:
- licensing requirements applicable to electricians and engineers;
- building and electrical codes;
- permitting and inspection requirements applicable to construction
projects;
- regulations relating to worker safety and environmental protection; and
- special bidding and procurement requirements on government projects.
We believe that we have all the licenses required to conduct our operations
and that we are in substantial compliance with applicable regulatory
requirements. Our failure to comply with applicable regulations could result in
substantial fines or revocation of our operating licenses. Many state and local
regulations governing electrical construction require permits and licenses to be
held by individuals who have passed an examination or met other requirements.
Quanta intends to implement a policy to ensure that, where possible, any such
permits or licenses that may be material to Quanta's operations are held by at
least two of our employees.
COMPETITION
The markets in which we operate are highly competitive, requiring
substantial resources and skilled and experienced personnel. Quanta competes
with other independent contractors in most of the markets in which we operate,
several of which are large domestic companies that have greater financial,
technical and marketing resources. In addition, there are relatively few
barriers to entry into the industry in which we operate and, as a result, any
organization that has adequate financial resources and access to technical
expertise may become a competitor. A significant portion of our revenues are
currently derived from fixed price agreements, and price is often an important
factor in the award of such agreements. Accordingly, we could be underbid by our
competitors in an effort by them to procure such business. We believe that as
demand for our services increases, customers will increasingly consider other
factors in choosing a service provider, including technical expertise and
experience, financial and operational resources, nationwide presence, industry
reputation and dependability, which should benefit contractors such as us. There
can be no assurance, however, that Quanta's competitors will not develop the
expertise, experience and resources to provide services that are superior in
both price and quality to Quanta's services, or that we will be able to maintain
or enhance our competitive position. We may also face competition from the
in-house service organizations of our existing or prospective customers,
including telecommunication, cable television and electric power companies, that
employ personnel who perform some of the same types of services as those
provided by us. Although a significant portion of these services is currently
outsourced, there can be no assurance that our existing or prospective customers
will continue to outsource services in the future.
RISK MANAGEMENT, INSURANCE AND PERFORMANCE BONDS
The primary risks in our operations are bodily injury, property damage and
injured workers' compensation. We maintain automobile and general liability
insurance for third party bodily injury and property damage and workers'
compensation coverage which we consider sufficient to insure against these
risks. Certain of these policies maintained by our operating units prior to our
acquisition of them were subject to self-insured amounts ranging from $100,000
to $1,000,000. We have consolidated the casualty insurance programs for most of
our subsidiaries, which has resulted in savings from the amounts historically
paid by the operating units. Our current insurance program has no self-insurance
provisions. In the future, however, we may have insurance programs with
significant self-insurance obligations. Self-insured claims under previous
policies are monitored to ensure that remaining accruals are adequate. Accruals
for outstanding claims are estimated based on known facts and our prior
experience. Actual experience and claims could differ from our estimates.
Contracts in the telecommunications, cable television and electrical power
contracting industry may require performance bonds or other means of financial
assurance to secure contractual performance. If we
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were unable to obtain surety bonds or letters of credit in sufficient amounts or
at acceptable rates, we might be precluded from entering into additional
contracts with certain of our customers.
RISK FACTORS
Our business is subject to a variety of risks, including the risks
described below. The risks and uncertainties described below are not the only
ones facing our company. Additional risks and uncertainties not known to us or
that we currently deem immaterial may also impair our business operations. If
any of the following risks actually occur, our business, financial condition and
results of operations could be materially and adversely affected.
The Industries We Serve Are Subject to Rapid Technological and Structural
Changes That Could Reduce the Demand for the Services We Provide. The
telecommunications, cable television and electric power industries are
undergoing rapid change as a result of technological advances and deregulation
that could in certain cases reduce the demand for our services or otherwise
adversely affect our business. New or developing technologies could displace the
wireline systems used for voice, video and data transmissions, and improvements
in existing technology may allow telecommunications and cable television
companies to significantly improve their networks without physically upgrading
them. In addition, consolidation in the telecommunications, cable television and
electric power industries may result in the loss of one or more customers.
We May Be Unsuccessful At Generating Internal Growth. Our ability to
generate internal growth will be affected by, among other factors, our ability
to:
- expand the range of services we offer to customers to address their
evolving network needs;
- attract new customers;
- increase the number of projects performed for existing customers;
- hire and retain employees;
- open additional facilities; and
- reduce operating and overhead expenses.
Many of the factors affecting our ability to generate internal growth may be
beyond our control, and we cannot be certain that our strategies will be
successful or that we will be able to generate cash flow sufficient to fund our
operations and to support internal growth. Our inability to achieve internal
growth could materially and adversely affect our business, financial condition
and results of operations.
We May Be Unsuccessful At Integrating Companies That We Acquire. We cannot
be sure that we can successfully integrate our acquired companies with our other
operations without substantial costs, delays or other operational or financial
problems. If we do not implement proper overall business controls, our
decentralized operating strategy could result in inconsistent operating and
financial practices at the companies we acquire, and our overall profitability
could be adversely affected. Integrating our acquired companies involves a
number of special risks which could materially and adversely affect our
business, financial condition and results of operations, including:
- failure of acquired companies to achieve the results we expect;
- diversion of our management's attention from operational matters;
- difficulties integrating the operations and personnel of acquired
companies;
- inability to retain key personnel of the acquired companies;
- risks associated with unanticipated events or liabilities;
- the potential disruption of our business; and
- the difficulty of maintaining uniform standards, controls, procedures and
policies.
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If one of our acquired companies suffers customer dissatisfaction or performance
problems, the reputation of our entire company could be materially and adversely
affected.
We May Not Have Access In The Future To Sufficient Funding To Finance
Desired Growth. If we cannot secure additional financing from time to time in
the future on acceptable terms, we may be unable to support our growth strategy.
We cannot readily predict the timing, size and success of our acquisition
efforts and therefore the capital we will need for these efforts. Using cash for
acquisitions limits our financial flexibility and makes us more likely to seek
additional capital through future debt or equity financings. Our existing debt
agreements contain significant restrictions on our operational and financial
flexibility, including our ability to obtain additional debt, and if we seek
more debt we may have to agree to additional covenants that limit our
operational and financial flexibility. When we seek additional debt or equity
financings, we cannot be certain that additional debt or equity will be
available to us at all or on terms acceptable to us. Our $350.0 million credit
facility contains a requirement to obtain the consent of the lenders for
acquisitions exceeding a certain level of cash consideration.
Our Operating Results May Vary Significantly From
Quarter-To-Quarter. During the winter months, demand for our services may be
lower due to inclement weather. Additionally, our quarterly results may also be
materially affected by:
- the timing of acquisitions;
- variations in the margins of projects performed during any particular
quarter;
- the timing and magnitude of acquisition assimilation costs;
- the timing and volume of work under new agreements;
- the budgetary spending patterns of customers;
- the termination of existing agreements;
- costs we incur to support growth internally or through acquisitions or
otherwise;
- losses experienced in our operations not otherwise covered by insurance;
- the change in mix of our customers, contracts and business;
- increases in construction and design costs; and
- regional or general economic conditions.
Accordingly, our operating results in any particular quarter may not be
indicative of the results that you can expect for any other quarter or for the
entire year.
Our Dependence Upon Fixed Price Contracts Could Adversely Affect Our
Business. We currently generate, and expect to continue to generate, a
significant portion of our revenues under fixed price contracts. We must
estimate the costs of completing a particular project to bid for such fixed
price contracts. The cost of labor and materials, however, may vary from the
costs we originally estimated. These variations, along with other risks inherent
in performing fixed price contracts, may cause actual revenue and gross profits
for a project to differ from those we originally estimated and could result in
reduced profitability and losses on projects. Depending upon the size of a
particular project, variations from the estimated contract costs can have a
significant impact on our operating results for any fiscal quarter or year.
Many of Our Contracts May Be Canceled On Short Notice and We May Be
Unsuccessful In Replacing Our Contracts As They Are Completed or Expire. We
could experience a material adverse affect on our revenue, net income and
liquidity if any of the following occur:
- our customers cancel a significant number of contracts;
- we fail to win a significant number of our existing contracts upon
re-bid; or
- we complete the required work under a significant number of non-recurring
projects and cannot replace them with similar projects.
9
<PAGE> 12
Many of our customers may cancel our contracts with them on short notice,
typically 30-90 days, even if we are not in default under the contract. Certain
of our customers assign work to us on a project-by-project basis under master
service agreements. Under these agreements, our customers often have no
obligation to assign work to us. Our operation could be materially and adversely
affected if the anticipated volume of work is not assigned to us. Many of our
contracts, including our master service contracts, are opened to public bid at
the expiration of their terms. We cannot assure you that we will be the
successful bidder on our existing contracts that come up for bid.
Our Business Growth Could Outpace the Capability of Our Corporate
Management Infrastructure. We cannot be certain that our systems, procedures and
controls will be adequate to support our operations as they expand. Future
growth also will impose significant additional responsibilities on members of
our senior management, including the need to recruit and integrate new senior
level managers and executives. We cannot be certain that we can recruit and
retain such additional managers and executives. To the extent that we are unable
to manage our growth effectively, or are unable to attract and retain additional
qualified management, our financial condition and results of operations could be
materially and adversely affected.
The Departure of Key Personnel Could Disrupt Our Business. We depend on the
continued efforts of our executive officers and on senior management of the
businesses we acquire. Although we intend to enter into an employment agreement
with each of our executive officers and certain other key employees, we cannot
be certain that any individual will continue in such capacity for any particular
period of time. The loss of key personnel, or the inability to hire and retain
qualified employees, could adversely affect our business, financial condition
and results of operations. We do not carry key-person life insurance on any of
our employees.
Our Business Is Labor Intensive and We May Be Unable To Attract and Retain
Qualified Employees. Our ability to increase our productivity and profitability
will be limited by our ability to employ, train and retain skilled personnel
necessary to meet our requirements. We, like many of our competitors, are
currently experiencing shortages of qualified personnel. We cannot be certain
that we will be able to maintain an adequate skilled labor force necessary to
operate efficiently and to support our growth strategy or that our labor
expenses will not increase as a result of a shortage in the supply of skilled
personnel. Labor shortages or increased labor costs could have a material
adverse affect on our ability to implement our growth strategy and our
operations.
Our Unionized Workforce Could Adversely Affect Our Operations and
Acquisition Strategy. As of December 31, 1999, approximately 33% of our
employees were covered by collective bargaining agreements. Although the
majority of these agreements prohibit strikes and work stoppages, we cannot be
certain that strikes or work stoppages will not occur in the future. Strikes or
work stoppages would adversely impact our relationship with our customers and
could materially and adversely affect our business, financial condition and
results of operations. In addition, our selective acquisition strategy could be
adversely affected because of our union status for a variety of reasons. For
instance, our union agreements may be incompatible with the union agreements of
a business we want to acquire and some businesses may not want to become
affiliated with a union based company.
Our Industry Is Highly Competitive. Our industry is served by numerous
small, owner-operated private companies, a few public companies and several
large regional companies. In addition, relatively few barriers prevent entry
into our industry. As a result, any organization that has adequate financial
resources and access to technical expertise may become one of our competitors.
Competition in the industry depends on a number of factors, including price.
Certain of our competitors may have lower overhead cost structures and may,
therefore, be able to provide their services at lower rates than we can provide
such services. In addition, some of our competitors are larger and have greater
resources than us. We cannot be certain that our competitors will not develop
the expertise, experience and resources to provide services that are superior in
both price and quality to our services. Similarly, we cannot be certain that we
will be able to maintain or enhance our competitive position within our
industry. We may also face competition from the in-house service organizations
of our existing or prospective customers. Telecommunications, cable television
and electric power service providers usually employ personnel who perform some
of the same types of services we do. We cannot be certain that our existing or
prospective customers will continue to outsource services in the future.
10
<PAGE> 13
Our Results Of Operations Could Be Adversely Affected as a Result of
Goodwill Amortization. When we acquire a business, we record an asset called
"goodwill" equal to the excess amount we pay for the business, including
liabilities assumed, over the fair value of the tangible assets of the business
we acquire. Pursuant to generally accepted accounting principles, we amortize
this goodwill over its estimated useful life. We amortize the goodwill we
acquire over 40 years following the acquisition, which directly impacts our
earnings in those years. Furthermore, we continually evaluate whether events or
circumstances have occurred that indicate that the remaining useful life of
goodwill may warrant revision or that the remaining balance may not be
recoverable. Should we be required to accelerate the amortization of goodwill or
write it off completely because of impairments or changes in accepted accounting
principles, our results from operations may be materially adversely affected.
We Could Have Potential Exposure To Environmental Liabilities. Our
operations are subject to various environmental laws and regulations, including
those dealing with the handling and disposal of waste products, PCBs, fuel
storage and air quality. As a result of past and future operations at our
facilities, we may be required to incur environmental remediation costs and
other cleanup expenses. In addition, we cannot be certain that we will be able
to identify or be indemnified for all potential environmental liabilities
relating to any acquired business.
Certain Provisions of Our Corporate Governing Documents Could Make An
Acquisition of Our Company More Difficult. The following provisions of our
certificate of incorporation and bylaws, as currently in effect, as well as our
stockholders rights plan and Delaware law, could discourage potential
acquisition proposals, delay or prevent a change in control of Quanta or limit
the price that investors may be willing to pay in the future for shares of our
common stock. Our certificate of incorporation permits our board of directors to
issue "blank check" preferred stock and to adopt amendments to our bylaws. Our
bylaws contain restrictions regarding the right of stockholders to nominate
directors and to submit proposals to be considered at stockholder meetings.
Also, our certificate of incorporation and bylaws restrict the right of
stockholders to call a special meeting of stockholders and to act by written
consent. We are also subject to provisions of Delaware law which prohibit us
from engaging in any of a broad range of business transactions with an
"interested stockholder" for a period of three years following the date such
stockholder became classified as an interested stockholder. In addition, on
March 8, 2000 we adopted a stockholders rights plan that could cause substantial
dilution to a person or group that attempts to acquire us on terms not approved
by our board of directors.
ITEM 2. PROPERTIES
FACILITIES
We lease our corporate headquarters in Houston, Texas. As of December 31,
1999 we maintained offices in 37 states. This space is used for offices,
equipment yards, warehousing, storage and vehicle shops. We own 12 of the
facilities we occupy and lease the rest. We believe that our facilities are
sufficient for our current needs.
EQUIPMENT
We operate a fleet of owned and leased trucks and trailers, support
vehicles and specialty construction equipment, such as backhoes, excavators,
trenchers, generators, boring machines, cranes, wire pullers and tensioners. As
of December 31, 1999, the total size of the rolling-stock fleet was
approximately 14,000 units. Most of this fleet is serviced by our own mechanics
who work at various maintenance sites and facilities. We believe that these
vehicles generally are well-maintained and adequate for our present operations.
We believe that in the future, we will be able to lease or purchase this
equipment at lower prices due to our larger size and the volume of our leasing
and purchasing activity.
11
<PAGE> 14
ITEM 3. LEGAL PROCEEDINGS
We are from time to time a party to litigation or administrative
proceedings that arise in the normal course of our business. We do not have
pending any litigation that, separately or in the aggregate, would in the
opinion of management have a material adverse effect on our results of
operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the stockholders during the
fourth quarter of the year ended December 31, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
We initially offered our common stock to the public on February 12, 1998,
at a price of $6.00 per share. The initial public offering price, recent price
and all price data in the following table have been adjusted to give effect to a
3-for-2 stock split payable April 7, 2000. Our common stock is listed on the
NYSE under the symbol "PWR". The following table sets forth the high and low
sales prices per quarter as reported by the NYSE.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1998
1st Quarter (from February 12, 1998)...................... $11.17 $ 7.33
2nd Quarter............................................... 11.83 8.17
3rd Quarter............................................... 10.25 8.00
4th Quarter............................................... 15.33 7.50
YEAR ENDED DECEMBER 31, 1999
1st Quarter............................................... 19.83 14.42
2nd Quarter............................................... 29.59 15.75
3rd Quarter............................................... 28.17 13.42
4th Quarter............................................... 23.13 15.67
YEAR ENDED DECEMBER 31, 2000
1st Quarter (through March 15, 2000)...................... 37.92 17.92
</TABLE>
On March 15, 2000, the last sale price for the common stock as reported by
the NYSE was $37.71 per share. On March 15, 2000, there were 259 holders of
record of common stock, 44 holders of record of Limited Vote Common Stock and
one holder of record of Series A preferred stock. There is no established
trading market for the Limited Vote Common Stock or Series A preferred stock.
DIVIDENDS AND PENDING EXCHANGE
Our Series A preferred stock accrues a dividend at a rate of 0.5 % per
annum on a stated amount per share currently equal to $100.00 per share.
Dividends of $260,000 were accrued on the Series A preferred stock during 1999.
Dividends on the Series A preferred stock accumulate until paid. In accordance
with a contractual commitment contained in the initial UtiliCorp investment
agreement, we have recommended that our stockholders approve a proposal at our
annual meeting on May 24, 2000 that would allow UtiliCorp to exchange up to
5,283,204 shares of common stock for up to 1,584,961 additional shares of Series
A preferred stock, at a rate of 3.333334 shares of common stock for one share of
Series A preferred stock. The proposal would also reduce the stated amount per
share of Series A preferred stock on which dividends are paid to $53.99 per
share. The proposed exchange will not adversely affect our other holders of
common stock or Limited Vote Common Stock. The additional shares of Series A
preferred stock to be issued to UtiliCorp in the exchange will not give
UtiliCorp any greater voting power than it presently has as a holder of the
common stock to be exchanged, and will not give UtiliCorp any additional veto
power. In addition, the Series A
12
<PAGE> 15
preferred stock has no liquidation preference, and the certificate of
designation will be amended so that the aggregate dividend payable to UtiliCorp
on the Series A preferred stock is, as a result of the change in the stated
amount per share, unaffected by the proposed exchange.
We currently intend to retain our future earnings, if any, to finance the
growth, development and expansion of our business. Accordingly, we do not
currently intend to declare or pay any cash dividends on our common stock in the
immediate future. The declaration, payment and amount of future cash dividends,
if any, will be at the discretion of our board of directors after taking into
account various factors. These factors include: our financial condition, results
of operations, cash flows from operations, current and anticipated capital
requirements and expansion plans, the income tax laws then in effect and the
requirements of Delaware law. In addition, the terms of our revolving credit
facility, and convertible subordinated notes include restrictions on the payment
of cash dividends without the consent of the respective lenders.
RECENT SALES OF UNREGISTERED SECURITIES
In 1999, we completed 40 acquisitions in which some or all of the
consideration was unregistered securities of Quanta. The aggregate consideration
paid in these transactions was $323.6 million in cash and notes and 15.0 million
shares of Quanta common stock. We consider the acquisitions of H. L. Chapman
Pipeline Construction, Inc., H. L. Chapman Pipeline Leasing Co., Inc., Austin
Trencher, Inc. and Sullivan Welders, Inc. to be one acquisition as these
companies were all part of a related business. None of the other acquisitions
were affiliated with each other prior to acquisition by Quanta. Additionally, we
sold shares of Series A preferred stock in an unregistered transaction in
September 1999.
Except for the sale of Series A preferred stock to UtiliCorp on September
21, 1999, all securities listed on the following table were shares of Quanta
common stock. Share data in the following table reflects a 3-for-2 stock split
declared on March 8, 2000, payable on April 7, 2000, to stockholders of record
on March 27, 2000. We relied on Section 4(2) of the Securities Act of 1933 as
the basis for exemption from registration. The shares of Series A preferred
stock are convertible into 9,300,000 shares of common stock, subject to
customary anti-dilution adjustments. For all issuances, the purchasers were
"accredited investors" as defined in Rule 501 promulgated pursuant to the
Securities Act of 1933. All issuances, other than the issuances to UtiliCorp,
were to the owners of businesses acquired in privately negotiated transactions,
not pursuant to public solicitation. The issuance of Series A preferred stock
and common stock to UtiliCorp was negotiated with UtiliCorp as part of a
strategic alliance and not pursuant to a public solicitation.
<TABLE>
<CAPTION>
NUMBER OF
DATE SHARES PURCHASERS OF QUANTA STOCK CONSIDERATION RECEIVED FOR QUANTA STOCK
---- --------- -------------------------- ---------------------------------------
<S> <C> <C> <C>
2/3/99 33,267 Sole owner of Tip Top Arborists, Acquisition of Tip Top Arborists, Inc.
Inc.
2/12/99 649,527 Three owners of R.A. Waffensmith & Acquisition of R. A. Waffensmith & Co.,
Co., Inc. Inc.
2/12/99 657,840 Five owners of Dillard Smith Acquisition of Dillard Smith
Construction Company Construction Company
2/12/99 395,497 Five owners of The Ryan Company, Acquisition of The Ryan Company, Inc.
Inc.
2/16/99 1,000,422 Four owners of Northern Line Acquisition of Northern Line Layers,
Layers, Inc. Inc.
3/3/99 170,050 Four owners of Western Acquisition of Western Directional,
Directional, Inc. Inc.
3/9/99 594,060 Seven owners of Valverde Acquisition of Valverde Communications,
Communications, Inc. Inc. and
and VCI Telcom, Inc. VCI Telcom, Inc.
3/23/99 252,927 Two owners of P.D.G. Electric Acquisition of P.D.G. Electric Company
Company
4/15/99 646,485 Sole owner of Tom Allen Acquisition of Tom Allen Construction
Construction Company Company
5/12/99 81,058 Two owners of TTM, Inc. Acquisition of TTM, Inc.
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
NUMBER OF
DATE SHARES PURCHASERS OF QUANTA STOCK CONSIDERATION RECEIVED FOR QUANTA STOCK
---- --------- -------------------------- ---------------------------------------
<S> <C> <C> <C>
5/14/99 53,860 One owner of Seaward Corporation Acquisition of Seaward Corporation
5/14/99 964,554 Three owners H. L. Chapman Acquisition of H. L. Chapman Pipeline
Pipeline Construction, Inc. and H. Construction, Inc. and H. L. Chapman
L. Chapman Leasing Co., Inc. Leasing Co., Inc.
5/14/99 29,839 Three owners of Austin Trencher, Acquisition of Austin Trencher, Inc.
Inc.
5/14/99 9,738 Two owners of Sullivan Welders, Acquisition of Sullivan Welders, Inc.
Inc.
5/14/99 348,387 Sole owner of Driftwood Electrical Acquisition of Driftwood Electrical
Contractors, Inc. and The 27 Contractors, Inc. and The 27 Digging
Digging Company Company
5/28/99 274,704 Two owners of GEM Engineering Co., Acquisition of GEM Engineering Co.,
Inc. Inc.
6/15/99 400,000 Sole owner of W.C. Communications, Acquisition of W.C. Communications,
Inc. Inc.
7/9/99 19,809 Sole owner of Specialty Drilling Acquisition of Specialty Drilling
Technology, Inc. Technology, Inc.
7/15/99 961,230 Two owners of Sky Antenna Systems, Acquisition of Sky Antenna Systems,
Inc. and North Pacific Utility Inc. and North Pacific Utility
Contractors, Inc. Contractors, Inc.
7/21/99 26,523 Sole owner of Taylor Built, Inc. Acquisition of Taylor Built, Inc.
7/22/99 26,649 Sole owner of Allmat, Inc. Acquisition of Allmat, Inc.
7/23/99 67,102 Sole owner of Utilco, Inc. and Acquisition of Utilco, Inc. and Utilco
Utilco Constructors, Inc. Constructors, Inc.
7/23/99.. 30,627 Two Owners of Intermountain Acquisition of Intermountain Electric,
Electric, Inc. Inc.
8/13/99.. 3,052,273 Sole owner of Crown Fiber Acquisition of Crown Fiber
Communications, Inc. Communications, Inc.
8/13/99.. 288,403 Sole owner of T.H. Cable Acquisition of T.H. Cable Construction,
Construction, Inc. Inc.
8/13/99.. 240,336 Sole owner of World CATV Acquisition of World CATV
Communications, Inc. Communications, Inc.
8/26/99.. 358,851 Four owners of W.C.E., Inc. Acquisition of W.C.E., Inc.
8/27/99.. 42,489 Sole owner of Computapole, Inc. Acquisition of Computapole, Inc.
9/15/99.. 1,053,658 Sole owner of Haines Construction Acquisition of Haines Construction
Company Company
9/21/99.. 1,860,000 UtiliCorp United Inc. $186,000,000
Series A
Preferred
Stock
9/22/99.. 183,567 Two owners of Ranger Directional, Acquisition of Ranger Directional, Inc.
Inc.
9/22/99.. 87,217 Two owners of Hudson & Poncetta, Acquisition of Hudson & Poncetta, Inc.
Inc.
9/22/99.. 186,282 Three owners of Renaissance Acquisition of Renaissance
Construction, Inc., Renaissance Construction, Inc., Renaissance
Construction of Utah, Inc. and Construction of Utah, Inc. and
Renaissance Construction of Renaissance Construction of Nevada,
Nevada, Inc. Inc.
10/1/99.. 410,881 Eight owners of Trawick Acquisition of Trawick Construction
Construction Company Inc. and Company Inc. and Communication
Communication Manpower, Inc. Manpower, Inc.
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
NUMBER OF
DATE SHARES PURCHASERS OF QUANTA STOCK CONSIDERATION RECEIVED FOR QUANTA STOCK
---- --------- -------------------------- ---------------------------------------
<S> <C> <C> <C>
10/1/99.. 139,437 Sole owner of Conti Acquisition of Conti Communications,
Communications, Inc. Inc.
10/1/99.. 271,248 Sole owner of Bonneville Acquisition of Bonneville Construction
Construction Co., Inc. Co., Inc.
10/4/99.. 49,911 Sole owner of Thorstad Brothers Acquisition of Thorstad Brothers
Tiling, Inc. Tiling, Inc.
10/6/99.. 246,406 Three owners of P.W.I. d/b/a Pac Acquisition of Pac West Construction
West Construction
10/15/99.. 207,183 Three owners of NCS Fiber Optic Acquisition of Network Communication
Services, Inc. d/b/a Network Services
Communication Services
10/15/99.. 82,873 Two owners of DB Utilities, Inc. Acquisition of DB Utilities, Inc.
10/15/99.. 11,049 Twelve owners of Kingston Acquisition of Kingston Contracting,
Contracting, Inc. Inc.
10/15/99.. 55,095 Sole Owner of Wade D. Taylor, Inc. Acquisition of Wade D. Taylor, Inc.
11/30/99.. 57,727 UtiliCorp United Inc. $1,041,591
</TABLE>
15
<PAGE> 18
ITEM 6. SELECTED FINANCIAL DATA
For financial statement presentation purposes, in connection with the
combination of the founding companies concurrent with our initial public
offering, PAR Electrical Contractors, Inc. was identified as the "accounting
acquiror." Between our initial public offering in February 1998 and December 31,
1999, we acquired 52 specialty contracting businesses. Of these, 50 were
accounted for using the purchase method of accounting and two were accounted for
using the pooling-of-interests method of accounting. Quanta's consolidated
historical financial statements represent the financial position and results of
operations of PAR as restated to include the financial position and results of
operations of companies acquired in pooling transactions. The remaining
businesses we acquired are reflected in the financial statements beginning on
their respective dates of acquisition.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
HISTORICAL STATEMENTS OF OPERATIONS DATA:
Revenues............................... $56,482 $78,230 $80,010 $319,259 $925,654
Costs of services (including
depreciation)....................... 47,266 62,772 62,599 257,270 711,353
------- ------- ------- -------- --------
Gross profit...................... 9,216 15,458 17,411 61,989 214,301
Selling, general and administrative
expenses............................ 6,787 10,445 12,354 27,160 80,132
Merger related charges................. -- -- -- 231 6,574(a)
Goodwill amortization.................. 50 55 56 2,513 10,902
------- ------- ------- -------- --------
Income from operations......... 2,379 4,958 5,001 32,085 116,693
Other income (expense), net............ (785) (1,127) (1,421) (4,214) (13,755)
------- ------- ------- -------- --------
Income before income tax provision..... 1,594 3,831 3,580 27,871 102,938
Provision for income taxes............. 353 1,389 1,786 11,683 48,999(b)
------- ------- ------- -------- --------
Net income..................... 1,241 2,442 1,794 16,188 53,939
Dividends on preferred stock........... -- -- -- -- 260
------- ------- ------- -------- --------
Net income attributable to common
stock............................... $ 1,241 $ 2,442 $ 1,794 $ 16,188 $ 53,679
======= ======= ======= ======== ========
Basic earnings per share............... $ 0.20 $ 0.39 $ 0.29 $ 0.60 $ 1.14
======= ======= ======= ======== ========
Diluted earnings per share............. $ 0.20 $ 0.39 $ 0.29 $ 0.59 $ 1.00
======= ======= ======= ======== ========
Diluted earnings per share before
merger charges(c)................... $ 0.20 $ 0.39 $ 0.29 $ 0.60 $ 1.13
======= ======= ======= ======== ========
</TABLE>
- ---------------
Note (a) As a result of the termination in June 1999 of an employee stock
ownership plan associated with a company acquired in a pooling
transaction, we incurred a non-cash, non-recurring compensation charge
of $5.3 million and a non-recurring excise tax charge of $1.1 million.
In addition, we incurred $137,000 in merger charges associated with a
pooling transaction in the first quarter of 1999.
Note (b) Reflects the non-deductibility of the merger related charges. In
addition, for the twelve months ended December 31, 1999, it includes a
non-cash, non-recurring deferred tax charge of $677,000 as a result of
a change in the tax status of a company acquired in a pooling
transaction from an S corporation to a C corporation during the first
quarter of 1999.
Note (c) Excludes the effect of all non-recurring, merger related charges.
Additionally, for the twelve months ended December 31, 1999, it
excludes the non-cash, non-recurring deferred tax charge of $677,000
described in Note (b) above.
16
<PAGE> 19
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------
1995 1996 1997 1998 1999
----------- ------- ------- -------- ----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital....................... $ 1,117 $ 2,797 $ 2,381 $ 57,106 $ 164,140
Total assets.......................... 26,191 31,607 37,561 339,081 1,159,636
Long-term debt, net of current
maturities......................... 4,430 6,665 7,638 60,281 150,308
Convertible subordinated notes........ -- -- -- 49,350 49,350
Total stockholders' equity............ 8,982 9,385 11,402 171,503 756,925
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with our
Consolidated Financial Statements and related notes thereto included elsewhere
in this report. Except for the historical financial information contained
herein, the matters discussed in this report may be considered "forward-looking"
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Such statements include
declarations regarding our intent, belief or current expectations, statements
regarding the future results of acquired companies, our gross margins and our
expectations regarding Year 2000 issues. Any such forward-looking statements are
not guarantees of future performance and involve a number of risks and
uncertainties. Actual results could differ materially from those indicated by
such forward-looking statements. Among the important factors that could cause
actual results to differ materially from those indicated by such forward-looking
statements are those discussed in "Business -- Risk Factors" in this report.
INTRODUCTION
All share amounts and per share amounts in this discussion have been
adjusted to give effect to a 3-for-2 stock split declared by our Board of
Directors on March 8, 2000 and payable on April 7, 2000 to stockholders of
record as of March 27, 2000.
We derive our revenues from one reportable segment by providing specialized
contracting services and offering comprehensive network solutions. Our customers
include telecommunications, cable television and electric power companies, as
well as commercial, industrial and governmental entities. Including all
companies we acquired prior to December 31, 1999, we had pro forma combined
revenues for the year ended December 31, 1999 of $1.15 billion, of which 35% was
attributable to telecommunications customers, 13% was attributable to cable
television operators, 30% was attributable to electric power companies, and 22%
was attributable to ancillary services, such as installing intelligent traffic
networks, cable and control systems for light rail lines, airports and highways,
and providing specialty rock trenching, directional boring and road milling for
industrial and commercial customers. We acquired 40 companies in 1999, 32 of
which have continued as separate operating and reporting subsidiaries, or
"platform" companies, while the remaining eight acquired companies were
"tuck-in" acquisitions whose operating and accounting activities were absorbed
into other operating subsidiaries.
We enter into contracts principally on the basis of competitive bids, the
final terms and prices of which we frequently negotiate with the customer.
Although the terms of our contracts vary considerably, most are either a lump
sum or unit price basis in which we agree to do the work for a fixed amount for
the entire project (lump sum) or for units of work performed (unit price). We
also perform services on a cost-plus or time and materials basis. We are
generally able to achieve higher margins on lump sum and unit price contracts
than on cost-plus contracts as a result of our experience in bidding and
performance. Our exposure to loss on fixed price contracts has historically been
limited by the high volume and relatively short duration of the fixed price
contracts we undertake. However, as we perform larger projects, our reported
margins may be significantly affected by actual results on these projects.
We complete most installation projects within one year, while we frequently
provide maintenance and repair work under open-ended, unit price master service
agreements which are renewable annually. We generally
17
<PAGE> 20
record revenues from lump sum contracts on a percentage-of-completion basis,
using the cost-to-cost method based on the percentage of total costs incurred to
date in proportion to total estimated costs to complete the contract. We
recognize revenue when services are performed except when work is being
performed under fixed price or cost-plus-fee contracts. Such contracts generally
require that the customer accept completion of progress to date and compensate
us for services rendered, measured typically in terms of units installed, hours
expended or some other measure of progress. Some of our customers require us to
post performance and payment bonds upon execution of the contract, depending
upon the nature of the work to be performed. Our fixed price contracts often
include payment provisions pursuant to which the customer withholds a 5% to 10%
retainage from each progress payment and forwards the retainage to us upon
completion and approval of the work.
Costs of services consist primarily of salaries and benefits to employees,
depreciation, fuel and other vehicle expenses, equipment rentals, subcontracted
services, materials, parts and supplies. Our gross margin, which is gross profit
expressed as a percentage of revenues, is typically higher on projects where
labor, rather than materials, constitutes a greater portion of the cost of
services. We can predict materials costs more accurately than labor costs.
Therefore, to compensate for the potential variability of labor costs, we seek
to maintain higher margins on labor-intensive projects. Certain of our
subsidiaries were previously subject to deductibles ranging from $100,000 to
$1,000,000 for workers' compensation insurance and in the future we may have
similar large deductibles in our insurance program. Fluctuations in insurance
accruals related to these deductibles could have an impact on gross margins in
the period in which such adjustments are made. Selling, general and
administrative expenses consist primarily of compensation and related benefits
to management, administrative salaries and benefits, marketing, office rent and
utilities, communications and professional fees.
For those acquisitions we accounted for using the purchase method of
accounting through December 31, 1999, we recognized goodwill of $612.6 million
which equaled the excess amount we paid for such businesses over the fair value
of the tangible and intangible assets of such businesses. In addition, we
recorded goodwill of $25.6 million for the issuance of 5,017,999 shares of
Limited Vote Common Stock we issued prior to our initial public offering to the
initial stockholders and management. We amortize this $638.2 million aggregate
goodwill over its estimated useful life of 40 years as a non-cash charge to
operating income. We are unable to deduct the majority of amortized goodwill
from our income for tax purposes. We expect the pro forma effect of this
amortization expense to be approximately $16.0 million per year.
SEASONALITY; FLUCTUATIONS OF QUARTERLY RESULTS
Our results of operations can be subject to seasonal variations. During the
winter months, demand for new projects and new maintenance service arrangements
may be lower due to reduced construction activity. However, demand for repair
and maintenance services attributable to damage caused by inclement weather
during the winter months may partially offset the loss of revenues from lower
demand for new projects and new maintenance service arrangements. Additionally,
our industry can be highly cyclical. As a result, our volume of business may be
adversely affected by declines in new projects in various geographic regions in
the U.S. Typically, we experience lower gross and operating margins during the
winter months. The timing of acquisitions, variations in the margins of projects
performed during any particular quarter, the timing and magnitude of acquisition
assimilation costs and regional economic conditions may also materially affect
quarterly results. Accordingly, our operating results in any particular quarter
may not be indicative of the results that can be expected for any other quarter
or for the entire year.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, we had cash and cash equivalents of $10.8 million,
working capital of $164.1 million and long-term debt of $199.7 million, net of
current maturities. Our long-term debt balance at that date included borrowings
of $138.6 million under our credit facility and $49.4 million of convertible
subordinated notes and $11.7 million of other debt. In addition, we had $5.5
million of letters of credit outstanding under the credit facility.
18
<PAGE> 21
During the year ended December 31, 1999, operating activities provided net
cash to us of $46.3 million. Acquisitions created the largest changes in our
working capital accounts throughout the year and such accounts are not
comparable to prior periods. We used net cash in investing activities of $368.3
million, including $308.7 million used for the purchase of businesses, net of
cash acquired. Financing activities provided net cash of $329.5 million,
resulting primarily from $82.9 million from net borrowings under our credit
facility, $101.1 million of net proceeds from a January 1999 public equity
offering and $182.1 million of net proceeds from the issuance of the Series A
preferred stock, partially offset by $43.3 million in repayments of debt assumed
in connection with acquisitions.
In January 1999, we completed a public offering of common stock, which
included the issuance of 6,900,000 shares of common stock (including 900,000
shares pursuant to the underwriters' over-allotment option) at a price of $15.50
per share (before deducting underwriting discounts and commissions). We realized
proceeds from this transaction, net of the discounts and commissions and after
deducting the expenses of the offering, of approximately $101.1 million. Of this
amount, we used $57.8 million to repay outstanding indebtedness under our credit
facility and the remainder to acquire additional businesses.
In June 1999, we expanded our bank group from nine to 14 banks and
increased our $175.0 million credit facility to $350.0 million. The credit
facility is secured by a pledge of all of the capital stock of our operating
subsidiaries and the majority of our assets. We use the credit facility to
provide funds to be used for working capital, to finance acquisitions and for
other general corporate purposes. Amounts borrowed under the credit facility
bear interest at a rate equal to either (a) LIBOR plus 1.00 percent to 2.00
percent, as determined by the ratio of our total funded debt to EBITDA (as
defined in the credit facility) or (b) the bank's prime rate plus up to 0.25
percent, as determined by the ratio of our total funded debt to EBITDA. We owe
commitment fees of 0.25 percent to 0.50 percent (based on total funded debt to
EBITDA) on any unused borrowing capacity under the credit facility. Our
subsidiaries guarantee repayment of all amounts due under the credit facility,
and the credit facility restricts pledges of material assets. We agreed to usual
and customary covenants for a credit facility of this nature, including a
prohibition on the payment of dividends on common stock, certain financial
ratios and indebtedness covenants and a requirement to obtain the consent of the
lenders for acquisitions exceeding a certain level of cash consideration.
In September 1999, we issued 1,860,000 shares of Series A preferred stock
to UtiliCorp for an initial investment of $186,000,000, before transaction
costs. The Series A preferred stock bears a dividend rate of 0.5% per annum and
is convertible into common stock at any time at the option of UtiliCorp at
$20.00 per share, subject to customary adjustments for certain dilutive events.
We used the net proceeds from the investment to reduce outstanding borrowings
under our credit facility.
We also entered into a management services agreement with UtiliCorp for
advice and services including financing activities; corporate strategic
planning; research on the restructuring of the power industries; the
development, evaluation and marketing of our products, services and
capabilities; identification of and evaluation of potential U.S. acquisition
candidates and other merger and acquisition advisory services; and other
services that we may reasonably request. In consideration of the advice and
services rendered by UtiliCorp, we agreed to pay UtiliCorp, on a quarterly basis
in arrears, a fee of $2,325,000. The UtiliCorp management services agreement
lasts for six years, but can be extended by mutual agreement of the parties. We
have the right to terminate the management services agreement at any time if, in
our reasonable judgment, changes in the nature of our relationship with
UtiliCorp make effective provision of the services to be provided unlikely.
During 1999, we acquired 40 companies for an aggregate consideration of
15.0 million shares of common stock and $323.6 million in cash and notes. The
cash portion of such consideration was provided by borrowings under our credit
facility and proceeds from our January 1999 public offering of common stock.
In March 2000, we closed a private placement of senior secured notes with
16 lenders, primarily insurance companies, for $150 million. The senior secured
notes have maturities of five, seven or ten years with a weighted average
interest rate of 8.52% and, pursuant to an intercreditor agreement, rank pari
passu in right of repayment with our credit facility indebtedness. The senior
secured notes have financial covenants similar to the credit facility. We used
the proceeds from this private placement to reduce outstanding
19
<PAGE> 22
borrowings under the credit facility. Accordingly, as of March 27, 2000, we had
a borrowing availability of $305.4 million under the credit facility.
We anticipate that our cash flow from operations and 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 for at least the next 12 months. However, if companies we wish to
acquire are unwilling to accept our common stock as part of the consideration
for the sale of their businesses, we could be required to utilize more cash to
complete acquisitions. If sufficient funds were not available from operating
cash flow or through borrowings under the credit facility, we may be required to
seek additional financing through the public or private sale of equity or debt
securities. There can be no assurance that we could secure such financing if and
when we need it or on terms we would deem acceptable.
INFLATION
Due to relatively low levels of inflation experienced during the years
ended December 31, 1997, 1998 and 1999, inflation did not have a significant
effect on our results.
YEAR 2000
The Company did not experience any significant operational difficulties nor
are we aware of any of our suppliers, customers or service providers
experiencing any significant operational difficulties as a result of Year 2000
issues. We will continue to monitor all critical systems for any incidents of
delayed complications or disruptions and problems encountered through third
parties with whom we deal so that they may be timely addressed.
RESULTS OF OPERATIONS
For financial statement presentation purposes, in connection with the
combination of the founding companies concurrent with our initial public
offering, PAR has been identified as the accounting acquiror. As such, our
financial statements for periods prior to February 18, 1998 are the financial
statements of PAR as restated for the acquisition of the two businesses we
acquired in pooling transactions. The operations of the other businesses we
acquired have been included from their respective acquisition dates.
The following table sets forth selected statements of operations data and
such data as a percentage of revenues for the years indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1997 1998 1999
--------------- ---------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues........................ $80,010 100.0% $319,259 100.0% $925,654 100.0%
Cost of services (including
depreciation)................. 62,599 78.2 257,270 80.6 711,353 76.8
------- ----- -------- ----- -------- -----
Gross profit.................... 17,411 21.8 61,989 19.4 214,301 23.2
Selling, general and
administrative expenses....... 12,354 15.4 27,160 8.5 80,132 8.7
Merger related charges.......... -- -- 231 0.1 6,574 0.7
Goodwill amortization........... 56 0.1 2,513 0.8 10,902 1.2
------- ----- -------- ----- -------- -----
Income from operations.......... 5,001 6.3 32,085 10.0 116,693 12.6
Interest expense................ (1,290) (1.6) (4,855) (1.5) (15,184) (1.6)
Other income (expense), net..... (131) (.2) 641 .2 1,429 .1
------- ----- -------- ----- -------- -----
Income before income tax
provision..................... 3,580 4.5 27,871 8.7 102,938 11.1
Provision for income taxes...... 1,786 2.3 11,683 3.6 48,999 5.3
------- ----- -------- ----- -------- -----
Net income...................... $ 1,794 2.2% $ 16,188 5.1% $ 53,939 5.8%
======= ===== ======== ===== ======== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
Revenues. Revenues increased $606.4 million, or 189.9%, to $925.7 million
for the year ended December 31, 1999. This increase was primarily attributable
to revenues of $403.5 million from platform
20
<PAGE> 23
companies acquired in 1999 which continued to exist as separate reporting
subsidiaries, as well as a full year of contributed revenues in 1999 for those
companies acquired in 1998. We are experiencing strong growth in key business
areas as a result of greater demand for bandwidth, increased outsourcing,
deregulation and industry convergence. Because the businesses we acquired in
1998 and 1999 had aggregate revenues that were much larger than our revenues at
the beginning of the 1998 period, we believe that pro forma revenue growth is a
more meaningful measure of our business performance. Operating units we owned as
of December 31, 1999 experienced aggregate internal revenue growth on a pro
forma combined basis of 21.7% in 1999 and at a compound annual rate of 24.7%
between 1996 and 1999.
Gross profit. Gross profit increased $152.3 million, or 245.7%, to $214.3
million for the year ended December 31, 1999. Gross margin increased from 19.4%
for the year ended December 31, 1998 to 23.2% for the year ended December 31,
1999. This increase in our gross margin resulted from a shift in our revenue mix
to higher margin cable television and telecommunications services. We also
experienced improved margins in our electric power network services as a result
of better asset utilization and more favorable pricing.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $53.0 million, or 195.0%, to $80.1 million for
the year ended December 31, 1999. Of this increase, $25.8 million was
attributable to the platform companies we acquired in 1999 and $5.4 million was
attributable to the implementation in 1999 of a company-wide incentive program
that paid bonuses to management at the operating units that exceeded their
performance targets and to corporate management. Selling, general and
administrative expenses also included a full year of costs in 1999 associated
with those companies acquired in 1998. The remainder of the increase was
attributable to tuck-in acquisitions and the continued establishment of
infrastructure to facilitate our growth and to integrate our acquired
businesses. As a percentage of revenues, selling, general and administrative
expenses remained relatively constant.
Merger related charges. Merger related charges for the year ended December
31, 1999 included $5.3 million of non-cash compensation charges related to the
allocation of shares of common stock to participants of an ESOP associated with
one of the companies acquired in a pooling transaction, and $1.1 million of
excise tax charges. We did not recognize significant merger related charges in
1998.
Interest expense. Interest expense increased $10.3 million, or 212.7%, to
$15.2 million for the year ended December 31, 1999, due to higher levels of debt
resulting from the acquisitions of the companies we purchased in 1999. In
addition, we borrowed funds under our credit facility for equipment purchases
and other operating activities in connection with the addition of certain of the
companies purchased in 1999. The issuance of the 6 7/8% convertible subordinated
notes in late 1998 also increased interest expense.
Provision for income taxes. The provision for income taxes was $49.0
million for the year ended December 31, 1999 with an effective tax rate of 47.6%
compared to $11.7 million for the year ended December 31, 1998 and an effective
tax rate of 41.9%. In 1999, the provision reflects the non-deductibility of the
merger related charges and a non-cash non-recurring tax charge of $677,000 as a
result of a change in the tax status of a company acquired in a
pooling-of-interest transaction from an S corporation to a C corporation.
Net income. Net income increased $37.8 million, or 233%, to $53.9 million
for the year ended December 31, 1999 compared to $16.2 million for the year
ended December 31, 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
Revenues. Revenues increased $239.2 million, or 299.0%, to $319.3 million
for the year ended December 31, 1998. This increase in revenues was primarily
attributable to revenues from companies we acquired in 1998 of $225.0 million.
Gross profit. Gross profit increased $44.6 million, or 256.0%, to $62.0
million for the year ended December 31, 1998. Gross margin decreased from 21.8%
for the year ended December 31, 1997 to 19.4% for the year ended December 31,
1998. This decrease in gross margin was primarily due to a larger amount of high
margin storm and emergency work performed by PAR in 1997 compared to 1998, and
the acquisition of certain companies which earned lower margins than those
experienced in 1997 by PAR and one of the companies acquired in a pooling
transaction.
21
<PAGE> 24
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $14.8 million, or 119.8%, to $27.2 million for
the year ended December 31, 1998, due to acquisitions we completed in 1998, and
the establishment of a corporate office and administrative infrastructure during
1998. As a percentage of revenues, selling, general and administrative expenses
decreased due to excess compensation paid to the owners of PAR in 1997 compared
to agreed upon salary levels commencing with our initial public offering and due
to one of the companies acquired in a pooling transaction having a higher sales
commission structure than the other companies.
Interest expense. Interest expense increased $3.6 million, or 276.4%, to
$4.9 million for the year ended December 31, 1998 due to higher levels of debt
resulting from cash paid and debt assumed in connection with the acquisition of
certain of the companies acquired in 1998. In addition, we borrowed funds under
our credit facility for equipment purchases and other operating activities in
connection with the addition of certain of the companies acquired in 1998. Also,
interest expense increased due to the addition of the convertible subordinated
notes, partially offset by lower overall effective borrowing rates in 1998
compared to 1997.
Provision for income taxes. The provision for income taxes was $11.7
million for the year ended December 31, 1998 with an effective tax rate of 41.9%
compared to $1.8 million for the year ended December 31, 1997 and an effective
tax rate of 49.9%. In 1997, the provision does not reflect a tax benefit
associated with the operating loss of one of the businesses acquired in a
pooling transaction which was converted from an S-corporation to a C-corporation
on the acquisition date.
Net income. Net income increased $14.4 million to $16.2 million for the
year ended December 31, 1998 compared to $1.8 million for the year ended
December 31, 1997.
ITEM 7A. 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 our 6 7/8% convertible
subordinated notes issued in September 1998. Our debt with variable interest
rates is primarily our credit facility. The following table presents principal
amounts (stated in thousands) and related average interest rates by year of
maturity for our debt obligations and their indicated fair market value at
December 31, 1999:
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 THEREAFTER TOTAL
------ ------ ------ ------ -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Liabilities -- Long-Term Debt
Variable Rate................. $ -- $ -- $ -- $ -- $138,630 $ -- $138,630
Average Interest Rate......... 7.6% 7.6% 7.6% 7.6% 7.6% 7.6% 7.6%
Fixed Rate.................... $ -- $ -- $ -- $ -- $ -- $49,350 $ 49,350
Average Interest Rate......... 6.875% 6.875% 6.875% 6.875% 6.875% 6.875% 6.875%
</TABLE>
<TABLE>
<CAPTION>
FAIR VALUE
----------
<S> <C>
Liabilities -- Long-Term Debt:
Variable Rate............................................. $138,630
Fixed Rate................................................ $ 49,350
</TABLE>
22
<PAGE> 25
For comparative purposes, the following table presents principal amounts
(stated in thousands) and related average interest rates by year of maturity for
our 1998 debt obligations and their indicated fair market value at December 31,
1998:
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 THEREAFTER TOTAL
------ ------ ------ ------ ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Liabilities -- Long-Term Debt
Variable Rate................... $ -- $ -- $ -- $ -- $56,000 $ -- $56,000
Average Interest Rate........... 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0%
Fixed Rate...................... $ -- $ -- $ -- $ -- $ -- $49,350 $49,350
Average Interest Rate........... 6.875% 6.875% 6.875% 6.875% 6.875% 6.875% 6.875%
</TABLE>
<TABLE>
<CAPTION>
FAIR VALUE
----------
<S> <C>
Liabilities -- Long-Term Debt:
Variable Rate............................................. $ 56,000
Fixed Rate................................................ $ 49,350
</TABLE>
Subsequent to December 31, 1999, we issued $150 million of senior notes.
The senior notes have maturities of five, seven and ten years with a weighted
average interest rate of 8.52%. The proceeds were used to pay down our credit
facility.
23
<PAGE> 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Quanta Services, Inc. and Subsidiaries
Report of Independent Public Accountants.................. 25
Consolidated Balance Sheets............................... 26
Consolidated Statements of Operations..................... 27
Consolidated Statements of Cash Flows..................... 28
Consolidated Statements of Stockholders' Equity........... 29
Notes to Consolidated Financial Statements................ 30
</TABLE>
24
<PAGE> 27
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Quanta Services, Inc.:
We have audited the accompanying consolidated balance sheets of Quanta Services,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1998 and 1999,
and the related consolidated statements of operations, cash flows and
stockholders' equity for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Quanta Services,
Inc. and subsidiaries as of December 31, 1998 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
ARTHUR ANDERSEN LLP
Houston, Texas
February 24, 2000 (except for the matter
discussed in Note 17b., as to which the
date is March 27, 2000)
25
<PAGE> 28
QUANTA SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1999
-------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 3,246 $ 10,775
Accounts receivable, net of allowance of $1,616 and
$5,947................................................. 76,040 253,881
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 22,620 45,963
Inventories............................................... 2,534 8,741
Prepaid expenses and other current assets................. 4,352 15,703
-------- ----------
Total current assets.............................. 108,792 335,063
PROPERTY AND EQUIPMENT, net................................. 74,212 191,854
OTHER ASSETS, net........................................... 5,190 7,962
GOODWILL, net............................................... 150,887 624,757
-------- ----------
Total assets...................................... $339,081 $1,159,636
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 4,357 $ 6,664
Accounts payable and accrued expenses..................... 40,298 141,025
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 7,031 23,234
-------- ----------
Total current liabilities......................... 51,686 170,923
LONG-TERM DEBT, net of current maturities................... 60,281 150,308
CONVERTIBLE SUBORDINATED NOTES.............................. 49,350 49,350
DEFERRED INCOME TAXES AND OTHER NON-CURRENT LIABILITIES..... 6,261 32,130
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, $.00001 par value, 10,000,000 shares
authorized:
Series A Convertible Preferred Stock, -- and 1,860,000
shares issued and outstanding......................... -- --
Common Stock, $.00001 par value, 36,654,667 and
100,000,000 shares authorized, 18,557,949 and,
51,035,283 shares issued and outstanding,
respectively........................................... -- --
Limited Vote Common Stock, $.00001 par value, 3,345,333
shares authorized, 3,345,333, and 3,746,020 shares
issued and outstanding, respectively................... -- --
Unearned ESOP shares...................................... (1,831) --
Additional paid-in capital................................ 145,194 675,106
Retained earnings......................................... 28,140 81,819
-------- ----------
Total stockholders' equity........................ 171,503 756,925
-------- ----------
Total liabilities and stockholders' equity........ $339,081 $1,159,636
======== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
26
<PAGE> 29
QUANTA SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
REVENUES.................................................... $80,010 $319,259 $925,654
COST OF SERVICES (including depreciation)................... 62,599 257,270 711,353
------- -------- --------
Gross profit.............................................. 17,411 61,989 214,301
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 12,354 27,160 80,132
MERGER RELATED CHARGES...................................... -- 231 6,574(a)
GOODWILL AMORTIZATION....................................... 56 2,513 10,902
------- -------- --------
Income from operations.................................... 5,001 32,085 116,693
OTHER INCOME (EXPENSE):
Interest expense.......................................... (1,290) (4,855) (15,184)
Other, net................................................ (131) 641 1,429
------- -------- --------
INCOME BEFORE INCOME TAX PROVISION.......................... 3,580 27,871 102,938
PROVISION FOR INCOME TAXES.................................. 1,786 11,683 48,999(b)
------- -------- --------
NET INCOME.................................................. 1,794 16,188 53,939
DIVIDENDS ON PREFERRED STOCK................................ -- -- 260
------- -------- --------
NET INCOME ATTRIBUTABLE TO COMMON STOCK..................... $ 1,794 $ 16,188 $ 53,679
======= ======== ========
BASIC EARNINGS PER SHARE(c)................................. $ 0.29 $ 0.60 $ 1.14
======= ======== ========
DILUTED EARNINGS PER SHARE(c)............................... $ 0.29 $ 0.59 $ 1.00
======= ======== ========
DILUTED EARNINGS PER SHARE BEFORE MERGER
CHARGES(c)(d)............................................. $ 0.29 $ 0.60 $ 1.13
======= ======== ========
SHARES USED IN COMPUTING EARNINGS PER SHARE:
Basic(c).................................................. 6,244 26,785 47,177
======= ======== ========
Diluted(c)................................................ 6,244 28,315 56,146
======= ======== ========
</TABLE>
- ---------------
Note (a) As a result of the termination in June 1999 of an employee stock
ownership plan associated with a company acquired in a pooling
transaction the Company incurred a non-cash, non-recurring compensation
charge of $5.3 million and a non-recurring excise tax charge of $1.1
million. In addition, the Company incurred $137,000 in merger charges
associated with a pooling transaction in the first quarter of 1999.
Note (b) Reflects the non-deductibility of the merger related charges. In
addition, for the twelve months ended December 31, 1999, it includes a
non-cash, non-recurring deferred tax charge of $677,000 as a result of
a change in the tax status from an S corporation to a C corporation of
a company acquired in a pooling transaction during the first quarter of
1999.
Note (c) Share and earnings per share data have been restated to give effect to
a 3-for-2 stock split as discussed in Note 17 to these consolidated
financial statements.
Note (d) Excludes the effect of all non-recurring, merger related charges.
Additionally, for the twelve months ended December 31, 1999, it
excludes the non-cash, non-recurring deferred tax charge of $677,000
described in Note (b) above.
The accompanying notes are an integral part of these consolidated financial
statements.
27
<PAGE> 30
QUANTA SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1998 1999
------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income attributable to common stock................... $ 1,794 $ 16,188 $ 53,679
Adjustments to reconcile net income attributable to common
stock to net cash provided by operating activities --
Depreciation and amortization.......................... 3,361 10,666 35,163
Loss (gain) on sale of property and equipment.......... 49 (91) (252)
Non-cash merger related compensation charge for
issuance of common stock to ESOP..................... 254 -- 5,319
Deferred income tax provision (benefit)................ 5 (370) 5,620
Preferred stock dividend............................... -- -- 260
Changes in operating assets and liabilities, net of
non-cash transactions --
(Increase) decrease in --
Accounts receivable, net............................. (1,010) (9,649) (74,041)
Costs and estimated earnings in excess of billings on
uncompleted contracts............................. (947) (2,286) (11,172)
Inventories.......................................... (286) (904) (1,740)
Prepaid expenses and other current assets............ 14 (2,784) (1,959)
Other, net........................................... (56) (93) 2,446
Increase (decrease) in --
Accounts payable and accrued expenses................ 2,621 (4,672) 29,358
Billings in excess of costs and estimated earnings on
uncompleted contracts............................. (478) 2,185 3,645
------- --------- ---------
Net cash provided by operating activities......... 5,321 8,190 46,326
------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment.............. 268 1,394 1,533
Additions of property and equipment and other assets...... (6,456) (22,667) (61,124)
Cash paid for acquisitions, net of cash acquired.......... -- (89,176) (308,671)
Proceeds from sale of investments......................... -- 1,342 --
------- --------- ---------
Net cash used in investing activities............. (6,188) (109,107) (368,262)
------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under bank lines of credit................. 495 52,522 82,946
Proceeds from other long-term debt........................ 6,867 3,722 4,868
Payments on other long-term debt.......................... (6,487) (36,111) (43,317)
Proceeds from Convertible Subordinated Notes.............. -- 49,350 --
Debt issuance costs....................................... -- (3,066) (1,659)
Redemptions of common stock............................... (31) -- --
Issuances of stock, net of offering costs................. -- 44,914 284,280
Distributions to previous owners of accounting acquiror... -- (8,370) --
Exercise of stock options................................. -- 713 2,347
------- --------- ---------
Net cash provided by financing activities......... 844 103,674 329,465
------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (23) 2,757 7,529
CASH AND CASH EQUIVALENTS, beginning of year................ 512 489 3,246
------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year...................... $ 489 $ 3,246 $ 10,775
======= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for --
Interest............................................... $ 750 $ 4,690 $ 13,230
Income taxes, net of refunds........................... 1,518 10,800 33,644
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
28
<PAGE> 31
QUANTA SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
LIMITED VOTE
PREFERRED STOCK COMMON STOCK COMMON STOCK UNEARNED ADDITIONAL
-------------------- --------------------- -------------------- ESOP PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES CAPITAL
--------- -------- ---------- -------- --------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996.......... -- $ -- 4,162,572 $ -- -- $ -- $(2,085) $ 1,312
Distribution of stock through
ESOP............................ -- -- -- -- -- -- 254 --
Other............................. -- -- -- -- -- -- -- (31)
Net income........................ -- -- -- -- -- -- -- --
--------- -------- ---------- -------- --------- -------- ------- --------
Balance, December 31, 1997.......... -- -- 4,162,572 -- -- -- (1,831) 1,281
Issuances of stock................ -- -- -- -- 3,345,333 -- -- --
Stock options exercised........... -- -- 60,000 -- -- -- -- 1,125
Initial public offering, net of
offering costs.................. -- -- 5,750,000 -- -- -- -- 44,914
Acquisition of Founding
Companies....................... -- -- 4,527,000 -- -- -- -- 53,890
Acquisition of Purchased
Companies....................... -- -- 4,058,377 -- -- -- -- 43,984
Net income........................ -- -- -- -- -- -- -- --
--------- -------- ---------- -------- --------- -------- ------- --------
Balance, December 31, 1998.......... -- -- 18,557,949 -- 3,345,333 -- (1,831) 145,194
Issuance of Preferred Stock....... 1,860,000 -- -- -- -- -- -- 182,119
Sales of common stock under
preemptive rights agreement..... -- -- 38,485 -- -- -- -- 1,042
Stock options exercised........... -- -- 204,888 -- -- -- -- 2,347
Income tax benefit from stock
options exercised............... -- -- -- -- -- -- -- 1,446
Conversion of Limited Vote Common
Stock to common stock........... -- -- 847,986 -- (847,986) -- -- --
Termination of ESOP............... -- -- -- -- -- -- 1,831 5,319
Follow-on offering, net of
offering
costs........................... -- -- 4,600,000 -- -- -- -- 101,119
Acquisition of Purchased
Companies....................... -- -- 9,774,214 -- -- -- -- 236,520
Three-for-two common stock
split........................... -- -- 17,011,761 -- 1,248,673 -- -- --
Net income........................ -- -- -- -- -- -- -- --
--------- -------- ---------- -------- --------- -------- ------- --------
Balance, December 31, 1999.......... 1,860,000 $ -- 51,035,283 $ -- 3,746,020 $ -- $ -- $675,106
========= ======== ========== ======== ========= ======== ======= ========
<CAPTION>
RETAINED TOTAL
EARNINGS EQUITY
-------- --------
<S> <C> <C>
Balance, December 31, 1996.......... $10,158 $ 9,385
Distribution of stock through
ESOP............................ -- 254
Other............................. -- (31)
Net income........................ 1,794 1,794
------- --------
Balance, December 31, 1997.......... 11,952 11,402
Issuances of stock................ -- --
Stock options exercised........... -- 1,125
Initial public offering, net of
offering costs.................. -- 44,914
Acquisition of Founding
Companies....................... -- 53,890
Acquisition of Purchased
Companies....................... -- 43,984
Net income........................ 16,188 16,188
------- --------
Balance, December 31, 1998.......... 28,140 171,503
Issuance of Preferred Stock....... -- 182,119
Sales of common stock under
preemptive rights agreement..... -- 1,042
Stock options exercised........... -- 2,347
Income tax benefit from stock
options exercised............... -- 1,446
Conversion of Limited Vote Common
Stock to common stock........... -- --
Termination of ESOP............... -- 7,150
Follow-on offering, net of
offering
costs........................... -- 101,119
Acquisition of Purchased
Companies....................... -- 236,520
Three-for-two common stock
split........................... -- --
Net income........................ 53,679 53,679
------- --------
Balance, December 31, 1999.......... $81,819 $756,925
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
29
<PAGE> 32
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Quanta Services, Inc. is a leading provider of specialized contracting
services, offering end-to-end network solutions to the telecommunications, cable
television and electric power industries.
In February 1998, Quanta completed its initial public offering (the "IPO"),
concurrent with which Quanta acquired, in separate transactions, four entities
(the "Founding Companies"). Quanta acquired 12 additional businesses in 1998 and
40 additional businesses in 1999. Of these additional acquired businesses, two
were accounted for as poolings-of-interests and are referred to herein as the
"Pooled Companies." The remaining acquired businesses were accounted for as
purchases and are referred to herein as the "Purchased Companies." Quanta
intends to continue to acquire through merger or purchase similar companies to
expand its national and regional operations.
The financial statements of Quanta for periods prior to February 18, 1998
(the effective closing date of the acquisitions of the Founding Companies), are
the financial statements of PAR Electrical Contractors, Inc. ("PAR" or the
"Accounting Acquiror") as restated for the acquisitions of the Pooled Companies.
The operations of the other Founding Companies and Quanta, acquired by the
Accounting Acquiror, have been included in the Company's historical financial
statements beginning February 19, 1998, and the Purchased Companies beginning on
their respective dates of acquisition. References herein to the "Company"
include Quanta and its subsidiaries.
In the course of its operations, the Company is subject to certain risk
factors, including but not limited to: rapid technological and structural
changes in our industries, risks related to internal growth and operating
strategies, risks related to acquisition financing, significant fluctuations in
quarterly results, risks associated with contracts, management of growth,
dependence on key personnel, availability of qualified employees, unionized
workforce, competition, recoverability of goodwill, potential exposure to
environmental liabilities and anti-takeover measures.
All share amounts and per share amounts in these notes to consolidated
financial statements have been adjusted to give effect to a 3-for-2 stock split
declared by the Board of Directors on March 8, 2000 and payable on April 7, 2000
to stockholders of record as of March 27, 2000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements of the Company, include the accounts
of Quanta and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Supplemental Cash Flow Information
The Company had non-cash investing and financing activities related to
capital leases of approximately $692,000, $1,218,000 and $170,000 during the
years ended December 31, 1997, 1998 and 1999, respectively.
In addition, pursuant to its acquisition program, the Company acquired
assets through purchase acquisitions with an estimated fair market value, net of
cash acquired, of approximately $116.0 million and liabilities of approximately
$71.6 million resulting in the recording of approximately $127.7 million in
goodwill in 1998. In 1999, the Company acquired assets through purchase
acquisitions with an estimated fair market
30
<PAGE> 33
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
value, net of cash acquired, of approximately $236.0 million and liabilities of
approximately $160.2 million resulting in the recording of approximately $484.9
million in goodwill.
Accounts Receivable and Provision for Doubtful Accounts
The Company provides an allowance for doubtful accounts when collection is
considered doubtful.
Inventories
Inventories consist of parts and supplies held for use in the ordinary
course of business and are valued by the Company at the lower of cost or market
using the first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method, net of estimated salvage values, over the
estimated useful lives of the assets. Leasehold improvements are capitalized and
amortized over the lesser of the life of the lease or the estimated useful life
of the asset. Depreciation and amortization expense related to property and
equipment was approximately, $3,305,000, $8,153,000 and $24,261,000 for the
years ended December 31, 1997, 1998 and 1999, respectively.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.
Management reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
realizable. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset are compared to the asset's carrying amount to
determine if an impairment of such asset is necessary. The effect of any
impairment would be to expense the difference between the fair value of such
asset and its carrying value.
Debt Issue Costs
Debt issue costs related to the Company's credit facility and the
Convertible Subordinated Notes are included in other assets and are amortized to
interest expense over the scheduled maturity periods of the related debt. As of
December 31, 1998 and 1999, accumulated amortization was approximately $178,000
and $857,000, respectively.
Goodwill
Goodwill represents the excess of the aggregate purchase price paid by the
Company in the acquisition of businesses accounted for as purchases over the
fair market value of the net assets acquired. Goodwill is amortized on a
straight-line basis over 40 years. Management continually evaluates whether
events or circumstances have occurred that indicate that the remaining estimated
useful life of goodwill may warrant revision or that the remaining balance may
not be recoverable. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset will be compared to the
asset's carrying amount to determine if such an impairment exists.
Revenue Recognition
The Company recognizes revenue when services are performed except when work
is being performed under a fixed price or cost-plus-fee contract. Such contracts
generally provide that the customer accept completion of progress to date and
compensate the Company for services rendered, measured typically in
31
<PAGE> 34
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
terms of units installed, hours expended or some other measure of progress.
Revenues from fixed price or cost-plus-fee contracts are recognized on the
percentage-of-completion method measured by the percentage of costs
incurred-to-date to total estimated costs for each contract. Contract costs
typically include all direct material, labor and subcontract costs and those
indirect costs related to contract performance, such as indirect labor,
supplies, tools, repairs and depreciation costs. Provisions for the total
estimated losses on uncompleted contracts are made in the period in which such
losses are determined. Changes in job performance, job conditions, estimated
profitability and final contract settlements may result in revisions to costs
and income and their effects are recognized in the period in which the revisions
are determined.
The balances billed but not paid by customers pursuant to retainage
provisions in fixed price or cost-plus-fee contacts will be due upon completion
of the contracts and acceptance by the customer. Based on the Company's
experience with similar contracts in recent years, the retention balance at each
balance sheet date will be collected within the subsequent fiscal year.
Retainage balances as of December 31, 1998 and 1999 were approximately
$11,704,000 and $30,453,000, respectively, and are included in accounts
receivable.
The current asset "Cost and estimated earnings in excess of billings on
uncompleted contracts" represents revenues recognized in excess of amounts
billed. The current liability "Billings in excess of costs and estimated
earnings on uncompleted contracts" represents billings in excess of revenues
recognized.
Warranty Costs
For certain contracts, the Company warrants labor for new installations and
construction and servicing of existing infrastructure. An accrual for warranty
costs is recorded based upon the historical level of warranty claims and
management's estimate of future costs.
Income Taxes
The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes." Under this method, deferred assets and
liabilities are recorded for future tax consequences of temporary differences
between the financial reporting and tax bases of assets and liabilities, and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets or liabilities are recovered or settled.
Certain of the Purchased Companies were S corporations for income tax
purposes and, accordingly, any income tax liabilities for the periods prior to
the acquisitions are the responsibility of the respective stockholders. In
addition, one of the Pooled Companies was an S corporation prior to its merger
with Quanta and, therefore, income taxes have not been provided for in the
historical financial statements. Effective with the acquisitions, the S
corporations converted to C corporations. Accordingly, at the date of
acquisition an estimated deferred tax liability has been recorded to provide for
the estimated future income tax liability resulting from the difference between
the book and tax bases of the net assets of these former S corporations. For
purposes of these consolidated financial statements, federal and state income
taxes have been provided for the post-acquisition periods.
Collective Bargaining Agreements
Certain of the subsidiaries are party to various collective bargaining
agreements with certain of its employees. The agreements require the Company to
pay specified wages and provide certain benefits to its union employees. These
agreements expire at various times.
32
<PAGE> 35
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires the use of estimates
and assumptions by management in determining the reported amounts of assets and
liabilities, disclosures of contingent 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. Reference is
made to the "Revenue Recognition" section of this footnote and Note 13 for
discussion of certain estimates reflected in the Company's financial statements.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities".
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 derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. In June
1999, SFAS No. 137, "Deferral of the Effective Date of FASB Statement No. 133,"
was issued and defers the adoption date to the beginning of an entity's fiscal
year-end beginning after June 15, 2000. Management does not believe that the
adoption of this statement will have a material impact on the financial position
or results of operations of the Company.
3. PER SHARE INFORMATION:
For financial statement purposes, PAR was identified as the accounting
acquiror in the transaction with Quanta and the IPO. As such, the shares of
Quanta common stock beneficially owned by the former stockholders of PAR and the
shares issued in connection with the acquisition of the Pooled Companies have
been used in the calculation of basic and diluted earnings per share of the
Company for all periods prior to the IPO.
Earnings per share amounts are based on the weighted average number of
shares of common stock and common stock equivalents outstanding during the
period. The weighted average number of shares used to compute basic and diluted
earnings per share for 1997, 1998 and 1999 is illustrated below (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1998 1999
------ ------- -------
<S> <C> <C> <C>
NET INCOME:
Net income for basic earnings per share -- income
attributable to common stockholders.................... $1,794 $16,188 $53,679
Effect of Convertible Subordinated Notes under the "if
converted" method -- interest expense addback, net of
taxes.................................................. -- 506 2,198
Dividends on Preferred Stock.............................. -- -- 260
------ ------- -------
Net income for diluted earnings per share................. $1,794 $16,694 $56,137
====== ======= =======
WEIGHTED AVERAGE SHARES:
Weighted average shares outstanding for basic earnings per
share.................................................. 6,244 26,785 47,177
Effect of dilutive stock options.......................... -- 232 986
Effect of Convertible Subordinated Notes under the "if
converted" method -- weighted convertible shares
issuable............................................... -- 1,298 5,384
Effect of conversion of Preferred Stock into common
stock -- weighted convertible shares issuable.......... -- -- 2,599
------ ------- -------
Weighted average shares outstanding for diluted earnings
per share.............................................. 6,244 28,315 56,146
====== ======= =======
</TABLE>
33
<PAGE> 36
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. BUSINESS COMBINATIONS:
Purchases
During 1998 and 1999, in addition to the Founding Companies, the Company
completed 50 acquisitions accounted for as purchases. The aggregate
consideration paid in these transactions consisted of $408.2 million in cash and
notes and 20.7 million shares of common stock. The accompanying balance sheet as
of December 31, 1999 includes preliminary allocations of the respective purchase
prices and is subject to final adjustment. The following summarized unaudited
pro forma financial information adjusts the historical financial information by
assuming the acquisition of the Founding Companies, the Purchased Companies, the
issuance of the Convertible Subordinated Notes (as defined in Note 7) and the
issuance of the Preferred Stock (as defined in Note 9) occurred on January 1,
1998 (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1999
--------- -----------
(UNAUDITED)
<S> <C> <C>
Revenues.................................................... $943,118 $1,148,145
Net income attributable to common stock..................... $ 55,000 $ 71,997
Basic earnings per share.................................... $ 1.01 $ 1.31
Diluted earnings per share.................................. $ 0.84 $ 1.07
Diluted earnings per share before merger charges............ $ 0.84 $ 1.17
</TABLE>
Pro forma adjustments included in the amounts above primarily relate to:
(a) contractually agreed reductions in salaries and benefits for former owners,
and certain key employees; (b) adjustment to depreciation and amortization
expense due to the purchase price allocations; (c) the assumed reductions in
interest expense due to unassumed debt and the refinancing of the outstanding
indebtedness in conjunction with the acquisition of the Founding Companies and
Purchased Companies, offset by an assumed increase in interest expense incurred
in connection with financing the acquisitions; (d) the incremental interest
expense and amortization of deferred financing costs incurred as a result of the
issuance of the Convertible Subordinated Notes, net of the repayment of
outstanding indebtedness of the Company; (e) the reduction in interest expense
related to the repayment of outstanding indebtedness from proceeds from the sale
of Series A Preferred Stock; (f) adjustment to the federal and state income tax
provisions based on the combined operations; and (g) the 0.5 percent dividend
requirement on the Series A Preferred Stock. Diluted earnings per share before
merger charges excludes the effects of all non-recurring merger charges and the
non-cash non-recurring deferred tax charge (as discussed in Note 8). The pro
forma financial data does not purport to represent what the Company's combined
financial position or results of operations would actually have been if such
transactions had in fact occurred on January 1, 1998 and are not necessarily
representative of the Company's financial position or results of operations for
any future period.
Poolings
During the second quarter of 1998, Quanta completed the acquisition of all
the common stock of NorAm Telecommunications, Inc. ("NorAm"), in a business
combination accounted for as a "pooling-of-interests" transaction in accordance
with the requirements of the Accounting Principles Board (APB) No. 16. NorAm,
headquartered in Oregon, provides outside and inside network and technical
support for the telecommunications industry. Quanta issued 1,427,917 shares of
common stock in exchange for all the common stock of NorAm.
In the first quarter of 1999, Quanta completed the acquisition of all the
common stock of Fiber Technology, Inc. ("Fiber Tech") in a business combination
accounted for as a "pooling-of-interests" transaction. Fiber Tech, headquartered
in Houston, Texas, provides specialty contracting services to the cable
34
<PAGE> 37
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
television and telecommunications industries. Quanta issued 315,940 shares of
common stock in exchange for all the common stock of Fiber Tech.
There were no transactions between Quanta and the Pooled Companies during
the periods prior to the business combination. As reported in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998 the financial
statements of the Company have been previously restated to reflect the impact of
the NorAm pooling.
The following table summarizes the audited restated revenues, net income
and per share data of the Company after giving effect to the Fiber Tech pooling
transaction (in thousands, except per share data).
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1997 1998
----------------- ------------------
NET NET
REVENUES INCOME REVENUES INCOME
-------- ------ -------- -------
<S> <C> <C> <C> <C>
Revenues and net income -- As previously
reported in 1998 Form 10-K................... $76,204 $2,527 $309,209 $15,175
Fiber Tech................................... 3,806 (733) 10,050 1,013
------- ------ -------- -------
As restated............................... $80,010 $1,794 $319,259 $16,188
======= ====== ======== =======
Basic earnings per share -- As previously
reported in 1998 Form 10-K................... $ 0.43 $ 0.57
Fiber Tech................................... (0.14) 0.03
------ -------
As restated............................... $ 0.29 $ 0.60
====== =======
Diluted earnings per share -- As previously
reported in 1998 Form 10-K................... $ 0.43 $ 0.56
Fiber Tech................................... (0.14) 0.03
------ -------
As restated............................... $ 0.29 $ 0.59
====== =======
</TABLE>
5. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
USEFUL DECEMBER 31,
LIVES -------------------
IN YEARS 1998 1999
--------- -------- --------
<S> <C> <C> <C>
Land.................................................. -- $ 1,947 2,218
Buildings and leasehold improvements.................. 5-31 4,232 6,093
Operating equipment and vehicles...................... 5-25 90,831 222,543
Office equipment, furniture and fixtures.............. 3-7 2,845 7,260
-------- --------
99,855 238,114
Less -- Accumulated depreciation and amortization..... (25,643) (46,260)
-------- --------
Property and equipment, net......................... $ 74,212 $191,854
======== ========
</TABLE>
35
<PAGE> 38
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Activity in the Company's allowance for doubtful accounts consists of the
following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1998 1999
------ ------
<S> <C> <C>
Balance at beginning of period.............................. $ 400 $1,616
Beginning balance of Purchased Companies.................. 984 2,824
Charged to expense........................................ 292 1,749
Deductions for uncollectible receivables written off and
recoveries............................................. (60) (242)
------ ------
Balance at end of period.................................... $1,616 $5,947
====== ======
</TABLE>
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- --------
<S> <C> <C>
Accounts payable, trade..................................... $18,805 $ 72,187
Accrued compensation and other related expenses............. 9,209 27,370
Federal and state taxes payable............................. 4,074 16,465
Other accrued expenses...................................... 8,210 25,003
------- --------
$40,298 $141,025
======= ========
</TABLE>
Contracts in progress are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1999
--------- --------
<S> <C> <C>
Costs incurred on contracts in progress..................... $ 231,526 $492,150
Estimated earnings, net of estimated losses................. 44,405 120,969
--------- --------
275,931 613,119
Less -- Billings to date.................................... (260,342) (590,390)
--------- --------
$ 15,589 $ 22,729
========= ========
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... $ 22,620 $ 45,963
Less -- Billings in excess of costs and estimated earnings
on uncompleted contracts.................................. (7,031) (23,234)
--------- --------
$ 15,589 $ 22,729
========= ========
</TABLE>
36
<PAGE> 39
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. DEBT:
The Company's long-term debt obligations consisted of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- --------
<S> <C> <C>
Credit Facility............................................. $56,000 $138,630
Notes payable to various financial institutions, interest
ranging from 0.9% to 16.72%, secured by certain equipment,
receivables and other assets.............................. 2,819 13,513
Notes payable to certain previous owners of the Purchased
Companies bearing interest at 7.0% due 2001............... 2,145 948
Capital lease obligations................................... 3,674 3,881
------- --------
64,638 156,972
Less -- Current maturities.................................. (4,357) (6,664)
------- --------
Total long-term debt.............................. $60,281 $150,308
======= ========
</TABLE>
Credit Facility
In June 1999, the Company expanded its bank group from nine to 14 banks and
increased its $175.0 million Credit Facility to $350.0 million. The Credit
Facility is secured by a pledge of all of the capital stock of the Company's
subsidiaries and the majority of the Company's assets and is to provide funds to
be used for working capital, to finance acquisitions and for other general
corporate purposes. Amounts borrowed under the Credit Facility bear interest at
a rate equal to either (a) the London Interbank Offered Rate (the 30 day LIBOR
rate was 6.49 percent at December 31, 1999) plus 1.00 percent to 2.00 percent,
as determined by the ratio of the Company's total funded debt to EBITDA (as
defined in the Credit Facility) or (b) the bank's prime rate (which was 8.5
percent at December 31, 1999) plus up to 0.25 percent, as determined by the
ratio of the Company's total funded debt to EBITDA. Commitment fees of 0.25
percent to 0.50 percent (based on certain financial ratios) are due on any
unused borrowing capacity under the Credit Facility. The Credit Facility matures
June 14, 2004. The Company's subsidiaries guarantee the repayment of all amounts
due under the facility and the facility restricts pledges on all material
assets. The Credit Facility contains usual and customary covenants for a credit
facility of this nature including the prohibition of the payment of dividends on
common stock, certain financial ratio covenants and the consent of the lenders
for acquisitions exceeding a certain level of cash consideration. As of December
31, 1999, $138.6 million was borrowed under the Credit Facility, and the Company
had $5.5 million of letters of credit outstanding, resulting in a borrowing
availability of $205.9 million under the Credit Facility.
The maturities of long-term debt (excluding capital leases) as of December
31, 1999, are as follows (in thousands):
<TABLE>
<S> <C>
Year Ending December 31 --
2000...................................................... $ 4,534
2001...................................................... 4,078
2002...................................................... 3,080
2003...................................................... 1,241
2004...................................................... 138,781
Thereafter........................................... 1,377
--------
$153,091
========
</TABLE>
37
<PAGE> 40
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company leases certain buildings and equipment under non-cancelable
lease agreements. The following schedule shows the future minimum lease payments
under these leases as of December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
Year Ending December 31 --
2000...................................................... $ 2,266 $ 9,569
2001...................................................... 1,097 7,459
2002...................................................... 565 5,254
2003...................................................... 166 3,175
2004...................................................... -- 1,955
Thereafter........................................... -- 2,526
------- -------
Total minimum lease payments...................... 4,094 $29,938
=======
Less -- Amounts representing interest................ (213)
-------
Present value of minimum lease payments........... 3,881
Less -- Current portion.............................. (2,130)
-------
Long-term obligation.............................. $ 1,751
=======
</TABLE>
Rent expense related to operating leases was approximately $519,000,
$1,816,000 and $11,706,000 for the years ended December 31, 1997, 1998 and 1999,
respectively. Assets under capital leases are included as part of property and
equipment.
Certain of the Company's subsidiaries have entered into related party lease
arrangements for operational facilities. These lease agreements generally have a
term of 5 years. There were no such related-party lease payments during the year
ended December 31, 1997. Related party lease expense for the years ended
December 31, 1998 and 1999 was approximately $315,000 and $1,215,000. Future
commitments with respect to these leases are included above.
Strategic Investment
In October 1998, the Company entered into a strategic investment agreement
with Enron Capital & Trade Resources Corp. ("Enron Capital"), a subsidiary of
Enron Corp., pursuant to which Enron Capital and an affiliate made an investment
of $49.4 million in Quanta. The investment is in the form of Convertible
Subordinated Notes bearing interest at 6 7/8 percent and is convertible into
5,383,636 shares of Quanta common stock at a price of $9.17 per share.
Additionally, Quanta and Enron Capital entered into a strategic alliance under
which Enron Capital and Quanta will exchange information regarding the design,
construction and maintenance of electric power transmission and distribution
systems and fiber optic communications systems. The Convertible Subordinated
Notes require quarterly interest payments and equal semi-annual principal
payments beginning in 2006 until the notes are paid in full in 2010. The Company
has the option to redeem the notes at a premium beginning in 2002.
38
<PAGE> 41
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES:
The components of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1998 1999
------ ------- -------
<S> <C> <C> <C>
Federal --
Current................................................ $1,475 $10,214 $36,044
Deferred............................................... 10 (262) 5,071
State --
Current................................................ 306 1,839 7,335
Deferred............................................... (5) (108) 549
------ ------- -------
$1,786 $11,683 $48,999
====== ======= =======
</TABLE>
Actual income tax provision differs from the income tax provision computed
by applying the U.S. federal statutory corporate rate to the income before
provision for income taxes as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1998 1999
------ ------- -------
<S> <C> <C> <C>
Provision at the statutory rate.......................... $1,504 $ 9,400 $36,028
Increase resulting from --
State income tax, net of federal benefit............... 187 1,125 5,124
Goodwill............................................... -- 899 3,381
Nondeductible expenses................................. 95 259 3,789
Deferred tax charge -- pooling......................... -- -- 677
------ ------- -------
$1,786 $11,683 $48,999
====== ======= =======
</TABLE>
Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences, representing deferred
tax assets and liabilities, result principally from the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- --------
<S> <C> <C>
Deferred income tax liabilities --
Property and equipment.................................... $(5,461) $(28,945)
Book/tax accounting method difference..................... (684) (1,818)
Other..................................................... (132) (348)
------- --------
Total deferred income tax liabilities............. (6,277) (31,111)
------- --------
Deferred income tax assets --
Allowance for doubtful accounts and other reserves........ 1,222 4,105
Other accruals not currently deductible................... 1,317 6,748
Inventory................................................. 176 279
Goodwill.................................................. 47 --
------- --------
Total deferred income tax assets.................. 2,762 11,132
------- --------
Total net deferred income tax liabilities......... $(3,515) $(19,979)
======= ========
</TABLE>
39
<PAGE> 42
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net deferred tax assets and liabilities are comprised of the following
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- --------
<S> <C> <C>
Deferred tax assets --
Current................................................... $ 2,714 $ 11,132
Long-term................................................. 48 --
------- --------
Total............................................. 2,762 11,132
------- --------
Deferred tax liabilities --
Current................................................... (816) (2,166)
Long-term................................................. (5,461) (28,945)
------- --------
Total............................................. (6,277) (31,111)
------- --------
Net deferred income tax liabilities............... $(3,515) $(19,979)
======= ========
</TABLE>
Net current deferred tax assets are included in prepaid expenses and other
current assets.
In the first quarter of 1999, a non-cash, non-recurring tax charge of
$677,000 was recorded as a result of a change in the tax status from an S
corporation to a C corporation of a company acquired in a pooling-of-interests
transaction.
9. STOCKHOLDERS' EQUITY:
Series A Convertible Preferred Stock
In September 1999, the Company entered into a securities purchase agreement
with UtiliCorp United Inc. ("UtiliCorp") pursuant to which the Company issued
1,860,000 shares of Series A Convertible Preferred Stock (the "Series A
Preferred Stock"), $.00001 par value per share, for an initial investment of
$186,000,000, before transaction costs. The holders of the Series A Preferred
Stock are entitled to receive dividends in cash at a rate of 0.5% per annum on
an amount equal to $100.00 per share, plus all unpaid dividends accrued. In
addition to the preferred dividend, the holders are entitled to participate in
any cash or non-cash dividends or distributions declared and paid on the shares
of common stock, as if each share of Series A Preferred Stock had been converted
into common stock at the applicable conversion price immediately prior to the
record date for payment of such dividends or distributions. However, holders of
Series A Preferred Stock will not participate in non-cash dividends or
distributions if such dividends or distributions cause an adjustment in the
price at which Series A Preferred Stock converts into common stock. At any time
after the sixth anniversary of the issuance of the Series A Preferred Stock, if
the closing price per share of the Company's common stock is greater than
$20.00, then the Company may terminate the preferred dividend. At any time after
the sixth anniversary of the issuance of the Series A Preferred Stock, if the
closing price per share of the Company's common stock is equal to or less than
$20.00, then the preferred dividend may, at the option of UtiliCorp, be adjusted
to the then "market coupon rate", which shall equal the Company's after-tax cost
of obtaining financing, excluding common stock, to replace UtiliCorp's
investment in the Company.
UtiliCorp is entitled to that number of votes equal to the number of shares
of common stock into which the outstanding shares of Series A Preferred Stock
are then convertible. Subject to certain limitations, UtiliCorp will be entitled
to elect two of the total number of directors of the Company. All or any portion
of the outstanding shares of Series A Preferred Stock may, at the option of
UtiliCorp, be converted at any time into fully paid and nonassessable shares of
common stock. The conversion price shall initially be $20.00, yielding 9,300,000
shares of common stock upon conversion of all outstanding shares of Series A
Preferred Stock. The conversion price may be adjusted under certain
circumstances. Also in certain circumstances, UtiliCorp has the right to
purchase additional securities from the Company to maintain the percentage
40
<PAGE> 43
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ownership of the Company represented by the Series A Preferred Stock. In 1999,
UtiliCorp purchased 57,727 shares of common stock pursuant to these rights.
Limited Vote Common Stock
The shares of Limited Vote Common Stock have rights similar to shares of
common stock, except that such shares are entitled to elect one member of the
board of directors and are entitled to one-tenth of one vote for each share held
on all other matters. Each share of Limited Vote Common Stock will convert into
common stock upon disposition by the holder of such shares in accordance with
the transfer restrictions applicable to such shares. In 1999, 1,271,979 shares
of Limited Vote Common Stock were converted to common stock.
Stock Options
In December 1997, the board of directors adopted, and the stockholders of
the Company approved, the 1997 Stock Option Plan. The purpose of the 1997 Stock
Option Plan is to provide directors, key employees, officers and certain
advisors with additional incentives by increasing their proprietary interest in
the Company. The aggregate amount of common stock of the Company with respect to
which options may be granted may not exceed 15% of the outstanding shares of
common stock.
The 1997 Stock Option Plan provides for the grant of incentive stock
options ("ISOs") as defined in Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code") and nonqualified stock options (collectively, the
"Awards"). The amount of ISOs that may be granted under the 1997 Stock Option
Plan is limited to 3,571,275 shares. The 1997 Stock Option Plan is administered
by the Compensation Committee of the board of directors. The Compensation
Committee has, subject to the terms of the 1997 Stock Option Plan, the sole
authority to grant Awards under the 1997 Stock Option Plan, to construe and
interpret the 1997 Stock Option Plan and to make all other determinations and
take any and all actions necessary or advisable for the administration of the
1997 Stock Option Plan.
All of the Company's employees (including officers), non-employee
directors, and certain consultants and advisors are eligible to receive Awards
under the 1997 Stock Option Plan, but only employees of the Company are eligible
to receive ISOs. Options will be exercisable during the period specified in each
option agreement and will generally become exercisable in installments pursuant
to a vesting schedule designated by the Compensation Committee. In the
discretion of the Compensation Committee, option agreements may provide that
options will become immediately exercisable in the event of a "change in
control" (as defined in the 1997 Stock Option Plan) of the Company. No ISO will
remain exercisable later than ten years after the date of grant (or five years
in the case of ISOs granted to employees owning more than 10% of the voting
capital stock).
The 1997 Stock Option Plan also provides for automatic option grants to
directors who are not otherwise employed by the Company or its subsidiaries.
Upon commencement of service, a non-employee director will receive a
non-qualified option to purchase 15,000 shares of common stock, and each
continuing or re-elected non-employee director annually will receive an option
to purchase 7,500 shares of common stock. Options granted to non-employee
directors are fully exercisable following the expiration of six months from the
date of grant.
The exercise price for ISOs granted under the 1997 Stock Option Plan may be
no less than the fair market value of a share of the common stock on the date of
grant (or 110% in the case of ISOs granted to employees owning more than 10% of
the voting capital stock).
41
<PAGE> 44
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes activity under the 1997 Stock Option Plan
for the years ended December 31, 1998 and 1999 (shares in thousands):
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE FAIR
SHARES PRICE VALUE
------ -------- --------
<S> <C> <C> <C>
Outstanding at December 31, 1997........................ -- --
Granted............................................... 2,519 $ 8.02 $ 3.48
Exercised............................................. (90) 7.92
Forfeited and canceled................................ (63) 8.56
-----
Outstanding at December 31, 1998........................ 2,366 8.07
Granted............................................... 4,500 23.90 $10.95
Exercised............................................. (307) 8.41
Forfeited and canceled................................ (113) 14.09
-----
Outstanding at December 31, 1999........................ 6,446 15.66
=====
Options exercisable at --
December 31, 1998..................................... 60
December 31, 1999..................................... 335
</TABLE>
The following table summarizes information for outstanding options at
December 31, 1999 (shares in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AVERAGE AVERAGE NUMBER OF AVERAGE
OPTIONS CONTRACTUAL EXERCISE OPTIONS EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE IN YEARS PRICE EXERCISABLE PRICE
- ------------------------ ----------- ------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$6.00-$8.83 1,259 8.33 $ 6.93 121 $ 6.47
$9.25-$11.13 697 8.50 9.97 184 9.97
$14.00-$20.71 3,291 9.39 17.62 -- --
$21.04-$26.58 1,199 9.46 22.78 30 21.08
----- ---
$6.00-$26.58 6,446 9.10 15.66 335 9.70
===== ===
</TABLE>
The Company accounts for its stock-based compensation under APB No. 25
"Accounting for Stock Issued to Employees." Under this accounting method, no
compensation expense is recognized in the consolidated statements of operations
if no intrinsic value of the option exists at the date of grant. In October
1995, the FASB issued SFAS No. 123, "Accounting for Stock Based Compensation."
SFAS No. 123 encourages companies to account for stock based compensation awards
based on the fair value of the awards at the date they are granted. The
resulting compensation cost would be shown as an expense in the consolidated
statements of operations. Companies can choose not to apply the new accounting
method and continue to apply current accounting requirements; however,
disclosure is required as to what net income and earnings per share would have
been had the new accounting method been followed. Had compensation costs for
this plan been determined consistent with SFAS No. 123, the Company's net income
attributable to
42
<PAGE> 45
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
common stock and earnings per share would have been reduced to the following as
adjusted amounts (in thousands, except per share data):
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C> <C>
Net income attributable to As reported $16,188 $53,679
common stock.................
As Adjusted - Basic $15,298 $48,359
As Adjusted - Diluted $15,804 $50,817
Earnings per share............. As Reported - Basic $ 0.60 $ 1.14
As Adjusted - Basic $ 0.57 $ 1.03
As Reported - Diluted $ 0.59 $ 1.00
As Adjusted - Diluted $ 0.56 $ 0.91
</TABLE>
The effects of applying SFAS No. 123 in the as adjusted disclosure may not
be indicative of future amounts as additional awards in future years are
anticipated. The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions for 1998 and 1999, respectively: (i) risk-free interest rates
ranging from 4.17% to 5.80% and 4.30% to 6.82%, (ii) expected life of 6 years,
(iii) average volatility of 24.85% and 54.0%, and (iv) dividend yield of 0%.
Public Offerings
In February 1998, Quanta completed its IPO, which involved the issuance of
7.5 million shares of its common stock at a price of $6.00 per share, resulting
in net proceeds to the Company of $38.6 million after deducting underwriting
discounts and commissions and expenses related to the IPO. In March 1998, the
Company sold 1.1 million shares of common stock resulting in net proceeds of
$6.3 million pursuant to an over-allotment granted to the underwriters. On
January 27, 1999, Quanta completed a follow-on public offering, which involved
the issuance of 6.9 million shares of its common stock at a price of $15.50 per
share, resulting in net proceeds to Quanta of $101.1 million after deducting
underwriting discounts and commissions and expenses related to the offering.
Employee Stock Ownership Plan
The Company issued shares of common stock to an Employee Stock Ownership
Plan (the "ESOP") in connection with the acquisition of one of the Pooled
Companies. The ESOP was terminated on July 31, 1998. In June 1999, after the
receipt of a favorable determination letter from the Internal Revenue Service, a
portion of the unallocated shares of the Company's common stock held by the ESOP
were sold to repay debt owed by the ESOP to the Company and the remaining
portion of the unallocated shares were distributed to the plan participants. The
cost of the unallocated ESOP shares was reflected as a reduction in the
Company's stockholders' equity. As a result of the above, the Company incurred
an excise tax of approximately $1.1 million equal to 10 percent of the value of
the Company's common stock distributed to the plan participants. In addition,
the Company eliminated the remaining balance reflected as Unearned ESOP Shares
on the Company's balance sheet and recognized a non-cash, non-recurring
compensation charge of approximately $5.3 million equal to the value of the
unallocated shares held by the ESOP.
43
<PAGE> 46
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Employee Stock Purchase Plan
An Employee Stock Purchase Plan was adopted by the board of directors of
the Company and was approved by the stockholders of the Company in May 1999. The
purpose of the Plan is to provide an incentive for employees of the Company and
any Participating Company (as defined in the Plan) to acquire or increase a
proprietary interest in the Company through the purchase of shares of the
Company's common stock. At the date hereof, all of the existing subsidiaries of
the Company have been designated as Participating Companies. The Plan is
intended to qualify as an "Employee Stock Purchase Plan" under Section 423 of
the Internal Revenue Code of 1986, as amended (the "Code"). The provisions of
the Plan are construed in a manner consistent with the requirements of that
section of the Code. The Plan is administered by a committee appointed from time
to time by the board of directors. The Plan is not subject to any of the
provisions of the Employee Retirement Income Security Act of 1974, as amended.
As of December 31, 1999, there were no shares purchased under the Plan as no
offering period had ended at that time. In January, 2000 the Company issued a
total of 35,783 shares pursuant to the Plan.
Common Stock Shares Authorized
Effective May 1999, the Company amended its Amended and Restated
Certificate of Incorporation to increase the number of authorized shares of
common stock to 100.0 million shares.
10. RELATED PARTY TRANSACTIONS:
As previously discussed, Enron Capital and Utilicorp have made investments
in Quanta. Quanta has had transactions in the normal course of business with
various other subsidiaries of Enron Corp. and UtiliCorp. Subsequent to the
investment by Enron Capital, revenues from Enron in 1998 and 1999, were $2.8
million and $40.1 million and balances due Quanta at year-end were $2.1 million
and $20.3 million, respectively. Subsequent to the investment by Utilicorp,
revenues from UtiliCorp were $7.4 million and balances due Quanta at December
31, 1999 were $1.3 million.
The Company also entered into a management services agreement (the
"Management Services Agreement") with UtiliCorp. Under the Management Services
Agreement, to the extent mutually agreed upon by the parties, UtiliCorp will
provide advice and services including financing activities; corporate strategic
planning; research on the restructuring of the utility industries; the
development, evaluation and marketing of the Company's products, services and
capabilities; identification of and evaluation of potential acquisition
candidates and other merger and acquisition advisory services; and other
services that the board of directors may reasonably request. In consideration of
the advice and services rendered by UtiliCorp, the Company will pay UtiliCorp on
a quarterly basis in arrears a fee of $2,325,000. The Management Services
Agreement has a term of six years. The Company has the right to terminate the
Management Services Agreement at any time if, in the reasonable judgment of the
board of directors, changes in the nature of the relationship between the
Company and UtiliCorp make effective provision of the services to be provided
unlikely. Payments owed to UtiliCorp under this arrangement were approximately
$2.6 million.
Management believes transactions with these related parties were under
terms no less favorable to the Company than those arranged with other parties.
11. EMPLOYEE BENEFIT PLAN:
In connection with its collective bargaining agreements with various
unions, the Company participates with other companies in the unions'
multi-employer pension plans. These plans cover all of the Company's employees
who are members of such unions. The Employee Retirement Income Security Act of
1974, as amended by the Multi-Employer Pension Plan Amendments Act of 1980,
imposes certain liabilities upon employers who are contributors to a
multi-employer plan in the event of the employer's withdrawal from, or
44
<PAGE> 47
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
upon termination of such plan. The Company has no plans to withdraw from these
plans. The plans do not maintain information on net assets and actuarial present
value of the plans' unfunded vested benefits allocable to the Company, and
amounts, if any, for which the Company may be contingently liable is not
ascertainable at this time.
401(k) Plan
Effective February 1, 1999, Quanta adopted a 401(k) plan pursuant to which
employees who are not provided retirement benefits through a collective
bargaining agreement may make contributions through a payroll deduction. Quanta
will make a matching contribution of 100% of each employee's contribution up to
3% of that employee's salary and 50% of each employee's contribution between 3%
and 6% of such employee's salary. Prior to joining Quanta's 401(k) plan, certain
subsidiaries of the Company provided various defined contribution plans to their
employees. Contributions to all non-union defined contribution plans by the
Company were approximately $217,000, $1,434,000 and $5,044,000 for the years
ended December 31, 1997, 1998 and 1999, respectively.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, a credit facility, accounts payable, notes payable and
debt. The Company believes that the carrying value of these instruments on the
accompanying balance sheets approximates their fair value.
13. COMMITMENTS AND CONTINGENCIES:
Litigation
Certain subsidiaries of the Company are involved in disputes or legal
actions arising in the ordinary course of business. Management does not believe
the outcome of such legal actions will have a material adverse effect on the
Company's financial position or results of operations.
Insurance
The Company carries a broad range of insurance coverage, including business
auto liability, business property liability, workers' compensation, general
liability and an umbrella policy. Effective January 1, 1996, the Company began
self-insuring for certain workers' compensation risks up to $1,000,000 per
occurrence. In October 1997, the Company reduced the deductible to $500,000 per
occurrence. In addition, certain of the Purchased Companies were self-insured
prior to acquisition. In August 1998, the Company consolidated the casualty
insurance program for all subsidiaries of Quanta and continues to consolidate
most acquired companies to this plan at the date of acquisition. This program
has no self-insurance provisions. Self-insured claims under previous policies
are monitored to ensure that such remaining accruals are adequate. The Company
has accrued for the estimated probable claims costs in satisfying the deductible
provisions of the previous insurance policies for claims occurring through
December 31, 1999. The accruals are based on known facts and historical trends
and management believes such accruals to be adequate.
Performance Bonds
In certain circumstances, the Company is required to provide performance
bonds in connection with its contract commitments.
45
<PAGE> 48
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. QUARTERLY FINANCIAL DATA (UNAUDITED):
The table below sets forth the unaudited consolidated operating results by
quarter for the years ended December 31, 1998 and 1999. All quarters presented
have been restated for the operations of the Pooled Companies and the effect of
the 3-for-2 stock split discussed in Note 17 (in thousands, except per share
data).
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED,
------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
<S> <C> <C> <C> <C>
1998:
Revenues............................. $ 32,230 $ 65,045 $103,737 $118,247
Gross profit......................... 5,234 12,796 20,814 23,145
Net income........................... 817 3,139 6,360 5,872
Basic earnings per share............. $ 0.05 $ 0.11 $ 0.21 $ 0.18
Diluted earnings per share........... $ 0.05 $ 0.11 $ 0.21 $ 0.17
Diluted earnings per share
before merger charges............. $ 0.05 $ 0.12 $ 0.21 $ 0.17
1999:
Revenues............................. $127,779 $193,821 $271,788 $332,266
Gross profit......................... 22,908 43,572 66,099 81,722
Net income attributable to common
stock............................. 3,423 4,807 19,138 26,311
Basic earnings per share............. $ 0.09 $ 0.11 $ 0.38 $ 0.48
Diluted earnings per share........... $ 0.09 $ 0.10 $ 0.34 $ 0.39
Diluted earnings per share
before merger charges............. $ 0.11 $ 0.23 $ 0.34 $ 0.39
</TABLE>
The sum of the individual quarterly earnings per share amounts may not
agree with year-to-date earnings per share as each period's computation is based
on the weighted average number of shares outstanding during the period.
15. RISK CONCENTRATION:
The Company grants credit, generally without collateral, to its customers,
which include telecommunications and cable television system operators, electric
power companies, governmental entities, general contractors, builders and owners
and managers of commercial and industrial properties located primarily in the
United States. Consequently, the Company is subject to potential credit risk
related to changes in business and economic factors throughout the United
States. However, the Company generally is entitled to payment for work performed
and has certain lien rights in that work and concentrations of credit risk are
limited due to the diversity of the Company's customer base. Further, management
believes that its contract acceptance, billing and collection policies are
adequate to minimize the potential credit risk.
46
<PAGE> 49
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. SEGMENT INFORMATION:
The Company operates in one reportable segment as a specialty contractor.
The Company provides comprehensive network solutions to the telecommunications,
cable and electric power industries, including designing, installing, repairing
and maintaining network infrastructure. Each of these services is provided by
various of the Company's subsidiaries and discrete financial information is not
provided to management at the service level. The following table presents
information regarding revenues derived from the services noted above.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1997 1998 1999
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Telecommunications network services................... $26,531 $100,184 $318,461
Cable television network services..................... 3,806 10,050 91,391
Electric power network services....................... 48,149 159,243 316,794
Ancillary services.................................... 1,524 49,782 199,008
------- -------- --------
$80,010 $319,259 $925,654
======= ======== ========
</TABLE>
The Company does not have significant operations or long-lived assets in
countries outside of the United States.
17. SUBSEQUENT EVENTS
a. Purchases Subsequent to December 31, 1999
Subsequent to December 31, 1999 and through February 24, 2000, Quanta
completed three acquisitions accounted for as purchases. The aggregate
consideration paid in these transactions consisted of $30.6 million in cash and
1,356,474 shares of common stock. The cash portion of such consideration was
provided by borrowings under the Company's Credit Facility.
b. Stock Split
On March 8, 2000 the board of directors of the Company approved a 3-for-2
stock split of the Company's outstanding common stock in the form of a stock
dividend. Par value of the common stock will remain $.00001 per share. Holders
of the Company's common stock of record at the close of business on March 27,
2000 will receive one additional share of common stock for every two shares of
common stock owned. Fractional shares resulting from the stock split will be
paid in cash in lieu of shares. The stock dividend will be paid on April 7,
2000. The effect of the stock split has been recognized retroactively in the
stockholders' equity account on the balance sheet as of December 31, 1999, and
in all share and per share data in the accompanying consolidated financial
statements and notes thereto.
18. SUBSEQUENT EVENTS TO AUDITORS' REPORT DATE (UNAUDITED):
a. Purchases Subsequent to Auditors' Report
Subsequent to February 24, 2000 and through March 15, 2000, Quanta
completed two acquisitions accounted for as purchases. The aggregate
consideration paid in these transactions consisted of $8.7 million in cash and
247,501 shares of common stock. The cash portion of such consideration was
provided by borrowings under the Company's Credit Facility.
47
<PAGE> 50
QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
b. Shareholder Rights Plan
On March 8, 2000 the board of directors of the Company adopted a
Shareholder Rights Plan. Under the plan, a dividend of one Preferred Stock Right
was declared on each outstanding share of the Company's common stock and Series
A Preferred Stock (on an as converted basis) for holders of record as of the
close of business on March 27, 2000. The Preferred Stock Purchase Rights will
also attach to all common stock and Series A Preferred Stock issued after March
27, 2000. No separate certificates evidencing the Rights will be issued unless
and until they become exercisable. Each Right has an initial exercise price of
$153.33. The Rights will be exercisable if a person or group (other than
UtiliCorp United Inc.) becomes the beneficial owner of, or tenders for, 15
percent or more of the Company's common shares. The Rights also will be
exercisable if UtiliCorp, together with any affiliates or associates, becomes
the beneficial owner of, or tenders for, more than 49.9 percent of the Company's
common shares, or if there is a change of control of UtiliCorp. In the event
that the Rights become exercisable, each Right will entitle its holder to
purchase, at the Right's exercise price, a number of common shares having a
market value at that time of twice the Right's exercise price. Rights held by
the triggering person will become void and will not be exercisable to purchase
shares at the reduced purchase price. The Rights will expire in ten years.
c. Issuance of Senior Secured Notes
In March 2000, the Company closed a Senior Notes private placement with 16
lenders, primarily insurance companies, for $150 million. The Senior Notes have
maturities of five, seven or ten years with a weighted average interest rate of
8.52% and rank pari passu in right of repayment to Quanta's Credit Facility. The
Senior Notes have financial covenants similar to the Credit Facility. Proceeds
from this private placement were used to reduce outstanding borrowings under the
Credit Facility.
48
<PAGE> 51
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors and officers required by
Item 10 is incorporated by reference to the information set forth in Quanta's
Definitive Proxy Statement for the 2000 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information concerning the Company's directors and officers required by
Item 11 is incorporated by reference to the information set forth in Quanta's
Definitive Proxy Statement for the 2000 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information concerning the Company's directors and officers required by
Item 12 is incorporated by reference to the information set forth in Quanta's
Definitive Proxy Statement for the 2000 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS
The information concerning the Company's directors and officers required by
Item 13 is incorporated by reference to the information set forth in Quanta's
Definitive Proxy Statement for the 2000 Annual Meeting of Stockholders.
49
<PAGE> 52
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The information concerning the Company's directors and officers required by
Item 14 is incorporated by reference to the information set forth in Quanta's
Definitive Proxy Statement for the 1999 Annual Meeting of Stockholders.
(a) The following financial statements, schedules and exhibits are
filed as part of this Report:
(1) Financial Statements. Reference is made to the Financial
Statements commencing on page 24 of this Report.
(2) All schedules are omitted because they are not applicable or
the required information is shown in the financial statements or the
notes to the financial statements.
(3) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3.1 -- Amended and Restated Certificate of Incorporation*
3.2 -- Amended and Restated Bylaws*
3.3 -- Certificate of Amendment to the Amended and Restated
Certificate of IncorporationX
3.4 -- Certificate of Designation for the Series A Preferred
Stock+++
3.5 -- Certificate of Designation for the Series B Preferred
Stock
3.6 -- Certificate of Correction to Certificate of Designation
for the Series A Preferred Stock
4.1 -- Form of Common Stock Certificate*
10.1 -- Form of Employment Agreement*
10.2 -- 1997 Stock Option Plan*
10.3 -- Third Amended and Restated Secured Credit Agreement dated
as of June 14, 1999 among Quanta Services, Inc. as
Borrower and Nationsbank, N.A. d/b/a Bank of America,
N.A., as Administrative Agent, and the other financial
institutions parties thereto, as LendersX
10.4 -- Securities Purchase Agreement among Quanta Services, Inc.
and Enron Capital & Trade Resources Corp. ("Enron
Capital") and Joint Energy Development Investments II
Limited Partnership ("JEDI") dated as of September 29,
1998**
10.5 -- Registration Rights Agreement dated as of September 29,
1998 by and among Quanta Services, Inc., JEDI and Enron
Capital**
10.6 -- Form of Convertible Promissory Note issued to Enron
Capital and JEDI**
10.7 -- Securities Purchase Agreement between Quanta Services,
Inc. and UtiliCorp United Inc. dated as of September 21,
1999+++
10.8 -- Investor's Rights Agreement by and between Quanta
Services, Inc. and UtiliCorp United Inc. dated September
21, 1999+++
10.9 -- Management Services Agreement by and between Quanta
Services, Inc. and UtiliCorp United Inc.+++
10.10 -- Letter Agreement by and between Quanta Services, Inc. and
UtiliCorp United Inc. dated September 21, 1999+++
</TABLE>
50
<PAGE> 53
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.11 -- Strategic Alliance Agreement by and between Quanta
Services, Inc. and UtiliCorp United Inc. dated as of
September 21, 1999+++
10.12 -- Form of Stockholders Voting Agreement+++
10.13 -- First Amendment to Third Amended and Restated Secured
Credit Agreement+++
10.14 -- Letter Agreement by and among ECT Merchant Investments
Corp., Joint Energy Development Investments II Limited
Partnership, Quanta Services, Inc. and UtiliCorp United
Inc. dated September 21, 1999+++
10.15 -- First Amendment to Securities Purchase Agreement and
Registration Rights Agreement+++
10.16 -- Note Purchase Agreement dated as of March 1, 2000 between
Quanta Services, Inc. and the Purchasers named therein
10.17 -- Intercreditor Agreement dated March 23, 2000 related to
the March 1, 2000 Note Purchase Agreement
10.18 -- Rights Agreement dated March 8, 2000 between Quanta
Services, Inc. and American Stock Transfer & Trust
Company, as Rights AgentXX
10.19 -- Form of Lockup Agreement
10.20 -- Second Amendment to Third Amended and Restated Credit
Agreement
21.1 -- Subsidiaries
23.1 -- Consent of Arthur Andersen LLP
27.1 -- Financial Data Schedule
</TABLE>
- ---------------
* Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (No. 333-42957) and incorporated herein by reference.
** Previously filed as an exhibit to the Company's Registration Statement on
Form S-4 (No. 333-47083) and incorporated herein by reference.
+++ Previously filed as an exhibit to the Company's Registration Statement on
Form S-3 (No. 333-90961) and incorporated herein by reference.
X Previously filed as an exhibit to the Company's Registration Statement on
Form S-3 (No. 333-81419).
XX Previously filed as an exhibit to the Company's Registration Statement on
Form 8-A filed March 21,2000.
(b) Reports on Form 8-K:
(1) Quanta filed a Form 8-K on November 15, 1999 in which it
reported certain audited financial statements of businesses acquired and
the pro forma financial statements of Quanta Services, Inc. and
subsidiaries.
(2) Quanta filed a Form 8-K on December 20, 1999 setting forth
additional details about its sales of unregistered securities during the
period from January 1, 1999 until September 30, 1999.
51
<PAGE> 54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Quanta Services, Inc. has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Houston, State of Texas, on March 30, 2000.
QUANTA SERVICES, INC.
By /s/ JOHN R. COLSON
-----------------------------------
John R. Colson
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons in the capacities indicated and
on March 30, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ JOHN R. COLSON Chief Executive Officer, Director
- ----------------------------------------------------- (Principal Executive Officer)
John R. Colson
/s/ JAMES H. HADDOX Chief Financial Officer
- ----------------------------------------------------- (Principal Financial Officer)
James H. Haddox
/s/ DERRICK A. JENSEN Vice President, Controller and
- ----------------------------------------------------- Chief Accounting Officer
Derrick A. Jensen
/s/ VINCENT D. FOSTER Director
- -----------------------------------------------------
Vincent D. Foster
/s/ JOHN R. WILSON Director
- -----------------------------------------------------
John R. Wilson
/s/ JOHN A. MARTELL Director
- -----------------------------------------------------
John A. Martell
Director
- -----------------------------------------------------
Robert K. Green
/s/ JAMES G. MILLER Director
- -----------------------------------------------------
James G. Miller
/s/ GARY A. TUCCI Director
- -----------------------------------------------------
Gary A. Tucci
Director
- -----------------------------------------------------
James R. Ball
Director
- -----------------------------------------------------
Rodney R. Proto
</TABLE>
52
<PAGE> 1
EXHIBIT 3.5
CERTIFICATE OF DESIGNATION
of
SERIES B JUNIOR PARTICIPATING PREFERRED STOCK
of
QUANTA SERVICES, INC.
PURSUANT TO SECTION 151 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
QUANTA SERVICES, INC., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), in
accordance with the provisions of Section 103 thereof, DOES HEREBY CERTIFY:
That pursuant to the authority vested in the Board of Directors in
accordance with the provisions of the Restated Certificate of Incorporation of
the said Corporation, the said Board of Directors adopted the following
resolution creating a series of 700,000 shares of Preferred Stock designated as
"Series B Junior Participating Preferred Stock":
RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Corporation in accordance with the provisions of the Restated
Certificate of Incorporation, a series of Preferred Stock, par value $0.00001
per share, of the Corporation be and hereby is created, and that the designation
and number of shares thereof and the voting and other powers, preferences and
relative, participating, optional or other rights of the shares of such series
and the qualifications, limitations and restrictions thereof are as follows:
SERIES B JUNIOR PARTICIPATING PREFERRED STOCK
1. Designation and Amount. There shall be a series of Preferred Stock
that shall be designated as "Series B Junior Participating Preferred Stock," and
the number of shares constituting such series shall be 700,000. Such number of
shares may be increased or decreased by resolution of the Board of Directors;
provided, however, that no decrease shall reduce the number of shares of Series
B Junior Participating Preferred Stock to less than the number of shares then
issued and outstanding plus the number of shares issuable upon exercise of
outstanding rights, options or warrants or upon conversion of outstanding
securities issued by the Corporation.
1
<PAGE> 2
2. Dividends and Distribution.
(A) Subject to the prior and superior rights of the holders of any
shares of any class or series of stock of the Corporation ranking prior and
superior to the shares of Series B Junior Participating Preferred Stock
(including, without limitation, the Series A Convertible Preferred Stock) with
respect to dividends, the holders of shares of Series B Junior Participating
Preferred Stock, in preference to the holders of shares of any class or series
of stock of the Corporation ranking junior to the Series B Junior Participating
Preferred Stock in respect thereof, shall be entitled to receive, when, as and
if declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the first day of January, April,
July and October, in each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series B Junior Participating Preferred Stock, in an amount per share (rounded
to the nearest cent) equal to the greater of (a) $1.00, or (b) the Adjustment
Number (as defined below) times the aggregate per share amount of all cash
dividends, and the Adjustment Number times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions other than a
dividend payable in shares of Common Stock or a subdivision of the outstanding
shares of Common Stock (by reclassification or otherwise), declared on the
Common Stock, par value $0.00001 per share, of the Corporation (the "Common
Stock") since the immediately preceding Quarterly Dividend Payment Date, or,
with respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series B Junior Participating
Preferred Stock. The "Adjustment Number" shall initially be 1,000. In the event
the Corporation shall at any time after March 8, 2000 (i) declare and pay any
dividend on Common Stock payable in shares of Common Stock (other than the 3 for
2 stock dividend payable on April 7, 2000), (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the Adjustment Number in effect
immediately prior to such event shall be adjusted by multiplying such Adjustment
Number by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
(B) The Corporation shall declare a dividend or distribution on the
Series B Junior Participating Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock).
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series B Junior Participating Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares of Series
B Junior Participating Preferred Stock, unless the date of issue of such shares
is prior to the record date for the first Quarterly Dividend Payment Date, in
which case dividends on such shares shall begin to accrue from the date of issue
of such shares, or unless the date of issue is a Quarterly Dividend Payment Date
or is a date
2
<PAGE> 3
after the record date for the determination of holders of shares of Series B
Junior Participating Preferred Stock entitled to receive a quarterly dividend
and before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Series B Junior Participating Preferred Stock in an amount
less than the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Series B Junior Participating
Preferred Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be no more than 60 days prior to the
date fixed for the payment thereof.
3. Voting Rights. The holders of shares of Series B Junior
Participating Preferred Stock shall have the following voting rights:
(A) Each share of Series B Junior Participating Preferred Stock shall
entitle the holder thereof to a number of votes equal to the Adjustment Number
on all matters submitted to a vote of the stockholders of the Corporation.
(B) Except as required by law, by Section 3(C) and by Section 10
hereof, holders of Series B Junior Participating Preferred Stock shall have no
special voting rights and their consent shall not be required (except to the
extent they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
(C) If, at the time of any annual meeting of stockholders for the
election of directors, the equivalent of six quarterly dividends (whether or not
consecutive) payable on any share or shares of Series B Junior Participating
Preferred Stock are in default, the Corporation shall take all steps which are
necessary, including the calling of a special meeting of stockholders, to cause
the number of directors constituting the Board of Directors of the Corporation
to be increased by two as contemplated by the following sentence. In addition to
voting together with the holders of Common Stock for the election of other
directors of the Corporation, the holders of record of the Series B Junior
Participating Preferred Stock, voting separately as a class to the exclusion of
the holders of Common Stock, shall be entitled at said meeting of stockholders
(and at each subsequent annual meeting of stockholders), unless all dividends in
arrears on the Series B Junior Participating Preferred Stock have been paid or
declared and set apart for payment prior thereto, to vote for the election of
two directors of the Corporation, the holders of any Series B Junior
Participating Preferred Stock being entitled to cast a number of votes per share
of Series B Junior Participating Preferred Stock as is specified in paragraph
(A) of this Section 3. Until the default in payments of all dividends which
permitted the election of said directors shall cease to exist, any director who
shall have been so elected pursuant to the provisions of this Section 3(C) may
be removed at any time without cause only by the affirmative vote of the holders
of the shares of Series B Junior Participating Preferred Stock at the time
entitled to cast a majority of the votes entitled to be cast for the election of
any such
3
<PAGE> 4
director at a special meeting of such holders called for that purpose, and any
vacancy thereby created may be filled by the vote of such holders. If and when
such default shall cease to exist, the holders of the Series B Junior
Participating Preferred Stock shall be divested of the foregoing special voting
rights, subject to revesting in the event of each and every subsequent like
default in payments of dividends. Upon the termination of the foregoing special
voting rights, the terms of office of all persons who may have been elected
directors pursuant to said special voting rights shall forthwith terminate, and
the number of directors constituting the Board of Directors shall be reduced by
two. The voting rights granted by this Section 3(C) shall be in addition to any
other voting rights granted to the holders of the Series B Junior Participating
Preferred Stock in this Section 3.
4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series B Junior Participating Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid dividends
and distributions, whether or not declared, on shares of Series B Junior
Participating Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series B Junior
Participating Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series B Junior Participating Preferred Stock, except dividends paid
ratably on the Series B Junior Participating Preferred Stock and all
such parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such shares
are then entitled; or
(iii) purchase or otherwise acquire for consideration any
shares of Series B Junior Participating Preferred Stock, or any shares
of stock ranking on a parity with the Series B Junior Participating
Preferred Stock, except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of Directors) to
all holders of Series B Junior Participating Preferred Stock, or to
such holders and holders of any such shares ranking on a parity
therewith, upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes,
shall determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation
to
4
<PAGE> 5
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
5. Reacquired Shares. Any shares of Series B Junior Participating
Preferred Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired promptly after the acquisition thereof. All such
shares shall upon their retirement become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
to be created by resolution or resolutions of the Board of Directors, subject to
any conditions and restrictions on issuance set forth herein.
6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation, dissolution or winding up of the
Corporation, voluntary or otherwise, no distribution shall be made to
the holders of shares of stock ranking junior (either as to dividends
or upon liquidation, dissolution or winding up) to the Series B Junior
Participating Preferred Stock unless, prior thereto, the holders of
shares of Series B Junior Participating Preferred Stock shall have
received an amount per share (the "Series B Liquidation Preference")
equal to the greater of (i) $10.00, plus an amount equal to accrued and
unpaid dividends and distributions thereon, whether or not declared, to
the date of such payment, or (ii) the Adjustment Number times the per
share amount of all cash and other property to be distributed in
respect of the Common Stock upon such liquidation, dissolution or
winding up of the Corporation.
(B) In the event, however, that there are not sufficient
assets available to permit payment in full of the Series B Liquidation
Preference and the liquidation preferences of all other classes and
series of stock of the Corporation, if any, that rank on a parity with
the Series B Junior Participating Preferred Stock in respect thereof,
then the assets available for such distribution shall be distributed
ratably to the holders of the Series B Junior Participating Preferred
Stock and the holders of such parity shares in proportion to their
respective liquidation preferences.
(C) Neither the merger or consolidation of the Corporation
into or with another corporation nor the merger or consolidation of any
other corporation into or with the Corporation shall be deemed to be a
liquidation, dissolution or winding up of the Corporation within the
meaning of this Section 6.
7. Consolidation, Merger, Etc. In case the Corporation shall enter into
any consolidation, merger, combination or other transaction in which the
outstanding shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case each share
of Series B Junior Participating Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share equal to the Adjustment
Number times the aggregate amount of stock, securities, cash and/or any other
5
<PAGE> 6
property (payable in kind), as the case may be, into which or for which each
share of Common Stock is changed or exchanged.
8. No Redemption. Shares of Series B Junior Participating Preferred
Stock shall not be subject to redemption by the Corporation.
9. Ranking. The Series B Junior Participating Preferred Stock shall
rank junior to all other series of the Preferred Stock as to the payment of
dividends and as to the distribution of assets upon liquidation, dissolution or
winding up, unless the terms of any such series shall provide otherwise, and
shall rank senior to the Common Stock as to such matters.
10. Amendment. At any time that any shares of Series B Junior
Participating Preferred Stock are outstanding, the Restated Certificate of
Incorporation of the Corporation shall not be amended in any manner which would
materially alter or change the powers, preferences or special rights of the
Series B Junior Participating Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of two-thirds of the outstanding
shares of Series B Junior Participating Preferred Stock, voting separately as a
class.
11. Fractional Shares. Series B Junior Participating Preferred Stock
may be issued in fractions of a share that shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of all
other rights of holders of Series B Junior Participating Preferred Stock.
IN WITNESS WHEREOF, the undersigned has executed this Certificate this
21st day of March, 2000.
QUANTA SERVICES, INC.
By:
---------------------------------
Brad Eastman, Vice President
6
<PAGE> 1
EXHIBIT 3.6
CERTIFICATE OF CORRECTION
TO THE
CERTIFICATE OF DESIGNATION
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
QUANTA SERVICES, INC.
QUANTA SERVICES, INC. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
1. The name of the Corporation is Quanta Services, Inc.
2. A Certificate of Designation of Series A Convertible Preferred Stock
of the Corporation was filed with the Secretary of State of Delaware on
September 21, 1999 and said Certificate requires correction as permitted by
subsection (f) of Section 103 of the General Corporation Law of the State of
Delaware.
3. The inaccuracy or defect of said Certificate of Designation to be
corrected is that certain language was inadvertently omitted from Section 2(b)
on page 2 of the copy of the Certificate of Designation which was filed with the
Secretary of State.
4. Section 2(b) of the Certificate of Designation is hereby corrected
to read as follows:
"(b) Participating. In addition to the
Preferred Dividend payable on the Series A Preferred
Stock, the shares of Series A Preferred Stock shall
be entitled to receive, out of any funds legally
available therefor, the amount of any cash or
non-cash dividends or distributions declared and
paid on the shares of Common Stock, as if the shares
of Series A Preferred Stock had been converted
immediately prior to the record date for payment of
such dividends or distributions; provided, however,
the shares of Series A Preferred Stock shall not be
entitled to receive any non-cash dividend or
distribution if the number or kind of securities
issuable upon conversion of the Series A Preferred
Stock is adjusted under Section 5 hereof in
connection therewith."
<PAGE> 2
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed by its duly authorized officer this _____ day of ___________, 2000.
QUANTA SERVICES, INC.
By:
----------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.16
================================================================================
QUANTA SERVICES, INC.
$73,000,000 8.46% Series 2000-A Senior Secured Notes, Tranche 1,
due March 1, 2005
and
$41,500,000 8.55% Series 2000-A Senior Secured Notes, Tranche 2,
due March 1, 2007
and
$35,500,000 8.61% Series 2000-A Senior Secured Notes, Tranche 3,
due March 1, 2010
----------------
NOTE PURCHASE AGREEMENT
----------------
DATED AS OF MARCH 1, 2000
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION HEADING PAGE
<S> <C> <C>
SECTION 1. AUTHORIZATION OF NOTES.................................................................1
SECTION 2. SALE AND PURCHASE OF NOTES.............................................................2
Section 2.1. Series 2000-A Notes....................................................................2
Section 2.2. Guaranty Agreement.....................................................................2
Section 2.3. Security for the Notes.................................................................2
Section 2.4. Additional Series of Notes.............................................................3
SECTION 3. CLOSING................................................................................4
SECTION 4. CONDITIONS TO CLOSING..................................................................4
Section 4.1. Representations and Warranties.........................................................4
Section 4.2. Representations and Warranties.........................................................4
Section 4.3. Performance; No Default................................................................4
Section 4.4. Compliance Certificates................................................................5
Section 4.5. Guaranty Agreement.....................................................................5
Section 4.6. Security Documents, Etc................................................................5
Section 4.7. Filing.................................................................................5
Section 4.8. Intercreditor Agreement................................................................5
Section 4.9. Insurance..............................................................................6
Section 4.10. Pledged Stock..........................................................................6
Section 4.11. Opinions of Counsel....................................................................6
Section 4.12. Purchase Permitted by Applicable Law, Etc..............................................6
Section 4.13. Related Transactions...................................................................6
Section 4.14. Payment of Special Counsel Fees........................................................6
Section 4.15. Private Placement Number...............................................................6
Section 4.16. Changes in Corporate Structure.........................................................7
Section 4.17. Proceedings and Documents..............................................................7
Section 4.18. Conditions to Issuance of Additional Notes.............................................7
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..........................................7
Section 5.1. Organization; Power and Authority......................................................7
Section 5.2. Authorization, Etc.....................................................................8
Section 5.3. Disclosure.............................................................................8
Section 5.4. Organization and Ownership of Shares of Subsidiaries; Affiliates.......................8
Section 5.5. Financial Statements...................................................................9
Section 5.6. Compliance with Laws, Other Instruments, Etc...........................................9
Section 5.7. Governmental Authorizations, Etc......................................................10
Section 5.8. Litigation; Observance of Statutes and Orders.........................................10
</TABLE>
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Section 5.9. Taxes.................................................................................10
Section 5.10. Title to Property; Leases.............................................................10
Section 5.11. Licenses, Permits, Etc................................................................11
Section 5.12. Compliance with ERISA.................................................................11
Section 5.13. Private Offering by the Company.......................................................12
Section 5.14. Use of Proceeds; Margin Regulations...................................................12
Section 5.15. Existing Debt; Future Liens...........................................................12
Section 5.16. Foreign Assets Control Regulations, Etc...............................................13
Section 5.17. Status under Certain Statutes.........................................................13
Section 5.18. Environmental Matters.................................................................13
Section 5.19. Filing and Recordation................................................................14
Section 5.20. Other Representations and Warranties..................................................14
SECTION 6. REPRESENTATIONS OF THE PURCHASER......................................................14
Section 6.1. Purchase for Investment...............................................................14
Section 6.2. Source of Funds.......................................................................14
Section 6.3. Disclosure of Information.............................................................16
Section 6.4. Investment Experience.................................................................16
Section 6.5. Accredited Investor...................................................................16
SECTION 7. INFORMATION AS TO COMPANY.............................................................16
Section 7.1. Financial and Business Information....................................................16
Section 7.2. Officer's Certificate.................................................................18
Section 7.3. Inspection............................................................................19
SECTION 8. PREPAYMENT OF THE NOTES...............................................................20
Section 8.1. Required Prepayments..................................................................20
Section 8.2. Optional Prepayments with Make-Whole Amount...........................................20
Section 8.3. Allocation of Partial Prepayments.....................................................20
Section 8.4. Maturity; Surrender, Etc..............................................................20
Section 8.5. Purchase of Notes.....................................................................21
Section 8.6. Make-Whole Amount for Series 2000-A Notes.............................................21
Section 8.7. Change in Control.....................................................................22
SECTION 9. AFFIRMATIVE COVENANTS.................................................................24
Section 9.1. Compliance with Law...................................................................24
Section 9.2. Insurance.............................................................................24
Section 9.3. Maintenance of Properties.............................................................25
Section 9.4. Payment of Taxes and Claims...........................................................25
Section 9.5. Corporate Existence, Etc..............................................................25
Section 9.6. Guaranty by Subsidiaries..............................................................25
SECTION 10. NEGATIVE COVENANTS....................................................................26
Section 10.1. Consolidated Net Worth................................................................26
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Section 10.2. Limitation on Consolidated Debt.......................................................26
Section 10.3. Limitation on Priority Debt...........................................................26
Section 10.4. Interest Charges Coverage Ratio.......................................................26
Section 10.5. Limitation on Liens...................................................................26
Section 10.6. Merger, Consolidation.................................................................28
Section 10.7. Sales of Assets.......................................................................29
Section 10.8. Nature of Business....................................................................29
Section 10.9. Transactions with Affiliates..........................................................29
Section 10.10. Further Assurances....................................................................30
SECTION 11. EVENTS OF DEFAULT.....................................................................30
SECTION 12. REMEDIES ON DEFAULT, ETC..............................................................32
Section 12.1. Acceleration..........................................................................32
Section 12.2. Other Remedies........................................................................33
Section 12.3. Rescission............................................................................33
Section 12.4. No Waivers or Election of Remedies, Expenses, Etc.....................................34
SECTION 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.........................................34
Section 13.1. Registration of Notes.................................................................34
Section 13.2. Transfer and Exchange of Notes........................................................34
Section 13.3. Replacement of Notes..................................................................35
SECTION 14. PAYMENTS ON NOTES.....................................................................35
Section 14.1. Place of Payment......................................................................35
Section 14.2. Home Office Payment...................................................................35
SECTION 15. EXPENSES, ETC.........................................................................36
Section 15.1. Transaction Expenses..................................................................36
Section 15.2. Survival..............................................................................36
SECTION 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT..........................36
SECTION 17. AMENDMENT AND WAIVER..................................................................37
Section 17.1. Requirements..........................................................................37
Section 17.2. Solicitation of Holders of Notes......................................................37
Section 17.3. Binding Effect, Etc...................................................................38
Section 17.4. Notes Held by Company, Etc............................................................38
SECTION 18. NOTICES...............................................................................38
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SECTION 19. REPRODUCTION OF DOCUMENTS.............................................................39
SECTION 20. CONFIDENTIAL INFORMATION..............................................................39
SECTION 21. SUBSTITUTION OF PURCHASER.............................................................40
SECTION 22. MISCELLANEOUS.........................................................................41
Section 22.1. Successors and Assigns................................................................41
Section 22.2. Payments Due on Non-Business Days.....................................................41
Section 22.3. Severability..........................................................................41
Section 22.4. Construction..........................................................................41
Section 22.5. Counterparts..........................................................................41
Section 22.6. Governing Law.........................................................................41
Section 22.7. Legal Rate of Interest................................................................41
Section 22.8. Submission to Process.................................................................42
Section 22.9. Waivers by the Company................................................................43
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SCHEDULE A -- INFORMATION RELATING TO PURCHASERS
SCHEDULE B -- DEFINED TERMS
SCHEDULE 4.16 -- Changes in Corporate Structure
SCHEDULE 5.4 -- Subsidiaries of the Company and Ownership of Subsidiary Stock
SCHEDULE 5.5 -- Financial Statements
SCHEDULE 5.11 -- Licenses, Permits, Etc.
SCHEDULE 5.15 -- Existing Debt
SCHEDULE 10.5 -- Existing Liens
EXHIBIT 1(a) -- Form of 8.46% Series 2000-A Senior Secured Note, Tranche 1, due March 1, 2005
EXHIBIT 1(b) -- Form of 8.55% Series 2000-A Senior Secured Note, Tranche 2, Due March 1, 2007
EXHIBIT 1(c) -- Form of 8.61% Series 2000-A Senior Secured Note, Tranche 3, Due March 1, 2010
EXHIBIT 2 -- Form of Guaranty Agreement
EXHIBIT 3 -- Form of Intercreditor Agreement
EXHIBIT 4.11(a) -- Form of Opinion of General Counsel for the Company
EXHIBIT 4.11(b) -- Form of Opinion of Special Counsel for the Company
EXHIBIT 4.11(c) -- Form of Opinion of Special Counsel for the Purchasers
</TABLE>
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<PAGE> 7
QUANTA SERVICES, INC.
1360 POST OAK BOULEVARD, SUITE 2100
HOUSTON, TEXAS 77056-3023
8.46% SERIES 2000-A SENIOR SECURED NOTES, TRANCHE 1, DUE MARCH 1, 2005
AND
8.55% SERIES 2000-A SENIOR SECURED NOTES, TRANCHE 2, DUE MARCH 1, 2007
AND
8.61% SERIES 2000-A SENIOR SECURED NOTES, TRANCHE 3, DUE MARCH 1, 2010
Dated as of
March 1, 2000
TO THE PURCHASERS LISTED IN
THE ATTACHED SCHEDULE A:
Ladies and Gentlemen:
QUANTA SERVICES, INC., a Delaware corporation (the "Company"), agrees
with the Purchasers listed in the attached Schedule A (the "Purchasers") to this
Note Purchase Agreement (this "Agreement") as follows:
SECTION 1. AUTHORIZATION OF NOTES.
The Company will authorize the issue and sale of (i) $73,000,000
aggregate principal amount of its 8.46% Series 2000-A Senior Secured Notes,
Tranche 1, due March 1, 2005 (the "Tranche 1 Notes"), (ii) $41,500,000 aggregate
principal amount of its 8.55% Series 2000-A Senior Secured Notes, Tranche 2, due
March 1, 2007 (the "Tranche 2 Notes"), and (iii) $35,500,000 aggregate principal
amount of its 8.61% Series 2000-A Senior Secured Notes, Tranche 3, due March 1,
2010 (the "Tranche 3 Notes"; the Tranche 1 Notes, the Tranche 2 Notes and the
Tranche 3 Notes are collectively referred to herein as the "Series 2000-A
Notes"). The Series 2000-A Notes together with each Series of Additional Notes
which may from time to time be issued pursuant to the provisions of Section 2.4
are collectively referred to as the "Notes" (such term shall also include any
such notes issued in substitution therefor pursuant to Section 13 of this
Agreement). The Series 2000-A Notes shall be substantially in the forms set out
in Exhibit 1(a), Exhibit 1(b) and Exhibit 1(c), respectively, with such changes
therefrom, if any, as may be approved by the Purchasers and the Company. Certain
capitalized terms used in this Agreement are defined in Schedule B; references
to a "Schedule" or an "Exhibit" are, unless otherwise specified, to a Schedule
or an Exhibit attached to this Agreement.
<PAGE> 8
SECTION 2. SALE AND PURCHASE OF NOTES.
Section 2.1. Series 2000-A Notes. Subject to the terms and conditions
of this Agreement, the Company will issue and sell to each Purchaser and each
Purchaser will purchase from the Company, at the Closing provided for in Section
3, Series 2000-A Notes in the principal amount specified opposite such
Purchaser's name in Schedule A at the purchase price of 100% of the principal
amount thereof. The obligations of each Purchaser hereunder are several and not
joint obligations and each Purchaser shall have no obligation and no liability
to any Person for the performance or nonperformance by any other Purchaser
hereunder.
Section 2.2. Guaranty Agreement. The payment by the Company of all
amounts due with respect to the Notes and the performance by the Company of its
obligations under this Agreement will be unconditionally guaranteed by all
Domestic Subsidiaries of the Company (the "Guarantors") under the Guaranty
Agreement dated as of March 1, 2000 (the "Guaranty Agreement") which shall be in
substantially the form attached hereto as Exhibit 2.
If at any time one or more Subsidiaries which has guaranteed the Notes
and the Debt outstanding under the Bank Credit Agreement shall have been
released from its obligations under the Guaranty relating to the Bank Credit
Agreement, then upon delivery to the holders of the Notes of evidence of such
release (which evidence shall be reasonably satisfactory to the Required
Holders) and provided that no Default or Event of Default shall exist, the
Required Holders shall execute and deliver a release of such Subsidiary from its
obligations under the Guaranty Agreement (referred to as a "Guaranty Release
Event").
Section 2.3. Security for the Notes. The Notes will be secured by
certain property of the Company and the Guarantors pursuant to the Security
Documents heretofore entered into by the Company and the Guarantors with Bank of
America, N.A. as collateral agent (together with any successor collateral agent,
the "Collateral Agent") for the benefit of the holders of Notes and the Bank
Lenders.
The Lien and security interest granted by the Company and the
Guarantors pursuant to the Security Documents shall rank pari passu with other
existing Liens that secure the outstanding Debt of the Company and the
Guarantors under the Bank Credit Agreement without preference, priority or
distinction by virtue of the time of filing any financing statement or
registration or the difference in time of incurrence of such Debt, and the
enforcement of the rights and benefits in respect of such Security Documents
will be subject to an Intercreditor Agreement dated as of March 1, 2000 (the
"Intercreditor Agreement") among the Collateral Agent, for itself and as agent
on behalf of all Bank Lenders, the Purchasers and the Additional Purchasers.
If at any time the Collateral Agent shall have received the written
direction from the requisite percentage of Bank Lenders to release the Liens of
the Security Documents which secure the Debt outstanding under the Bank Credit
Agreement, then upon delivery to the holders of the Notes of evidence of such
direction (which evidence shall be reasonably satisfactory to the Required
Holders) and provided that no Default or Event of Default shall exist, the
Collateral Agent shall release the Liens created by the Security Documents
(herein referred to as a "Collateral Release Event"). If requested by the
Collateral Agent and so long as no Default or
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Event of Default shall exist, each Purchaser, each Additional Purchaser and each
holder by its acceptance of a Note agrees that it shall concur in the Collateral
Release Event.
Section 2.4. Additional Series of Notes. The Company may, from time to
time, in its sole discretion but subject to the terms hereof, issue and sell one
or more additional Series of its secured promissory notes under the provisions
of this Agreement pursuant to a supplement (a "Supplement") substantially in the
form of Exhibit S. Each additional Series of Notes (the "Additional Notes")
issued pursuant to a Supplement shall be subject to the following terms and
conditions:
(i) each Series of Additional Notes, when so issued, shall be
differentiated from all previous Series by sequential alphabetical
designation inscribed thereon;
(ii) Additional Notes of the same Series may consist of more
than one different and separate tranches and may differ with respect to
outstanding principal amounts, maturity dates, interest rates and
premiums, if any, and price and terms of redemption or payment prior to
maturity, but all such different and separate tranches of the same
Series shall vote as a single class and constitute one Series;
(iii) each Series of Additional Notes shall be dated the date
of issue, bear interest at such rate or rates, mature on such date or
dates, be subject to such mandatory and optional prepayment on the
dates and at the premiums, if any, have such additional or different
conditions precedent to closing, such representations and warranties
and such additional covenants as shall be specified in the Supplement
under which such Additional Notes are issued and upon execution of any
such Supplement, this Agreement shall be amended (a) to reflect such
additional covenants without further action on the part of the holders
of the Notes outstanding under this Agreement, provided, that any such
additional covenants shall inure to the benefit of all holders of Notes
so long as any Additional Notes issued pursuant to such Supplement
remain outstanding, and (b) to reflect such representations and
warranties as are contained in such Supplement for the benefit of the
holders of such Additional Notes in accordance with the provisions of
Section 16;
(iv) each Series of Additional Notes issued under this
Agreement shall be in substantially the form of Exhibit 1 to Exhibit S
hereto with such variations, omissions and insertions as are necessary
or permitted hereunder;
(v) the minimum principal amount of any Note issued under a
Supplement shall be $100,000, except as may be necessary to evidence
the outstanding amount of any Note originally issued in a denomination
of $100,000 or more;
(vi) all Additional Notes shall constitute Senior Debt of the
Company and shall rank pari passu with all other outstanding Notes,
provided that if the Security Documents and the Intercreditor Agreement
are in full force and effect, the Company shall have obtained the
written consent of the necessary parties to the Intercreditor Agreement
as provided for therein; and
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(vii) no Additional Notes shall be issued hereunder if at the
time of issuance thereof and after giving effect to the application of
the proceeds thereof, any Default or Event of Default shall have
occurred and be continuing.
SECTION 3. CLOSING.
The sale and purchase of the Series 2000-A Notes to be purchased by
each Purchaser shall occur at the offices of Chapman and Cutler, 111 West Monroe
Street, Chicago, Illinois 60603 at 10:00 a.m. Chicago time, at a closing (the
"Closing") on March 22, 2000 or on such other Business Day thereafter on or
prior to March 24, 2000 as may be agreed upon by the Company and the Purchasers.
At the Closing the Company will deliver to each Purchaser the Series 2000-A
Notes to be purchased by such Purchaser in the form of a single Series 2000-A
Note (or such greater number of Series 2000-A Notes in denominations of at least
$100,000 as such Purchaser may request) dated the date of the Closing and
registered in such Purchaser's name (or in the name of such Purchaser's
nominee), against delivery by such Purchaser to the Company or its order of
immediately available funds in the amount of the purchase price therefor by wire
transfer of immediately available funds for the account of the Company to
account number 001390029677, account name Quanta Services, Inc., at Bank of
America, Dallas, Texas, ABA Number 111000025. If at the Closing the Company
shall fail to tender such Notes to any Purchaser as provided above in this
Section 3, or any of the conditions specified in Section 4 shall not have been
fulfilled to any Purchaser's satisfaction, such Purchaser shall, at such
Purchaser's election, be relieved of all further obligations under this
Agreement, without thereby waiving any rights such Purchaser may have by reason
of such failure or such nonfulfillment.
SECTION 4. CONDITIONS TO CLOSING.
The obligation of each Purchaser to purchase and pay for the Series
2000-A Notes to be sold to such Purchaser at the Closing is subject to the
fulfillment to such Purchaser's satisfaction, prior to or at the Closing, of the
following conditions:
Section 4.1. Representations and Warranties of the Company. The
representations and warranties of the Company in this Agreement shall be correct
when made and at the time of Closing.
Section 4.2. Representations and Warranties of the Guarantors. The
representations and warranties of the Guarantors in the Guaranty Agreement shall
be correct when made and at the time of the Closing.
Section 4.3. Performance; No Default. The Company and the Guarantors
shall have performed and complied with all agreements and conditions contained
in this Agreement required to be performed or complied with by the Company and
the Guarantors prior to or at the Closing, and after giving effect to the issue
and sale of the Series 2000-A Notes (and the application of the proceeds thereof
as contemplated by Section 5.14), no Default or Event of Default shall have
occurred and be continuing. Neither the Company nor any Subsidiary shall
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have entered into any transaction since the date of the Memorandum that would
have been prohibited by Section 10 hereof had such Sections applied since such
date.
Section 4.4. Compliance Certificates.
(a) Officer's Certificate of the Company. The Company shall
have delivered to such Purchaser an Officer's Certificate, dated the
date of the Closing, certifying that the conditions specified in
Sections 4.1, 4.3 and 4.16 have been fulfilled.
(b) Secretary's Certificate of the Company. The Company shall
have delivered to such Purchaser a certificate certifying as to the
resolutions attached thereto and other corporate proceedings relating
to the authorization, execution and delivery of the Series 2000-A Notes
and this Agreement.
(c) Officer's Certificate of the Guarantors. Each Guarantor
shall have delivered to such Purchaser an Officer's Certificate, dated
the date of the Closing, certifying that the conditions specified in
Sections 4.2 and 4.3 have been fulfilled.
(d) Secretary's Certificate of the Guarantors. Each Guarantor
shall have delivered to such Purchaser a certificate certifying as to
the resolutions attached thereto and other corporate proceedings
relating to the authorization, execution and delivery of the Guaranty
Agreement.
Section 4.5. Guaranty Agreement. The Guaranty Agreement shall have been
duly authorized, executed and delivered by the Guarantors, shall constitute the
legal, valid and binding contract and agreement enforceable against the
respective Guarantors in accordance with its terms and such Purchaser shall have
received a true, correct and complete copy thereof.
Section 4.6. Security Documents, Etc. The Security Documents shall have
been duly authorized, executed and delivered by the respective parties thereto,
shall constitute legal, valid and binding contracts and agreements enforceable
against the respective parties in accordance with their terms and such Purchaser
shall have received true, correct and complete copies of each thereof.
Section 4.7. Filing. The Security Documents (together with any
financing statements) shall have been duly filed in such public offices as may
be deemed necessary or appropriate by such Purchaser or such Purchaser's special
counsel in order to perfect the Liens granted or conveyed thereby.
Section 4.8. Intercreditor Agreement. The Intercreditor Agreement
substantially in the form of Exhibit 3 attached hereto shall have been executed
and delivered by the respective parties thereto and shall be in full force and
effect and such Purchaser shall have received a true, correct and complete copy
thereof.
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Section 4.9. Insurance. Certificates of insurance evidencing the
insurance policies required to be delivered pursuant to the Security Documents
shall be satisfactory in scope and form to such Purchaser and shall have been
delivered to the Collateral Agent and such Purchaser.
Section 4.10. Pledged Stock. The certificates representing the Pledged
Stock (together with duly executed undated stock powers endorsed in blank) shall
have been delivered to the Collateral Agent.
Section 4.11. Opinions of Counsel. Such Purchaser shall have received
opinions in form and substance satisfactory to such Purchaser, dated the date of
the Closing (a) from Brad Eastman, Esq., General Counsel of the Company,
covering the matters set forth in Exhibit 4.11(a) and covering such other
matters incident to the transactions contemplated hereby as such Purchaser or
such Purchaser's counsel may reasonably request (and the Company hereby
instructs its counsel to deliver such opinion to such Purchaser), (b) from Akin,
Gump, Strauss, Hauer & Feld, L.L.P., Special Counsel of the Company, covering
the matters set forth in Exhibit 4.11(b) and covering such other matters
incident to the transactions contemplated hereby as such Purchaser or such
Purchaser's counsel may reasonably request (and the Company hereby instructs its
counsel to deliver such opinion to such Purchaser), and (c) from Chapman and
Cutler, the Purchasers' special counsel in connection with such transactions,
substantially in the form set forth in Exhibit 4.11(c) and covering such other
matters incident to such transactions as such Purchaser may reasonably request.
Section 4.12. Purchase Permitted by Applicable Law, Etc. On the date of
Closing each purchase of Series 2000-A Notes shall (a) be permitted by the laws
and regulations of each jurisdiction to which each Purchaser is subject, without
recourse to provisions (such as Section 1405(a)(8) of the New York Insurance
Law) permitting limited investments by insurance companies without restriction
as to the character of the particular investment, (b) not violate any applicable
law or regulation (including, without limitation, Regulation T, U or X of the
Board of Governors of the Federal Reserve System) and (c) not subject any
Purchaser to any tax, penalty or liability under or pursuant to any applicable
law or regulation, which law or regulation was not in effect on the date hereof.
If requested by any Purchaser, such Purchaser shall have received an Officer's
Certificate certifying as to such matters of fact as such Purchaser may
reasonably specify to enable such Purchaser to determine whether such purchase
is so permitted.
Section 4.13. Related Transactions. The Company shall have consummated
the sale of the entire principal amount of the Series 2000-A Notes scheduled to
be sold on the date of Closing pursuant to this Agreement.
Section 4.14. Payment of Special Counsel Fees. Without limiting the
provisions of Section 15.1, the Company shall have paid on or before the
Closing, the reasonable fees, reasonable charges and reasonable disbursements of
the Purchasers' special counsel referred to in Section 4.11 to the extent
reflected in a statement of such counsel rendered to the Company at least one
Business Day prior to the Closing.
Section 4.15. Private Placement Number. A Private Placement Number
issued by Standard & Poor's CUSIP Service Bureau (in cooperation with the
Securities Valuation Office of
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the National Association of Insurance Commissioners) shall have been obtained
for each tranche of the Series 2000 Notes.
Section 4.16. Changes in Corporate Structure. The Company shall not
have changed its jurisdiction of incorporation or, except as reflected in
Schedule 4.16, been a party to any merger or consolidation and shall not have
succeeded to all or any substantial part of the liabilities of any other entity,
at any time following the date of the most recent financial statements referred
to in Schedule 5.5.
Section 4.17. Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated by this Agreement
and all documents and instruments incident to such transactions shall be
satisfactory to such Purchaser and such Purchaser's special counsel, and such
Purchaser and such Purchaser's special counsel shall have received all such
counterpart originals or certified or other copies of such documents as such
Purchaser or such Purchaser's special counsel may reasonably request.
Section 4.18. Conditions to Issuance of Additional Notes. The
obligations of the Additional Purchasers to purchase any Additional Notes shall
be subject to the following conditions precedent, in addition to the conditions
specified in the Supplement pursuant to which such Additional Notes may be
issued:
(a) Compliance Certificate. A duly authorized Senior Financial
Officer shall execute and deliver to each Additional Purchaser and each
holder of Notes an Officer's Certificate dated the date of issue of
such Series of Additional Notes stating that such officer has reviewed
the provisions of this Agreement (including any Supplements hereto) and
setting forth the information and computations (in sufficient detail)
required in order to establish whether the Company is in compliance
with the requirements of Section 10.2 on such date (based upon the
financial statements for the most recent fiscal quarter ended prior to
the date of such certificate).
(b) Execution and Delivery of Supplement. The Company and
each such Additional Purchaser shall execute and deliver a Supplement
substantially in the form of Exhibit S hereto.
(c) Representations of Additional Purchasers. Each Additional
Purchaser shall have confirmed in the Supplement that the
representations set forth in Section 6 are true with respect to such
Additional Purchaser on and as of the date of issue of the Additional
Notes.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each Purchaser that:
Section 5.1. Organization; Power and Authority. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation, and is duly qualified as a foreign
corporation and is in good standing in each
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jurisdiction in which such qualification is required by law, other than those
jurisdictions as to which the failure to be so qualified or in good standing
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. The Company has the corporate power and authority to
own or hold under lease the properties it purports to own or hold under lease,
to transact the business it transacts and proposes to transact, to execute and
deliver this Agreement, the Security Documents and the Notes and to perform the
provisions hereof and thereof.
Section 5.2. Authorization, Etc. This Agreement, the Security Documents
and the Notes have been duly authorized by all necessary corporate action on the
part of the Company, and this Agreement and the Security Documents constitute,
and upon execution and delivery thereof each Note will constitute, a legal,
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by (i)
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and (ii) general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
Section 5.3. Disclosure. The Company, through its agents, Banc of
America Securities LLC and Morgan Stanley Dean Witter, has delivered to each
Purchaser a copy of a Private Placement Memorandum, dated January, 2000 (the
"Memorandum"), relating to the transactions contemplated hereby. The Memorandum
fairly describes, in all material respects, the general nature of the business
and principal properties of the Company and its Subsidiaries. Except for any
research reports (if any) prepared by Banc of America Securities LLC and Morgan
Stanley Dean Witter which may have been provided separately from the Memorandum
for which no representation or warranty is being made by the Company, this
Agreement, the Security Documents, the Memorandum, the documents, certificates
or other writings delivered to the Purchasers by or on behalf of the Company in
connection with the transactions contemplated hereby and the financial
statements listed in Schedule 5.5, taken as a whole, do not contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein not misleading in light of the circumstances under
which they were made. Since September 30, 1999, there has been no change in the
financial condition, operations, business or properties of the Company or any of
its Subsidiaries except changes that individually or in the aggregate could not
reasonably be expected to have a Material Adverse Effect. There is no fact known
to the Company that could reasonably be expected to have a Material Adverse
Effect that has not been set forth herein or in the Memorandum or in the other
documents, certificates and other writings delivered to each Purchaser by or on
behalf of the Company specifically for use in connection with the transactions
contemplated hereby.
Section 5.4. Organization and Ownership of Shares of Subsidiaries;
Affiliates. (a) Schedule 5.4 contains (except as noted therein) complete and
correct lists of (i) the Company's Subsidiaries, showing, as to each Subsidiary,
the correct name thereof, the jurisdiction of its organization, and the
percentage of shares of each class of its capital stock or similar equity
interests outstanding owned by the Company and each other Subsidiary, and all
other Investments of the Company and its Subsidiaries, and (ii) the Company's
directors and senior officers.
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(b) All of the outstanding shares of capital stock or similar equity
interests of each Subsidiary shown in Schedule 5.4 as being owned by the Company
and its Subsidiaries have been validly issued, are fully paid and nonassessable
and are owned by the Company or another Subsidiary free and clear of any Lien,
except for the Liens created by the Security Documents and as otherwise
disclosed in Schedule 5.4.
(c) Each Subsidiary identified in Schedule 5.4 is a corporation or
other legal entity duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization, and is duly qualified as a foreign
corporation or other legal entity and is in good standing in each jurisdiction
in which such qualification is required by law, other than those jurisdictions
as to which the failure to be so qualified or in good standing could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Each such Subsidiary has the corporate or other power and
authority to own or hold under lease the properties it purports to own or hold
under lease and to transact the business it transacts and proposes to transact.
(d) No Subsidiary is a party to, or otherwise subject to, any legal
restriction or any agreement (other than this Agreement, the agreements listed
on Schedule 5.4 and customary limitations imposed by corporate law statutes)
restricting the ability of such Subsidiary to pay dividends out of profits or
make any other similar distributions of profits to the Company or any of its
Subsidiaries that owns outstanding shares of capital stock or similar equity
interests of such Subsidiary.
Section 5.5. Financial Statements. The Company has delivered to each
Purchaser copies of the financial statements of the Company and its Subsidiaries
listed on Schedule 5.5. All of said financial statements (including in each case
the related schedules and notes) fairly present in all material respects the
consolidated financial position of the Company and its Subsidiaries as of the
respective dates specified in such financial statements and the consolidated
results of their operations and cash flows for the respective periods so
specified and have been prepared in accordance with GAAP consistently applied
throughout the periods involved except as set forth in the notes thereto
(subject, in the case of any interim financial statements, to normal year-end
adjustments).
Section 5.6. Compliance with Laws, Other Instruments, Etc. The
execution, delivery and performance by the Company of this Agreement, the
Security Documents and the Notes will not (a) contravene, result in any breach
of, or constitute a default under, or result in the creation of any Lien not
permitted by Section 10.5 in respect of any property of the Company or any
Subsidiary under, any indenture, mortgage, deed of trust, loan, purchase or
credit agreement, lease, corporate charter or by-laws, or any other agreement or
instrument to which the Company or any Subsidiary is bound or by which the
Company or any Subsidiary or any of their respective properties may be bound or
affected, (b) conflict with or result in a breach of any of the terms,
conditions or provisions of any order, judgment, decree, or ruling of any court,
arbitrator or Governmental Authority applicable to the Company or any
Subsidiary, or (c) violate any provision of any statute or other rule or
regulation of any Governmental Authority applicable to the Company or any
Subsidiary, except for any such default, breach, contravention or violation
which could not reasonably be expected to have a Material Adverse Effect.
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Section 5.7. Governmental Authorizations, Etc. No consent, approval or
authorization of, or registration, filing or declaration with, any Governmental
Authority is required in connection with the execution, delivery or performance
by the Company of this Agreement, the Security Documents or the Notes, except
for such filings as may be necessary to perfect or maintain the perfection of
the Liens created by the Security Documents, certain other customary filing
related to future performance and routine governmental filings made in
compliance with any applicable securities laws.
Section 5.8. Litigation; Observance of Statutes and Orders. (a) There
are no actions, suits or proceedings pending or, to the knowledge of the
Company, threatened against or affecting the Company or any Subsidiary or any
property of the Company or any Subsidiary in any court or before any arbitrator
or before or by any Governmental Authority that in any such case, individually
or in the aggregate, could reasonably be expected to have a Material Adverse
Effect.
(b) Neither the Company nor any Subsidiary is in default under any term
of any agreement or instrument to which it is a party or by which it is bound,
or any order, judgment, decree or ruling of any court, arbitrator or
Governmental Authority or is in violation of any applicable law, ordinance, rule
or regulation (including without limitation Environmental Laws) of any
Governmental Authority, which default or violation, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.
Section 5.9. Taxes. The Company and its Subsidiaries have filed all
Material tax returns that are required to have been filed in any jurisdiction,
and have paid all taxes shown to be due and payable on such returns and all
other taxes and assessments levied upon them or their properties, assets, income
or franchises, to the extent such taxes and assessments have become due and
payable and before they have become delinquent, except for any taxes and
assessments (a) the amount of which is not individually or in the aggregate
Material or (b) the amount, applicability or validity of which is currently
being contested in good faith by appropriate proceedings and with respect to
which the Company or a Subsidiary, as the case may be, has established adequate
reserves in accordance with GAAP. The Company knows of no basis for any other
tax or assessment that could reasonably be expected to have a Material Adverse
Effect. The charges, accruals and reserves on the books of the Company and its
Subsidiaries in respect of federal, state or other taxes for all fiscal periods
are adequate, as calculated in accordance with GAAP.
Section 5.10. Title to Property Leases. The Company and its
Subsidiaries have good and sufficient title to their respective properties which
the Company and its Subsidiaries own or purport to own, including all such
properties reflected in the most recent audited balance sheet referred to in
Section 5.5 or purported to have been acquired by the Company or any Subsidiary
after said date (except as sold or otherwise disposed of in the ordinary course
of business), in each case free and clear of Liens prohibited by this Agreement.
All leases that individually or in the aggregate are Material are valid and
subsisting and are in full force and effect in all material respects.
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Section 5.11. Licenses, Permits, Etc. Except as disclosed in Schedule
5.11,
(a) the Company and its Subsidiaries own or possess all
licenses, permits, franchises, authorizations, patents, copyrights,
service marks, trademarks and trade names, or rights thereto, that
individually or in the aggregate are Material, without known conflict
with the rights of others except for those conflicts, that,
individually or in the aggregate, would not have a Material Adverse
Effect;
(b) to the best knowledge of the Company, no product of the
Company or any of its Subsidiaries infringes in any material respect
any license, permit, franchise, authorization, patent, copyright,
service mark, trademark, trade name or other right owned by any other
Person; and
(c) to the best knowledge of the Company, there is no Material
violation by any Person of any right of the Company or any of its
Subsidiaries with respect to any patent, copyright, service mark,
trademark, trade name or other right owned or used by the Company or
any of its Subsidiaries.
Section 5.12. Compliance with ERISA. (a) The Company and each ERISA
Affiliate have operated and administered each Plan in compliance with all
applicable laws except for such instances of noncompliance as have not resulted
in and could not reasonably be expected to result in a Material Adverse Effect.
Neither the Company nor any ERISA Affiliate has incurred any liability pursuant
to Title I or IV of ERISA or the penalty or excise tax provisions of the Code
relating to employee benefit plans (as defined in Section 3 of ERISA), and no
event, transaction or condition has occurred or exists that could reasonably be
expected to result in the incurrence of any such liability by the Company or any
ERISA Affiliate, or in the imposition of any Lien on any of the rights,
properties or assets of the Company or any ERISA Affiliate, in either case
pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions
or to Section 401(a)(29) or 412 of the Code, other than such liabilities or
Liens as would not be individually or in the aggregate Material.
(b) The present value of the aggregate benefit liabilities under each
of the Plans (other than Multiemployer Plans), determined as of the end of such
Plan's most recently ended plan year on the basis of the actuarial assumptions
specified for funding purposes in such Plan's most recent actuarial valuation
report, did not exceed the aggregate current value of the assets of such Plan
allocable to such benefit liabilities. The term "benefit liabilities" has the
meaning specified in Section 4001 of ERISA and the terms "current value" and
"present value" have the meanings specified in Section 3 of ERISA.
(c) The Company and its ERISA Affiliates have not incurred withdrawal
liabilities (and are not subject to contingent withdrawal liabilities) under
Section 4201 or 4204 of ERISA in respect of Multiemployer Plans that
individually or in the aggregate are Material.
(d) The expected post-retirement benefit obligation (determined as of
the last day of the Company's most recently ended fiscal year in accordance with
Financial Accounting Standards Board Statement No. 106, without regard to
liabilities attributable to continuation coverage
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mandated by Section 4980B of the Code), if any, of the Company and its
Subsidiaries under any employee welfare benefit plan (as defined in Section 3 of
ERISA), is not Material or has otherwise been disclosed in the most recent
audited consolidated financial statements of the Company and its Subsidiaries.
(e) The execution and delivery of this Agreement and the Security
Documents and the issuance and sale of the Notes hereunder will not involve any
transaction that is subject to the prohibitions of Section 406 of ERISA or in
connection with which a tax could be imposed pursuant to Section
4975(c)(1)(A)-(D) of the Code which in either event, could reasonably be
expected to result in a Material Adverse Effect. The representation by the
Company in the first sentence of this Section 5.12(e) is made in reliance upon
and subject to the accuracy of each Purchaser's representation in Section 6.2 as
to the sources of the funds to be used to pay the purchase price of the Notes to
be purchased by such Purchaser.
Section 5.13. Private Offering by the Company. Neither the Company nor
anyone acting on its behalf has offered the Series 2000-A Notes or any similar
securities for sale to, or solicited any offer to buy any of the same from, or
otherwise approached or negotiated in respect thereof with, any Person other
than the Purchasers and not more than 65 other Institutional Investors, each of
which has been offered the Series 2000-A Notes in connection with a private
placement for investment. Neither the Company nor anyone acting on its behalf
has taken, or will take, any action that would subject the issuance or sale of
the Series 2000-A Notes to the registration requirements of Section 5 of the
Securities Act.
Section 5.14. Use of Proceeds; Margin Regulations. The Company will
apply the proceeds of the sale of the Series 2000-A Notes for general corporate
purposes of the Company and its Subsidiaries (including the repayment of Debt of
the Company and its Subsidiaries and for acquisitions). No part of the proceeds
from the sale of the Series 2000-A Notes hereunder will be used, directly or
indirectly, for the purpose of buying or carrying any margin stock within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System
(12 CFR 221), or for the purpose of buying or carrying or trading in any
securities under such circumstances as to involve the Company in a violation of
Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a
violation of Regulation T of said Board (12 CFR 220). Margin stock does not
constitute more than 2% of the value of the consolidated assets of the Company
and its Subsidiaries and the Company does not have any present intention that
margin stock will constitute more than 2% of the value of such assets. As used
in this Section, the terms "margin stock" and "purpose of buying or carrying"
shall have the meanings assigned to them in said Regulation U.
Section 5.15. Existing Debt; Future Liens. (a) Except as described
therein, Schedule 5.15 sets forth a complete and correct list of all outstanding
Debt of the Company and its Subsidiaries as of December 31, 1999, since which
date there has been no Material change in the amounts, interest rates, sinking
funds, installment payments or maturities of the Debt of the Company or its
Subsidiaries. Neither the Company nor any Subsidiary is in default and no waiver
of default is currently in effect, in the payment of any principal or interest
on any Debt of the Company or such Subsidiary in an unpaid amount of $1,000,000
or more and no event or condition exists with respect to any Debt of the Company
or any Subsidiary in an unpaid amount of $1,000,000 or
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more that would permit (or that with notice or the lapse of time, or both, would
permit) one or more Persons to cause such Debt to become due and payable before
its stated maturity or before its regularly scheduled dates of payment.
(b) Except as disclosed in Schedule 5.15, neither the Company nor any
Subsidiary has agreed or consented to cause or permit in the future (upon the
happening of a contingency or otherwise) any of its property, whether now owned
or hereafter acquired, to be subject to a Lien not permitted by Section 10.5.
Section 5.16. Foreign Assets Control Regulations, Etc. Neither the sale
of the Notes by the Company hereunder nor its use of the proceeds thereof will
violate the Trading with the Enemy Act, as amended, or any of the foreign assets
control regulations of the United States Treasury Department (31 CFR, Subtitle
B, Chapter V, as amended) or any enabling legislation or executive order
relating thereto.
Section 5.17. Status under Certain Statutes. Neither the Company nor
any Subsidiary is an "investment company" registered or required to be
registered under the Investment Company Act of 1940, as amended, or is subject
to regulation under the Public Utility Holding Company Act of 1935, as amended,
the ICC Termination Act of 1995, as amended, or the Federal Power Act, as
amended.
Section 5.18. Environmental Matters. Neither the Company nor any
Subsidiary has knowledge of any liability or has received any notice of any
liability, and no proceeding has been instituted against the Company or any of
its Subsidiaries or any of their respective real properties now or formerly
owned, leased or operated by any of them, alleging any violation of any
Environmental Laws, except, in each case, such as could not reasonably be
expected to result in a Material Adverse Effect. Except as otherwise disclosed
to each Purchaser in writing:
(a) neither the Company nor any Subsidiary has knowledge of
any facts which would give rise to any liability, public or private,
for violation of Environmental Laws or damage to the environment
emanating from, occurring on or in any way related to real properties
or to other assets now or formerly owned, leased or operated by any of
them or their use, except, in each case, such as could not reasonably
be expected to result in a Material Adverse Effect;
(b) neither the Company nor any of its Subsidiaries has stored
any Hazardous Materials on real properties now or formerly owned,
leased or operated by any of them or has disposed of any Hazardous
Materials in each case in a manner contrary to any Environmental Laws
and in any manner that could reasonably be expected to result in a
Material Adverse Effect; and
(c) to the knowledge of the Company and its Subsidiaries, all
buildings on all real properties now owned, leased or operated by the
Company or any of its Subsidiaries are in compliance with applicable
Environmental Laws, except where failure to comply could not reasonably
be expected to result in a Material Adverse Effect.
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Section 5.19. Filing and Recordation. On the date of Closing, all UCC
financing statements and all Security Documents have been duly filed in all
public offices wherein such filings were made to perfect the Lien of the
security agreement securing the Debt outstanding under the Bank Credit
Agreement. The Security Documents create a valid Lien in the collateral
described therein.
Section 5.20. Other Representations and Warranties. The representations
and warranties of the Company set forth in the Security Documents are true and
correct as of the date of Closing and are incorporated herein by reference with
the same force and effect as though set forth herein in full.
SECTION 6. REPRESENTATIONS OF THE PURCHASER.
Section 6.1. Purchase for Investment. Each Purchaser represents that it
is purchasing the Series 2000-A Notes for its own account or for one or more
separate accounts maintained by it or for the account of one or more pension or
trust funds and not with a view to the distribution thereof, provided that the
disposition of such Purchaser's or such pension or trust funds' property shall
at all times be within such Purchaser's or such pension or trust funds' control.
Each Purchaser understands that the Series 2000-A Notes have not been registered
under the Securities Act and may be resold only if registered pursuant to the
provisions of the Securities Act or if an exemption from registration is
available, except under circumstances where neither such registration nor such
an exemption is required by law, and that the Company is not required to
register the Series 2000-A Notes.
Section 6.2. Source of Funds. Each Purchaser represents that at least
one of the following statements is an accurate representation as to each source
of funds (a "Source") to be used by it to pay the purchase price of the Series
2000-A Notes to be purchased by it hereunder:
(a) the Source is an "insurance company general account"
within the meaning of Department of Labor Prohibited Transaction
Exemption ("PTE") 95-60 (issued July 12, 1995) and there is no employee
benefit plan, treating as a single plan all plans maintained by the
same employer or employee organization, with respect to which the
amount of the general account reserves and liabilities for all
contracts held by or on behalf of such plan, exceeds ten percent (10%)
of the total reserves and liabilities of such general account
(exclusive of separate account liabilities) plus surplus, as set forth
in the NAIC Annual Statement for such Purchaser most recently filed
with such Purchaser's state of domicile; or
(b) the Source is either (i) an insurance company pooled
separate account, within the meaning of PTE 90-1 (issued January 29,
1990), or (ii) a bank collective investment fund, within the meaning of
the PTE 91-38 (issued July 12, 1991) and, except as such Purchaser
prior to the execution and delivery of this Agreement has disclosed to
the Company in writing pursuant to this paragraph (b), no employee
benefit plan or group of plans maintained by the same employer or
employee organization beneficially owns more than 10% of all assets
allocated to such pooled separate account or collective investment
fund; or
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(c) the Source constitutes assets of an "investment fund"
(within the meaning of Part V of the QPAM Exemption) managed by a
"qualified professional asset manager" or "QPAM" (within the meaning of
Part V of the QPAM Exemption), no employee benefit plan's assets that
are included in such investment fund, when combined with the assets of
all other employee benefit plans established or maintained by the same
employer or by an affiliate (within the meaning of Section V(c)(1) of
the QPAM Exemption) of such employer or by the same employee
organization and managed by such QPAM, exceed 20% of the total client
assets managed by such QPAM, the conditions of Part I(c) and (g) of the
QPAM Exemption are satisfied, neither the QPAM nor a person controlling
or controlled by the QPAM (applying the definition of "control" in
Section V(e) of the QPAM Exemption) owns a 5% or more interest in the
Company and (i) the identity of such QPAM and (ii) the names of all
employee benefit plans whose assets are included in such investment
fund have been disclosed to the Company in writing pursuant to this
paragraph (c) prior to the execution and delivery of this Agreement; or
(d) the Source is a governmental plan; or
(e) the Source is one or more employee benefit plans, or a
separate account or trust fund comprised of one or more employee
benefit plans, each of which prior to the execution and delivery of
this Agreement has been identified to the Company in writing pursuant
to this paragraph (e); or
(f) the Source does not include assets of any employee benefit
plan, other than a plan exempt from the coverage of ERISA; or
(g) the Source is an insurance company separate account
maintained solely in connection with the fixed contractual obligations
of the insurance company under which the amounts payable, or credited,
to any employee benefit plan (or its related trust) and to any
participant or beneficiary of such plan (including any annuitant) are
not affected in any manner by the investment performance of the
separate account.
If any Purchaser or any Additional Purchaser or any subsequent transferee of the
Notes indicates that such Purchaser or any Additional Purchaser or such
transferee is relying on any representation contained in paragraph (b), (c) or
(e) above, the Company shall deliver on the date of issuance of such Notes and
on the date of any applicable transfer a certificate, which shall either state
that (i) it is neither a party in interest nor a "disqualified person" (as
defined in Section 4975(e)(2) of the Code), with respect to any plan identified
pursuant to paragraphs (b) or (e) above, or (ii) with respect to any plan,
identified pursuant to paragraph (c) above, neither it nor any "affiliate" (as
defined in Section V(c) of the QPAM Exemption) has at such time, and during the
immediately preceding one year, exercised the authority to appoint or terminate
said QPAM as manager of any plan identified in writing pursuant to paragraph (c)
above or to negotiate the terms of said QPAM's management agreement on behalf of
any such identified plan. As used in this Section 6.2, the terms "employee
benefit plan", "governmental plan", "party in interest" and "separate account"
shall have the respective meanings assigned to such terms in Section 3 of ERISA.
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Section 6.3. Disclosure of Information. Each Purchaser has received all
the information it considers necessary or appropriate for deciding whether to
purchase the Series 2000-A Notes. Each Purchaser further represents that it has
had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Series 2000-A Notes
and the business, properties, prospects and financial condition of the Company.
The foregoing, however, does not limit or modify the representations and
warranties of the Company in Section 5 of this Agreement or the rights of the
Purchasers to rely thereon.
Section 6.4. Investment Experience. Each Purchaser acknowledges that it
is able to fend for itself, can bear the risk of its investment, and has such
knowledge and experience in financial or business matters that it is capable of
evaluating the merits and risks of the investment in the Series 2000-A Notes.
Section 6.5. Accredited Investor. Each Purchaser represents that it is
an "accredited investor" within the meaning of the Securities and Exchange
Commission Rule 501 of Regulation D, as presently in effect.
SECTION 7. INFORMATION AS TO COMPANY.
Section 7.1. Financial and Business Information. The Company shall
deliver to each holder of Notes that is an Institutional Investor (other than a
Competitor of the Company or any Subsidiary so long as no Event of Default shall
have occurred and be continuing):
(a) Quarterly Statements -- within 60 days after the end of
each quarterly fiscal period in each fiscal year of the Company (other
than the last quarterly fiscal period of each such fiscal year),
duplicate copies of,
(i) a consolidated balance sheet of the Company and
its Subsidiaries as at the end of such quarter, and
(ii) consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its
Subsidiaries, for such quarter and (in the case of the second
and third quarters) for the portion of the fiscal year ending
with such quarter,
setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all in reasonable
detail, prepared in accordance with GAAP applicable to quarterly
financial statements generally, and certified by a Senior Financial
Officer as fairly presenting, in all material respects, the financial
position of the companies being reported on and their results of
operations and cash flows, subject to changes resulting from normal,
recurring year-end adjustments, provided that delivery within the time
period specified above of copies of the Company's Quarterly Report on
Form 10-Q prepared in compliance with the requirements therefor and
filed with the Securities and Exchange Commission shall be deemed to
satisfy the requirements of this Section 7.1(a);
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(b) Annual Statements -- within 120 days after the end of each
fiscal year of the Company, duplicate copies of,
(i) a consolidated balance sheet of the Company and
its Subsidiaries, as at the end of such year, and
(ii) consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its
Subsidiaries, for such year,
setting forth in each case in comparative form the figures for the
previous fiscal year, all in reasonable detail, prepared in accordance
with GAAP, and accompanied by an opinion thereon of independent
certified public accountants of recognized national standing, which
opinion shall state that such financial statements present fairly, in
all material respects, the financial position of the companies being
reported upon and their results of operations and cash flows and have
been prepared in conformity with GAAP, and that the examination of such
accountants in connection with such financial statements has been made
in accordance with generally accepted auditing standards, and that such
audit provides a reasonable basis for such opinion in the
circumstances, provided that the delivery within the time period
specified above of the Company's Annual Report on Form 10-K for such
fiscal year (together with the Company's annual report to shareholders,
if any, prepared pursuant to Rule 14a-3 under the Exchange Act)
prepared in accordance with the requirements therefor and filed with
the Securities and Exchange Commission shall be deemed to satisfy the
requirements of this Section 7.1(b);
(c) SEC and Other Reports -- promptly upon their becoming
available, one copy of (i) each financial statement, report, notice or
proxy statement sent by the Company or any Subsidiary to public
securities holders generally, and (ii) each regular or periodic report,
each registration statement (without exhibits except as expressly
requested by such holder), and each prospectus and all amendments
thereto filed by the Company or any Subsidiary with the Securities and
Exchange Commission containing information of a financial nature and of
all press releases and other statements made available generally by the
Company or any Subsidiary to the public concerning developments that
are Material;
(d) Notice of Default or Event of Default -- promptly, and in
any event within ten Business Days after a Responsible Officer becomes
aware of the existence of any Default or Event of Default or that any
Person has given any notice or taken any action with respect to a
claimed default hereunder or that any Person has given any notice or
taken any action with respect to a claimed default of the type referred
to in Section 11(h), a written notice specifying the nature and period
of existence thereof and what action the Company is taking or proposes
to take with respect thereto;
(e) ERISA Matters -- promptly, and in any event within ten
Business Days after a Responsible Officer becomes aware of any of the
following, a written notice setting forth the nature thereof and the
action, if any, that the Company or an ERISA Affiliate proposes to take
with respect thereto:
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(i) with respect to any Plan, any reportable event,
as defined in Section 4043(b) of ERISA and the regulations
thereunder, for which notice thereof has not been waived
pursuant to such regulations as in effect on the date thereof;
or
(ii) the taking by the PBGC of steps to institute, or
the threatening by the PBGC of the institution of, proceedings
under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan, or the
receipt by the Company or any ERISA Affiliate of a notice from
a Multiemployer Plan that such action has been taken by the
PBGC with respect to such Multiemployer Plan; or
(iii) the incurrence of any liability by the Company
or any ERISA Affiliate pursuant to Title I or IV of ERISA or
the imposition of a penalty or excise tax under the provisions
of the Code relating to employee benefit plans, or the
imposition of any Lien on any of the rights, properties or
assets of the Company or any ERISA Affiliate pursuant to Title
I or IV of ERISA or such penalty or excise tax provisions, if
such liability or Lien, taken together with any other such
liabilities or Liens then existing, could reasonably be
expected to have a Material Adverse Effect;
(f) Notices from Governmental Authority -- promptly, and in
any event within 30 days of receipt thereof, copies of any notice to
the Company or any Subsidiary from any federal or state Governmental
Authority relating to any order, ruling, statute or other law or
regulation that could reasonably be expected to have a Material Adverse
Effect;
(g) Supplements -- promptly and in any event within 10
Business Days after the execution and delivery of any Supplement, a
copy thereof;
(h) Bank Credit Agreement --- so long as any Event of Default
shall exist under the Bank Credit Agreement, the Company shall furnish
copies of any written notices or certificates furnished by the Company
or any Subsidiary to the Bank Lenders not more than 5 Business Days
following delivery to the Bank Lenders; and
(i) Requested Information -- with reasonable promptness, such
other data and information relating to the business, operations,
affairs, financial condition, assets or properties of the Company or
any of its Subsidiaries or relating to the ability of the Company to
perform its obligations hereunder and under the Notes as from time to
time may be reasonably requested by any such holder of Notes.
Section 7.2. Officer's Certificate. Each set of financial statements
delivered to a holder of Notes pursuant to Section 7.1(a) or Section 7.1(b)
hereof shall be accompanied by a certificate of a Senior Financial Officer
setting forth:
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(a) Covenant Compliance -- the information (including detailed
calculations) required in order to establish whether the Company was in
compliance with the requirements of Section 10.1 through Section 10.4,
Section 10.5(l) and Section 10.7 hereof, inclusive, during the
quarterly or annual period covered by the statements then being
furnished (including with respect to each such Section, where
applicable, the calculations of the maximum or minimum amount, ratio or
percentage, as the case may be, permissible under the terms of such
Sections, and the calculation of the amount, ratio or percentage then
in existence, including, without limitation, a reasonably detailed
calculation of Consolidated Proforma Operating Cash Flow for such
period); and
(b) Event of Default -- a statement that such officer has
reviewed the relevant terms hereof and has made, or caused to be made,
under his or her supervision, a review of the transactions and
conditions of the Company and its Subsidiaries from the beginning of
the quarterly or annual period covered by the statements then being
furnished to the date of the certificate and that such review shall not
have disclosed the existence during such period of any condition or
event that constitutes a Default or an Event of Default or, if any such
condition or event existed or exists (including, without limitation,
any such event or condition resulting from the failure of the Company
or any Subsidiary to comply with any Environmental Law), specifying the
nature and period of existence thereof and what action the Company
shall have taken or proposes to take with respect thereto.
Section 7.3. Inspection. The Company shall permit the representatives
of each holder of Notes that is an Institutional Investor (other than a
Competitor of the Company or any Subsidiary so long as no Event of Default shall
have occurred and be continuing):
(a) No Default -- if no Default or Event of Default then
exists, at the expense of such holder and upon reasonable prior notice
to the Company, to visit the principal executive office of the Company,
to discuss the affairs, finances and accounts of the Company and its
Subsidiaries with the Company's officers, and (with the consent of the
Company, which consent will not be unreasonably withheld) its
independent public accountants, and (with the consent of the Company,
which consent will not be unreasonably withheld) to visit the other
offices and properties of the Company and each Subsidiary, all at such
reasonable times during business hours and as often as may be
reasonably requested in writing; and
(b) Default -- if a Default or Event of Default then exists,
at the expense of the Company and upon reasonable prior notice, to
visit and inspect any of the offices or properties of the Company or
any Subsidiary, to examine all their respective books of account,
records, reports and other papers, to make copies and extracts
therefrom, and to discuss their respective affairs, finances and
accounts with their respective officers and independent public
accountants (and by this provision the Company authorizes said
accountants to discuss the affairs, finances and accounts of the
Company and its Subsidiaries), all at such reasonable times during
business hours and as often as may be reasonably requested.
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SECTION 8. PREPAYMENT OF THE NOTES.
Section 8.1. Required Prepayments. (a) The entire principal amount of
the Tranche 1 Notes shall become due and payable on March 1, 2005.
(b) The entire principal amount of the Tranche 2 Notes shall become due
and payable on March 1, 2007.
(c) The entire principal amount of the Tranche 3 Notes shall become due
and payable on March 1, 2010.
Section 8.2. Optional Prepayments with Make-Whole Amount. The Company
may, at its option, upon notice as provided below, prepay at any time all, or
from time to time any part of, the Notes of any Series, in an amount not less
than 10% of the aggregate principal amount of the Notes of such Series then
outstanding in the case of a partial prepayment, at 100% of the principal amount
so prepaid, together with interest accrued thereon to the date of such
prepayment, plus the Make-Whole Amount determined for the prepayment date with
respect to such principal amount of each Note of the applicable Series then
outstanding. The Company will give each holder of Notes of the Series to be
prepaid written notice of each optional prepayment under this Section 8.2 not
less than 30 days and not more than 60 days prior to the date fixed for such
prepayment. Each such notice shall specify such date, the aggregate principal
amount of the Notes and each Series of Notes to be prepaid on such date, the
principal amount of each Note held by such holder to be prepaid (determined in
accordance with Section 8.3), and the interest to be paid on the prepayment date
with respect to such principal amount being prepaid, and shall be accompanied by
a certificate of a Senior Financial Officer as to the estimated Make-Whole
Amount due in connection with such prepayment (calculated as if the date of such
notice were the date of the prepayment), setting forth the details of such
computation. Two Business Days prior to such prepayment, the Company shall
deliver to each holder of Notes of the Series to be prepaid a certificate of a
Senior Financial Officer specifying the calculation of such Make-Whole Amount as
of the specified prepayment date.
Section 8.3. Allocation of Partial Prepayments. In the case of each
partial prepayment of the Notes pursuant to the provisions of Section 8.2, the
principal amount of the Notes of the Series to be prepaid shall be allocated
among all of the Notes of such Series at the time outstanding in proportion, as
nearly as practicable, to the respective unpaid principal amounts thereof. All
regularly scheduled partial prepayments made with respect to any Additional
Series of Notes pursuant to any Supplement shall be allocated as provided
therein.
Section 8.4. Maturity; Surrender, Etc. In the case of each prepayment
of Notes pursuant to this Section 8, the principal amount of each Note to be
prepaid shall mature and become due and payable on the date fixed for such
prepayment, together with interest on such principal amount accrued to such date
and the applicable Make-Whole Amount, if any. From and after such date, unless
the Company shall fail to pay such principal amount when so due and payable,
together with the interest and Make-Whole Amount, if any, as aforesaid, interest
on such principal amount shall cease to accrue. Any Note paid or prepaid in full
shall be surrendered to
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the Company and cancelled and shall not be reissued, and no Note shall be issued
in lieu of any prepaid principal amount of any Note.
Section 8.5. Purchase of Notes. The Company will not and will use
reasonable commercial efforts to not permit any Affiliate to purchase, redeem,
prepay or otherwise acquire, directly or indirectly, any of the outstanding
Notes except upon the payment or prepayment of the Notes in accordance with the
terms of this Agreement (including any Supplement hereto) and the Notes. The
Company will promptly cancel all Notes acquired by it or any Subsidiary pursuant
to any payment, prepayment or purchase of Notes pursuant to any provision of
this Agreement and no Notes may be issued in substitution or exchange for any
such Notes.
Section 8.6. Make-Whole Amount for Series 2000-A Notes. The term
"Make-Whole Amount" means, with respect to a Series 2000-A Note of any Tranche,
an amount equal to the excess, if any, of the Discounted Value of the Remaining
Scheduled Payments with respect to the Called Principal of the Series 2000-A
Note of such Tranche over the amount of such Called Principal, provided that the
Make-Whole Amount may in no event be less than zero. For the purposes of
determining the Make-Whole Amount, the following terms have the following
meanings:
"Called Principal" means, with respect to a Series 2000-A Note
of any Tranche, the principal of the Series 2000-A Note of such Tranche
that is to be prepaid pursuant to Section 8.2 or has become or is
declared to be immediately due and payable pursuant to Section 12.1, as
the context requires.
"Discounted Value" means, with respect to the Called Principal
of a Series 2000-A Note of any Tranche, the amount obtained by
discounting all Remaining Scheduled Payments with respect to such
Called Principal from their respective scheduled due dates to the
Settlement Date with respect to such Called Principal, in accordance
with accepted financial practice and at a discount factor (applied on
the same periodic basis as that on which interest on the Series 2000-A
Note of such Tranche is payable) equal to the Reinvestment Yield with
respect to such Called Principal.
"Reinvestment Yield" means, with respect to the Called
Principal of a Series 2000-A Note of any Tranche, 0.50% plus the yield
to maturity implied by (i) the yields reported, as of 10:00 A.M. (New
York City time) on the second Business Day preceding the Settlement
Date with respect to such Called Principal, on the display designated
as "PX-1" on the Bloomberg Financial Market Screen (or such other
display as may replace "PX-1" on the Bloomberg Financial Market Screen)
for actively traded U.S. Treasury securities having a maturity equal to
the Remaining Average Life of such Called Principal as of such
Settlement Date, or (ii) if such yields are not reported as of such
time or the yields reported as of such time are not ascertainable, the
Treasury Constant Maturity Series Yields reported, for the latest day
for which such yields have been so reported as of the second Business
Day preceding the Settlement Date with respect to such Called
Principal, in Federal Reserve Statistical Release H.15 (519) (or any
comparable successor publication) for actively traded U.S. Treasury
securities having a constant maturity equal to the Remaining Average
Life of such Called Principal as of
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such Settlement Date. Such implied yield will be determined, if
necessary, by (a) converting U.S. Treasury bill quotations to
bond-equivalent yields in accordance with accepted financial practice
and (b) interpolating linearly on a straight line basis between (1) the
actively traded U.S. Treasury security with the maturity closest to and
greater than the Remaining Average Life and (2) the actively traded
U.S. Treasury security with the maturity closest to and less than the
Remaining Average Life.
"Remaining Average Life" means, with respect to any Called
Principal, the number of years (calculated to the nearest one-twelfth
year) obtained by dividing (i) such Called Principal into (ii) the sum
of the products obtained by multiplying (a) the principal component of
each Remaining Scheduled Payment with respect to such Called Principal
by (b) the number of years (calculated to the nearest one-twelfth year)
that will elapse between the Settlement Date with respect to such
Called Principal and the scheduled due date of such Remaining Scheduled
Payment.
"Remaining Scheduled Payments" means, with respect to the
Called Principal of a Series 2000-A Note of any Tranche, all payments
of such Called Principal and interest thereon that would be due after
the Settlement Date with respect to such Called Principal if no payment
of such Called Principal were made prior to its scheduled due date,
provided that if such Settlement Date is not a date on which interest
payments are due to be made under the terms of the Series 2000-A Note
of such Tranche, then the amount of the next succeeding scheduled
interest payment will be reduced by the amount of interest accrued to
such Settlement Date and required to be paid on such Settlement Date
pursuant to Section 8.2 or 12.1.
"Settlement Date" means, with respect to the Called Principal
of a Series 2000-A Note of any Tranche, the date on which such Called
Principal is to be prepaid pursuant to Section 8.2 or has become or is
declared to be immediately due and payable pursuant to Section 12.1, as
the context requires.
Section 8.7. Change in Control.
(a) Notice of Change in Control or Control Event. The Company will,
within fifteen Business Days after any Responsible Officer has knowledge of the
occurrence of any Change in Control or Control Event (subject in the case of any
Control Event to contractual limitations on disclosure and disclosure
limitations imposed by applicable securities laws), give written notice of such
Change in Control or Control Event to each holder of Notes unless notice in
respect of such Change in Control (or the Change in Control contemplated by such
Control Event) shall have been given pursuant to subparagraph (b) of this
Section 8.7. If a Change in Control has occurred, such notice shall contain and
constitute an offer to prepay Notes as described in subparagraph (c) of this
Section 8.7 and shall be accompanied by the certificate described in
subparagraph (g) of this Section 8.7.
(b) Condition to Company Action. The Company will not take any action
that consummates or finalizes a Change in Control unless (i) to the extent the
giving of such advance notice is reasonably within its control, at least 30 days
prior to such action it shall have given to
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each holder of Notes written notice containing and constituting an offer to
prepay Notes as described in subparagraph (c) of this Section 8.7, accompanied
by the certificate described in subparagraph (g) of this Section 8.7, and (ii)
contemporaneously with such action, it prepays all Notes required to be prepaid
in accordance with this Section 8.7.
(c) Offer to Prepay Notes. The offer to prepay Notes contemplated by
subparagraphs (a) and (b) of this Section 8.7 shall be an offer to prepay, in
accordance with and subject to this Section 8.7, all, but not less than all, the
Notes held by each holder (in this case only, "holder" in respect of any Note
registered in the name of a nominee for a disclosed beneficial owner shall mean
such beneficial owner) on a date specified in such offer (the "Proposed
Prepayment Date"). If such Proposed Prepayment Date is in connection with an
offer contemplated by subparagraph (a) of this Section 8.7, such date shall be
not less than 30 days and not more than 60 days after the date of such offer (if
the Proposed Prepayment Date shall not be specified in such offer, the Proposed
Prepayment Date shall be the 30th day after the date of such offer).
(d) Acceptance. A holder of Notes may accept the offer to prepay made
pursuant to this Section 8.7 by causing a notice of such acceptance to be
delivered to the Company at least 15 days prior to the Proposed Prepayment Date.
A failure by a holder of Notes to respond to an offer to prepay made pursuant to
this Section 8.7 shall be deemed to constitute a rejection of such offer by such
holder.
(e) Prepayment. Prepayment of the Notes to be prepaid pursuant to this
Section 8.7 shall be at 100% of the principal amount of such Notes together with
interest on such Notes accrued to the date of prepayment. The prepayment shall
be made on the Proposed Prepayment Date except as provided in subparagraph (f)
of this Section 8.7.
(f) Deferral Pending Change in Control. The obligation of the Company
to prepay Notes pursuant to the offers required by subparagraph (b) and accepted
in accordance with subparagraph (d) of this Section 8.7 is subject to the
occurrence of the Change in Control in respect of which such offers and
acceptances shall have been made. In the event that such Change in Control does
not occur on the Proposed Prepayment Date in respect thereof, the prepayment
shall be deferred until, and shall be made on the date on which, such Change in
Control occurs. The Company shall keep each holder of Notes reasonably and
timely informed of (i) any such deferral of the date of prepayment, (ii) the
date on which such Change in Control and the prepayment are expected to occur,
and (iii) any determination by the Company that efforts to effect such Change in
Control have ceased or been abandoned (in which case the offers and acceptances
made pursuant to this Section 8.7 in respect of such Change in Control shall be
deemed rescinded).
(g) Officer's Certificate. Each offer to prepay the Notes pursuant to
this Section 8.7 shall be accompanied by a certificate, executed by a Senior
Financial Officer of the Company and dated the date of such offer, specifying:
(i) the Proposed Prepayment Date; (ii) that such offer is made pursuant to this
Section 8.7; (iii) the principal amount of each Note offered to be prepaid; (iv)
the interest that would be due on each Note offered to be prepaid, accrued to
the Proposed
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Prepayment Date; (v) that the conditions of this Section 8.7 have been
fulfilled; and (vi) in reasonable detail, the nature and date or proposed date
of the Change in Control.
(h) "Change in Control" Defined. "Change in Control" means each and
every issue, sale or other disposition of shares of stock of the Company which
results in any person (as such term is used in Section 13(d) and Section
14(d)(2) of the Exchange Act) or related persons constituting a group (as such
term is used in Rule 13d-5 under the Exchange Act) (herein, an "Acquiring
Person") becoming the "beneficial owners" (as such term is used in Rule 13d-3
under the Exchange Act as in effect on the date of the Closing), directly or
indirectly, of more than 50% (by total voting power) of the issued and
outstanding capital stock of the Company which is entitled to vote in the
election of the members of the Company's board of directors.
(i) "Control Event" Defined. "Control Event" means:
(i) the execution by the Company or any of its Subsidiaries or
Affiliates of any agreement or letter of intent with respect to any
proposed transaction or event or series of transactions or events
which, individually or in the aggregate, may reasonably be expected to
result in a Change in Control,
(ii) the execution of any written agreement which, when fully
performed by the parties thereto, would result in a Change in Control,
or
(iii) at any time after a public offering of equity securities
of the Company, the making of any written offer by any Acquiring Person
to the holders of the common stock of the Company, which offer, if
accepted by the requisite number of holders, would result in a Change
in Control.
SECTION 9. AFFIRMATIVE COVENANTS.
The Company covenants that so long as any of the Notes are outstanding:
Section 9.1. Compliance with Law. The Company will, and will cause each
of its Subsidiaries to, comply with all laws, ordinances or governmental rules
or regulations to which each of them is subject, including, without limitation,
Environmental Laws, and will obtain and maintain in effect all licenses,
certificates, permits, franchises and other governmental authorizations
necessary to the ownership of their respective properties or to the conduct of
their respective businesses, in each case to the extent necessary to ensure that
non-compliance with such laws, ordinances or governmental rules or regulations
or failures to obtain or maintain in effect such licenses, certificates,
permits, franchises and other governmental authorizations could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
Section 9.2. Insurance. The Company will, and will cause each of its
Subsidiaries to, maintain, with financially sound and reputable insurers,
insurance with respect to their respective properties and businesses against
such casualties and contingencies, of such types, on such terms and in such
amounts (including deductibles, co-insurance and self-insurance, if adequate
reserves
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are maintained with respect thereto) as is customary in the case of entities of
established reputations engaged in the same or a similar business and similarly
situated.
Section 9.3. Maintenance of Properties. The Company will, and will
cause each of its Subsidiaries to, maintain and keep, or cause to be maintained
and kept, their respective properties in good repair, working order and
condition (other than ordinary wear and tear), so that the business carried on
in connection therewith may be properly conducted at all times, provided that
this Section shall not prevent the Company or any Subsidiary from discontinuing
the operation and the maintenance of any of its properties if such
discontinuance is desirable in the conduct of its business and the Company has
concluded that such discontinuance could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
Section 9.4. Payment of Taxes and Claims. The Company will, and will
cause each of its Subsidiaries to, file all tax returns required to be filed in
any jurisdiction and to pay and discharge all taxes shown to be due and payable
on such returns and all other taxes, assessments, governmental charges, or
levies imposed on them or any of their properties, assets, income or franchises,
to the extent such taxes and assessments have become due and payable and before
they have become delinquent and all claims for which sums have become due and
payable that have or might become a Lien on properties or assets of the Company
or any Subsidiary not permitted by Section 10.4, provided that neither the
Company nor any Subsidiary need pay any such tax or assessment or claims if (i)
the amount, applicability or validity thereof is contested by the Company or
such Subsidiary on a timely basis in good faith and in appropriate proceedings,
and the Company or a Subsidiary has established adequate reserves therefor in
accordance with GAAP on the books of the Company or such Subsidiary or (ii) the
non-filing or nonpayment, as the case may be, of all such taxes and assessments
in the aggregate could not reasonably be expected to have a Material Adverse
Effect.
Section 9.5. Corporate Existence, Etc. Subject to Sections 10.5 and
10.6, the Company will at all times preserve and keep in full force and effect
its corporate existence, and will at all times preserve and keep in full force
and effect the corporate existence of each of its Subsidiaries (unless merged
into the Company or a Wholly-Owned Subsidiary) and all rights and franchises of
the Company and its Subsidiaries unless, in the good faith judgment of the
Company, the termination of or failure to preserve and keep in full force and
effect such corporate existence, right or franchise could not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect.
Section 9.6. Guaranty by Subsidiaries. So long as the Guaranty
Agreement shall remain in effect, the Company will cause any Person which
becomes a Domestic Subsidiary after the Closing to enter into the Guaranty
Agreement, together with any security agreement necessary to cause the Guaranty
Agreement to rank pari passu with the Debt owing to the Bank Lenders, and to
deliver within five Business Days thereafter to each of the holders of the
Notes, a joinder agreement in respect of the Guaranty Agreement and any security
agreement similar to any that have been executed and delivered in favor of the
Bank Lenders.
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SECTION 10. NEGATIVE COVENANTS.
The Company covenants that so long as any of the Notes are outstanding:
Section 10.1. Consolidated Net Worth. The Company will not, at any
time, permit Consolidated Net Worth to be less than the sum of (a) $600,000,000,
plus (b) an aggregate amount equal to 50% of its Consolidated Net Income (but,
in each case, only if a positive number) for each completed fiscal quarter
beginning with the fiscal quarter ended March 31, 2000.
Section 10.2. Limitation on Consolidated Debt. The Company will not, at
any time, permit the Consolidated Debt Ratio to be greater than 3.50 to 1.00.
Section 10.3. Limitation on Priority Debt. The Company will not, at any
time, permit Priority Debt to exceed 20% of Consolidated Net Worth (determined
as of the then most recently ended fiscal quarter of the Company).
Section 10.4. Interest Charges Coverage Ratio. The Company will not, at
any time, permit the Interest Charges Coverage Ratio to be less than 2.00 to
1.00.
Section 10.5. Limitation on Liens. The Company will not, and will not
permit any of its Subsidiaries to, directly or indirectly create, incur, assume
or permit to exist (upon the happening of a contingency or otherwise), any Lien
on or with respect to any property or asset (including, without limitation, any
document or instrument in respect of goods or accounts receivable) of the
Company or any such Subsidiary, whether now owned or held or hereafter acquired,
or any income or profits therefrom, or assign or otherwise convey any right to
receive income or profits, provided that this Section 10.5 shall not limit the
Company's ability to pay dividends on its capital stock if and when declared by
the board of directors of the Company (unless it makes, or causes to be made,
effective provision whereby the Notes will be equally and ratably secured with
any and all other obligations thereby secured, such security to be pursuant to a
written agreement satisfactory to the Required Holders and, in any such case,
the Notes shall have the benefit, to the fullest extent that, and with such
priority as, the holders of the Notes may be entitled under applicable law, of
an equitable Lien on such property) except:
(a) Liens for taxes, assessments or other governmental charges
which are not yet due and payable or the payment of which is not at the
time required by Section 9.4;
(b) any attachment or judgment Lien, unless the judgment it
secures shall not, within 60 days after the entry thereof, have been
discharged or execution thereof stayed pending appeal, or shall not
have been discharged within 60 days after the expiration of any such
stay;
(c) Liens incidental to the conduct of business or the
ownership of properties and assets (including landlords', carriers',
warehousemen's, mechanics', materialmen's and other similar Liens) and
Liens to secure the performance of bids, tenders, leases, or trade
contracts, or to secure statutory obligations (including obligations
under workers
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compensation, unemployment insurance and other social security
legislation), surety or appeal bonds or other Liens incurred in the
ordinary course of business and not in connection with the borrowing of
money;
(d) leases or subleases entered into by the Company or its
Subsidiaries as either lessors or sublessors, easements, rights-of-way,
restrictions and other similar charges or encumbrances (including
zoning restrictions), in each case incidental to the ownership of
property or assets or the ordinary conduct of the business of the
Company or any of its Subsidiaries, provided that such Liens do not, in
the aggregate, detract from the value of such property in any material
way;
(e) Liens incidental to minor survey exceptions and similar
Liens, provided that such Liens do not, in the aggregate, materially
detract from the value of such property;
(f) Liens on property or assets of Subsidiaries securing Debt
owing to the Company or to another Subsidiary;
(g) Liens existing on the date of Closing described in
Schedule 10.5 which secure outstanding Debt of the Company and its
Subsidiaries referred to in Schedule 5.15 hereto;
(h) any Lien existing on property of a Person immediately
prior to its being consolidated with or merged into the Company or a
Subsidiary or its becoming a Subsidiary, or any Lien existing on any
property acquired by the Company or any Subsidiary at the time such
property is so acquired (whether or not the Debt secured thereby shall
have been assumed), provided that (i) no such Lien shall have been
created or assumed in contemplation of such consolidation or merger or
such Person's becoming a Subsidiary or such acquisition of property,
(ii) each such Lien shall extend solely to the item or items of
property so acquired, and (iii) the aggregate principal amount of all
Debt secured by any such Lien shall be permitted by the limitations set
forth in Section 10.2;
(i) Liens given to secure the payment of the purchase price
incurred in connection with the acquisition, lease (including any
Capital Lease) or construction of property (other than accounts
receivable or inventory) useful and intended to be used in carrying on
the business of the Company or a Subsidiary, including Liens existing
on such property at the time of acquisition, lease or construction
thereof or improvements thereon, or Liens incurred within 180 days of
such acquisition or the completion of such construction, provided that
(i) the Lien shall attach solely to the property acquired, purchased,
leased, constructed or improved, (ii) at the time of acquisition or
construction of such property, the aggregate amount remaining unpaid on
all Debt secured by Liens on such property, whether or not assumed by
the Company or a Subsidiary, shall not exceed an amount equal to the
lesser of the total purchase price or Fair Market Value at the time of
acquisition or construction of such property (as determined in good
faith by one or more officers of the Company or such Subsidiary, as the
case may be, to whom authority to enter into the transaction has been
delegated by the board of directors of the Company
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or such Subsidiary, as the case may be), and (iii) the aggregate
principal amount of all Debt secured by such Liens shall be permitted
by the limitations set forth in Section 10.2;
(j) Liens created by the Security Documents and similar
security documents securing Debt outstanding under this Agreement, the
Guaranty Agreement and the Bank Credit Agreement and any related
Guaranty of the Bank Credit Agreement provided that in the case of any
successor Bank Credit Agreement, the Bank Lenders and the holders of
the Notes shall continue to be parties to the Intercreditor Agreement;
(k) any extensions, renewals or replacements of any Lien
permitted by the preceding subparagraphs of this Section 10.5, provided
that (i) no additional property shall be encumbered by such Liens, (ii)
the unpaid principal amount of the Debt secured thereby shall not be
increased prior to or on or after the date of any extension, renewal or
replacement, (iii) the weighted average life to maturity of the Debt
secured by such Liens shall not be reduced, and (iv) at such time and
immediately after giving effect thereto, no Default or Event of Default
would exist; and
(l) in addition to the Liens permitted by the preceding
subparagraphs (a) through (k), inclusive, of this Section 10.5, Liens
securing Debt of the Company, provided that the aggregate principal
amount of such Debt shall not at any time exceed 10% of Consolidated
Net Worth (determined as of the then most recently ended fiscal quarter
of the Company).
Section 10.6. Merger, Consolidation. The Company will not, and will not
permit any Subsidiary to, consolidate with or be a party to a merger with any
other Person; provided, however, that:
(1) any Subsidiary may merge or consolidate with or into the
Company, so long as in any merger or consolidation involving the
Company, the Company shall be the surviving entity;
(2) any Subsidiary may merge or consolidate with or into any
other Person if either (x) the Subsidiary shall be the surviving
entity, or (y) if the Subsidiary is not the surviving entity, such
transaction is permitted by Section 10.7; and
(3) the Company may consolidate or merge with any other Person
if (i) either (x) the Company shall be the surviving entity, or (y) if
the surviving entity is other than the Company, (A) such entity is
organized under the laws of the United States or any jurisdiction
thereof, (B) such entity expressly assumes, by written agreement
satisfactory in scope and form to the Required Holders, all obligations
of the Company under the Notes, this Agreement and each Security
Document to which the Company is a party, (C) such entity shall cause
to be delivered to each holder of Notes an opinion of independent
counsel to the effect that all agreements or instruments effecting such
assumption are enforceable in accordance with their terms and comply
with the provisions of this Section 10.6 and otherwise satisfactory in
scope and form to the Required Holders, and
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(ii) at the time of such consolidation or merger and after giving
effect thereto, no Default or Event of Default shall have occurred and
be continuing.
Section 10.7. Sales of Assets. (a) The Company will not, and will not
permit any Subsidiary to, sell, lease or otherwise dispose of any substantial
part (as defined below) of the assets of the Company and its Subsidiaries;
provided, however, that the Company or any Subsidiary may sell lease or
otherwise dispose of assets constituting a substantial part of the assets of the
Company and its Subsidiaries if such assets are sold for Fair Market Value and,
at such time and after giving effect thereto, no Default or Event of Default
shall have occurred and be continuing, and an amount equal to the proceeds
received from such sale, lease or other disposition during such fiscal year
which shall be in excess of 10% of the book value of Consolidated Total Assets,
determined as of the end of the fiscal year immediately preceding such sale,
lease or other disposition, shall be used within 180 days of such disposition:
(1) to acquire property, plant and equipment or any business
entity (including the capital stock thereof) used or useful in carrying
on the business of the Company and its Subsidiaries and having a Fair
Market Value at least equal to the Fair Market Value of such assets
sold, leased or otherwise disposed of; or
(2) to prepay or retire Senior Debt of the Company and/or its
Subsidiaries, provided that if any Notes are prepaid pursuant to the
terms of this Section 10.7, such Notes shall also be prepaid in
accordance with the terms of Section 8.2 of this Agreement.
As used in this Section 10.7, a sale, lease or other disposition of
assets shall be deemed to be a "substantial part" of the assets of the Company
and its Subsidiaries if the book value of such assets, when added to the book
value of all other assets sold, leased or otherwise disposed of by the Company
and its Subsidiaries (other than in transactions (i) in the ordinary course of
business, (ii) in which the purchaser is the Company or a Subsidiary, or (iii)
which are Excluded Sale and Leaseback Transactions) during such fiscal year,
exceeds 10% of the book value of Consolidated Total Assets, determined as of the
end of the fiscal quarter immediately preceding such sale, lease or other
disposition.
Section 10.8. Nature of Business. Neither the Company nor any
Subsidiary will engage in any business if, as a result, the general nature of
the business, taken on a consolidated basis, which would then be engaged in by
the Company and its Subsidiaries would be substantially changed from the general
nature of the business engaged in by the Company and its Subsidiaries on the
date of this Agreement.
Section 10.9. Transactions with Affiliates. The Company will not and
will not permit any Subsidiary to enter into directly or indirectly any Material
transaction or Material group of related transactions (including without
limitation the purchase, lease, sale or exchange of properties of any kind or
the rendering of any service) with any Affiliate (other than the Company or
another Subsidiary), except upon fair and reasonable terms no less favorable to
the Company or such Subsidiary than would be obtainable in a comparable
arm's-length transaction with a Person not an Affiliate.
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Section 10.10. Further Assurances. So long as any Security Document and
the Guaranty Agreement shall remain in effect, if the Collateral Agent shall
resign or be removed or the Intercreditor Agreement shall no longer be in full
force and effect, the Company will, and will cause each Guarantor to, execute
and deliver to each holder of a Note such additional documents (including
amendments to the Security Documents) as the holders of the Notes shall
reasonably request so that there shall continue to be a Collateral Agent under
the Security Documents and to insure that the Lien of the Security Documents
shall continue to be in full force and effect.
So long as any Security Document shall remain in effect, the Company
also agrees at its own expense to cause or use its reasonable commercial efforts
to cause the Security Documents and all supplements and amendments thereto and
all financing and continuation statements and similar notices required by
applicable law at all times to be kept, recorded and filed in such manner and in
such places to maintain the effectiveness of any original or supplemental
filings under the Uniform Commercial Code or comparable law in any relevant
jurisdiction to maintain, in full force and effect, the Lien and security
interest granted by the Company and the Guarantors to the holders of the Notes
or the Collateral Agent for the benefit of the holders of the Notes pursuant to
the Security Documents.
SECTION 11. EVENTS OF DEFAULT.
An "Event of Default" shall exist if any of the following conditions or
events shall occur and be continuing:
(a) the Company defaults in the payment of any principal or
Make-Whole Amount, if any, on any Note when the same becomes due and
payable, whether at maturity or at a date fixed for prepayment or by
declaration or otherwise; or
(b) the Company defaults in the payment of any interest on any
Note for more than five Business Days after the same becomes due and
payable; or
(c) the Company defaults in the performance of or compliance
with any term contained in Section 10.4, Section 10.6 or Section 10.7
and such default is not remedied within five (5) Business Days of the
occurrence thereof; or
(d) the Company defaults in the performance of or compliance
with any term contained herein or in any Supplement (other than those
referred to in paragraphs (a), (b) and (c) of this Section 11) and such
default is not remedied within 30 days after the earlier of (i) a
Responsible Officer obtaining actual knowledge of such default and (ii)
the Company receiving written notice of such default from any holder of
a Note (any such written notice to be identified as a "notice of
default" and to refer specifically to this paragraph (d) of Section
11); or
(e) prior to the release of any Guarantor from the Guaranty
Agreement upon the occurrence of a Guaranty Release Event, a default
shall occur in the observance or performance of any covenant or
agreement contained in the Guaranty Agreement by such Guarantor and
such default shall continue beyond the period of grace, if any, allowed
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with respect thereto or the Guaranty Agreement shall cease to be in
full force and effect for any reason whatsoever, including, without
limitation, a determination by any governmental body or court that such
agreement is invalid, void or unenforceable against such Guarantor or
such Guarantor shall contest or deny in writing the validity or
enforceability of any of its obligations under the Guaranty Agreement;
or
(f) prior to the release of any Security Document upon the
occurrence of a Collateral Release Event, a default shall occur in the
observance or performance of any covenant or agreement contained in
such Security Document and such default shall continue beyond the
period of grace, if any, allowed with respect thereto or such Security
Document creating or granting a Lien on any Collateral shall cease to
be in full force and effect or the Company or any Guarantor shall deny
or disaffirm the validity of any such Lien;
(g) any representation or warranty made in writing by or on
behalf of the Company or any Guarantor or by any officer of the Company
or any Guarantor in this Agreement, any Security Document or the
Guaranty Agreement or in any writing furnished in connection with the
transactions contemplated hereby or thereby proves to have been false
or incorrect in any material respect on the date as of which made; or
(h) (i) the Company or any Significant Subsidiary is in
default (as principal or as guarantor or other surety) in the payment
of any principal of or premium or make-whole amount or interest on Debt
other than the Notes (individually or in the aggregate) that is
outstanding in an aggregate principal amount of 5% or more of
Consolidated Net Worth beyond any period of grace provided with respect
thereto, or (ii) the Company or any Significant Subsidiary is in
default in the performance of or compliance with any term of any
instrument, mortgage, indenture or other agreement relating to any Debt
other than the Notes (individually or in the aggregate) in an aggregate
principal amount of 5% or more of Consolidated Net Worth or any other
condition exists, and as a consequence of such default or condition
such Debt has become, or has been declared, due and payable before its
stated maturity or before its regularly scheduled dates of payment, or
(iii) as a consequence of the occurrence or continuation of any event
or condition (other than the passage of time or the right of the holder
of Debt to convert such Debt into equity interests), the Company or any
Significant Subsidiary has become obligated to purchase or repay Debt
other than the Notes before its regular maturity or before its
regularly scheduled dates of payment in an aggregate outstanding
principal amount of 5% or more of Consolidated Net Worth; or
(i) the Company or any Significant Subsidiary (i) is generally
not paying, or admits in writing its inability to pay, its debts as
they become due, (ii) files, or consents by answer or otherwise to the
filing against it of, a petition for relief or reorganization or
arrangement or any other petition in bankruptcy, for liquidation or to
take advantage of any bankruptcy, insolvency, reorganization,
moratorium or other similar law of any jurisdiction, (iii) makes an
assignment for the benefit of its creditors, (iv) consents to the
appointment of a custodian, receiver, trustee or other officer with
similar powers with respect to it or with respect to any substantial
part of its property, (v) is adjudicated as
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insolvent or to be liquidated, or (vi) takes corporate action for the
purpose of any of the foregoing; or
(j) a court or governmental authority of competent
jurisdiction enters an order appointing, without consent by the Company
or any of its Significant Subsidiaries, a custodian, receiver, trustee
or other officer with similar powers with respect to it or with respect
to any substantial part of its property, or constituting an order for
relief or approving a petition for relief or reorganization or any
other petition in bankruptcy or for liquidation or to take advantage of
any bankruptcy or insolvency law of any jurisdiction, or ordering the
dissolution, winding-up or liquidation of the Company or any of its
Significant Subsidiaries, or any such petition shall be filed against
the Company or any of its Significant Subsidiaries and such petition
shall not be dismissed within 60 days; or
(k) a final judgment or judgments at any one time outstanding
for the payment of money aggregating an amount equal to 5% or more of
Consolidated Net Worth are rendered against one or more of the Company
and its Significant Subsidiaries and which judgments are not, within 60
days after entry thereof, bonded, discharged or stayed pending appeal,
or are not discharged within 60 days after the expiration of such stay;
or
(l) If (i) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a
waiver of such standards or extension of any amortization period is
sought or granted under Section 412 of the Code, (ii) a notice of
intent to terminate any Plan shall have been or is reasonably expected
to be filed with the PBGC or the PBGC shall have instituted proceedings
under Section 4042 of ERISA to terminate or appoint a trustee to
administer any Plan or the PBGC shall have notified the Company or any
ERISA Affiliate that a Plan may become a subject of any such
proceedings, (iii) the aggregate "amount of unfunded benefit
liabilities" (within the meaning of Section 4001(a)(18) of ERISA) under
all Plans, determined in accordance with Title IV of ERISA, shall
exceed an amount equal to 5% or more of Consolidated Net Worth, (iv)
the Company or any ERISA Affiliate shall have incurred or is reasonably
expected to incur any liability pursuant to Title I or IV of ERISA or
the penalty or excise tax provisions of the Code relating to employee
benefit plans, (v) the Company or any ERISA Affiliate withdraws from
any Multiemployer Plan, or (vi) the Company or any Subsidiary
establishes or amends any employee welfare benefit plan that provides
post-employment welfare benefits in a manner that would increase the
liability of the Company or any Subsidiary thereunder; and any such
event or events described in clauses (i) through (vi) above, either
individually or together with any other such event or events, could
reasonably be expected to have a Material Adverse Effect.
As used in Section 11(l), the terms "employee benefit plan" and "employee
welfare benefit plan" shall have the respective meanings assigned to such terms
in Section 3 of ERISA.
SECTION 12. REMEDIES ON DEFAULT, ETC.
Section 12.1. Acceleration. (a) If an Event of Default with respect to
the Company described in paragraph (i) or (j) of Section 11 (other than an Event
of Default described in clause
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(i) of paragraph (i) or described in clause (vi) of paragraph (i) by virtue of
the fact that such clause encompasses clause (i) of paragraph (i)) has occurred,
all the Notes of every Series then outstanding shall automatically become
immediately due and payable.
(b) If any other Event of Default has occurred and is continuing, any
holder or holders of more than 50% in aggregate principal amount of each Series
of the Notes at the time outstanding may at any time at its or their option, by
notice or notices to the Company, declare all the Notes of such Series then
outstanding to be immediately due and payable.
(c) If any Event of Default described in paragraph (a) or (b) of
Section 11 has occurred and is continuing with respect to any Series of Notes,
any holder or holders of Notes at the time outstanding affected by such Event of
Default may at any time, at its or their option, by notice or notices to the
Company, declare all the Notes held by such holder or holders to be immediately
due and payable.
Upon any Note's becoming due and payable under this Section 12.1,
whether automatically or by declaration, such Note will forthwith mature and the
entire unpaid principal amount of such Note, plus (i) all accrued and unpaid
interest thereon and (ii) the Make-Whole Amount determined in respect of such
principal amount (to the full extent permitted by applicable law), shall all be
immediately due and payable, in each and every case without presentment, demand,
protest or further notice, all of which are hereby waived. The Company
acknowledges, and the parties hereto agree, that each holder of a Note has the
right to maintain its investment in the Notes free from repayment by the Company
(except as herein specifically provided for) and that the provision for payment
of a Make-Whole Amount by the Company in the event that the Notes are prepaid or
are accelerated as a result of an Event of Default, is intended to provide
compensation for the deprivation of such right under such circumstances.
Section 12.2. Other Remedies. If any Default or Event of Default has
occurred and is continuing, and irrespective of whether any Notes have become or
have been declared immediately due and payable under Section 12.1, the Required
Holders at the time outstanding may proceed to protect and enforce the rights of
the holders by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or in any
Note, or for an injunction against a violation of any of the terms hereof or
thereof, or in aid of the exercise of any power granted hereby or thereby or by
law or otherwise.
Section 12.3. Rescission. At any time after any Notes of any Series
have been declared due and payable pursuant to clause (b) or (c) of Section
12.1, the holders of not less than 50% in principal amount of the Notes of such
Series, taken individually, then outstanding, by written notice to the Company,
may rescind and annul any such declaration and its consequences if (a) the
Company has paid all overdue interest on the Notes of such Series, all principal
of and Make-Whole Amount, if any, on any Notes of such Series that are due and
payable and are unpaid other than by reason of such declaration, and all
interest on such overdue principal and Make-Whole Amount, if any, and (to the
extent permitted by applicable law) any overdue interest in respect of the Notes
of such Series, at the Default Rate, (b) all Events of Default and Defaults,
other than non-payment of amounts that have become due solely by reason of such
declaration, have been cured or have been waived pursuant to Section 17, and (c)
no judgment or
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decree has been entered for the payment of any monies due pursuant hereto or to
any Notes. No rescission and annulment under this Section 12.3 will extend to or
affect any subsequent Event of Default or Default or impair any right consequent
thereon.
Section 12.4. No Waivers or Election of Remedies, Expenses, Etc. No
course of dealing and no delay on the part of any holder of any Note in
exercising any right, power or remedy shall operate as a waiver thereof or
otherwise prejudice such holder's rights, powers or remedies. No right, power or
remedy conferred by this Agreement or by any Note upon any holder thereof shall
be exclusive of any other right, power or remedy referred to herein or therein
or now or hereafter available at law, in equity, by statute or otherwise.
Without limiting the obligations of the Company under Section 15, the Company
will pay to the holder of each Note on demand such further amount as shall be
sufficient to cover all costs and expenses of such holder incurred in any
enforcement or collection under this Section 12, including, without limitation,
the reasonable attorneys' fees, expenses and disbursements for the holders as
set forth in Section 15.
SECTION 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
Section 13.1. Registration of Notes. The Company shall keep at its
principal executive office a register for the registration and registration of
transfers of Notes. The name and address of each holder of one or more Notes,
each transfer thereof and the name and address of each transferee of one or more
Notes shall be registered in such register. Prior to due presentment for
registration of transfer, the Person in whose name any Note shall be registered
shall be deemed and treated as the owner and holder thereof for all purposes
hereof, and the Company shall not be affected by any notice or knowledge to the
contrary. The Company shall give to any holder of a Note that is an
Institutional Investor promptly upon request therefor, a complete and correct
copy of the names and addresses of all registered holders of Notes.
Section 13.2. Transfer and Exchange of Notes. Upon surrender of any
Note at the principal executive office of the Company for registration of
transfer or exchange (and in the case of a surrender for registration of
transfer, duly endorsed or accompanied by a written instrument of transfer duly
executed by the registered holder of such Note or its attorney duly authorized
in writing and accompanied by the address for notices of each transferee of such
Note or part thereof), the Company shall execute and deliver not more than 5
Business Days following surrender of such Note, at the Company's expense (except
as provided below), one or more new Notes (as requested by the holder thereof)
of the same Series (and of the same tranche if such Series has separate
tranches) in exchange therefor, in an aggregate principal amount equal to the
unpaid principal amount of the surrendered Note. Each such new Note shall be
payable to such Person as such holder may request and shall be substantially in
the form of the Note of such Series originally issued hereunder or pursuant to
any Supplement. Each such new Note shall be dated and bear interest from the
date to which interest shall have been paid on the surrendered Note or dated the
date of the surrendered Note if no interest shall have been paid thereon. The
Company may require payment of a sum sufficient to cover any stamp tax or
governmental charge imposed in respect of any such transfer of Notes. Notes
shall not be transferred in denominations of less than $100,000, provided that
if necessary to enable the registration of transfer by a holder of its entire
holding of Notes, one Note may be in a denomination of less than $100,000. Any
transferee, by its acceptance of a Note registered in its name (or the name of
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its nominee), shall be deemed to have made the representation set forth in
Section 6.2, provided that such holder may (in reliance upon information
provided by the Company, which shall not be unreasonably withheld) make a
representation to the effect that the purchase by such holder of any Note will
not constitute a non-exempt prohibited transaction under Section 406(a) of
ERISA.
The Notes have not been registered under the Securities Act or under
the securities laws of any state and may not be transferred or resold unless
registered under the Securities Act and all applicable state securities laws or
unless an exemption from the requirement for such registration is available.
Section 13.3. Replacement of Notes. Upon receipt by the Company of
evidence reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any Note (which evidence shall be, in the case of
an Institutional Investor, notice from such Institutional Investor of such
ownership and such loss, theft, destruction or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (provided that if the holder of such Note
is, or is a nominee for, an original Purchaser or another holder of a
Note with a minimum net worth of at least $50,000,000, such Person's
own unsecured agreement of indemnity shall be deemed to be
satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation
thereof,
the Company at its own expense shall execute and deliver not more than five
Business Days following satisfaction of such conditions, in lieu thereof, a new
Note of the same Series (and of the same tranche if such Series has separate
tranches), dated and bearing interest from the date to which interest shall have
been paid on such lost, stolen, destroyed or mutilated Note or dated the date of
such lost, stolen, destroyed or mutilated Note if no interest shall have been
paid thereon.
SECTION 14. PAYMENTS ON NOTES.
Section 14.1. Place of Payment. Subject to Section 14.2, payments of
principal, Make-Whole Amount, if any, and interest becoming due and payable on
the Notes shall be made in New York, New York at the principal office of Bank of
America, N.A. in such jurisdiction. The Company may at any time, by notice to
each holder of a Note, change the place of payment of the Notes so long as such
place of payment shall be either the principal office of the Company in such
jurisdiction or the principal office of a bank or trust company in such
jurisdiction.
Section 14.2. Home Office Payment. So long as any Purchaser or such
Purchaser's nominee shall be the holder of any Note, and notwithstanding
anything contained in Section 14.1 or in such Note to the contrary, the Company
will pay all sums becoming due on such Note for principal, Make-Whole Amount, if
any, and interest by the method and at the address specified for such purpose
for such Purchaser on Schedule A hereto or, in the case of any Additional
Purchaser, Schedule A attached to any Supplement pursuant to which such
Additional Purchaser is a party, or by such other method or at such other
address as such Purchaser or Additional Purchaser shall have from time to time
specified to the Company in writing for such purpose,
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without the presentation or surrender of such Note or the making of any notation
thereon, except that upon written request of the Company made concurrently with
or reasonably promptly after payment or prepayment in full of any Note, such
Purchaser or Additional Purchaser shall surrender such Note for cancellation,
reasonably promptly after any such request, to the Company at its principal
executive office or at the place of payment most recently designated by the
Company pursuant to Section 14.1. Prior to any sale or other disposition of any
Note held by any Purchaser or Additional Purchaser or such Person's nominee,
such Person will, at its election, either endorse thereon the amount of
principal paid thereon and the last date to which interest has been paid thereon
or surrender such Note to the Company in exchange for a new Note or Notes
pursuant to Section 13.2. The Company will afford the benefits of this Section
14.2 to any Institutional Investor that is the direct or indirect transferee of
any Note.
SECTION 15. EXPENSES, ETC.
Section 15.1. Transaction Expenses. Whether or not the transactions
contemplated hereby are consummated, the Company will pay all reasonable costs
and expenses (including reasonable attorneys' fees of one special counsel and,
if reasonably required, local or other counsel) incurred by the Purchasers and
the holders of Notes in connection with such transactions and in connection with
any amendments, waivers or consents under or in respect of this Agreement
(including any Supplement), the Security Documents, the Guaranty Agreement, the
Intercreditor Agreement or the Notes (whether or not such amendment, waiver or
consent becomes effective), including, without limitation: (a) the reasonable
costs and expenses incurred in enforcing or defending (or determining whether or
how to enforce or defend) any rights under this Agreement (including any
Supplement), the Security Documents, the Guaranty Agreement, the Intercreditor
Agreement or the Notes or in responding to any subpoena or other legal process
or informal investigative demand by any Governmental Authority issued in
connection with this Agreement (including any Supplement), the Security
Documents, the Guaranty Agreement, the Intercreditor Agreement or the Notes, or
by reason of being a holder of any Note, and (b) the reasonable costs and
expenses, including financial advisors' fees, incurred in connection with the
insolvency or bankruptcy of the Company or any Subsidiary or in connection with
any work-out or restructuring of the transactions contemplated hereby and by the
Notes. The Company will pay, and will save each Purchaser and each other holder
of a Note harmless from, all claims in respect of any reasonable fees, costs or
expenses if any, of brokers and finders (other than those retained by the
Purchasers).
Section 15.2. Survival. The obligations of the Company under this
Section 15 will survive the payment or transfer of any Note, the enforcement,
amendment or waiver of any provision of this Agreement, any Supplement or the
Notes, and the termination of this Agreement or any Supplement.
SECTION 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein or in any
Supplement shall survive the execution and delivery of this Agreement or such
Supplement and the related Notes, the purchase or transfer by any Purchaser or
any Additional Purchaser of any such Note or portion
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thereof or interest therein and may be relied upon by any subsequent holder of
any such Note, regardless of any investigation made at any time by or on behalf
of any Purchaser or any Additional Purchaser or any other holder of any such
Note. All statements contained in any certificate or other instrument delivered
by or on behalf of the Company pursuant to this Agreement or any Supplement
shall be deemed representations and warranties of the Company under this
Agreement; provided, that the representations and warranties contained in any
Supplement shall only be made for the benefit of the Additional Purchasers which
are party to such Supplement and the holders, including subsequent holders of
any Note issued pursuant to such Supplement, and shall not require the consent
of the holders of existing Notes. Subject to the preceding sentence, this
Agreement (including every Supplement), the Security Documents, the
Intercreditor Agreement, the Guaranty Agreement and the Notes embody the entire
agreement and understanding between the Purchasers and the Additional Purchasers
and the Company and supersede all prior agreements and understandings relating
to the subject matter hereof.
SECTION 17. AMENDMENT AND WAIVER.
Section 17.1. Requirements. (a) This Agreement (including any
Supplement) and the Notes may be amended, and the observance of any term hereof
or of the Notes may be waived (either retroactively or prospectively), with (and
only with) the written consent of the Company and the holders of Notes holding
more than 50% in aggregate principal amount of the Notes of each Series at the
time outstanding, except that (a) no amendment or waiver of any of the
provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof or the corresponding
provision of any Supplement, or any defined term (as it is used in any such
Section or such corresponding provision of any Supplement), will be effective as
to any holder of Notes unless consented to by such holder of Notes in writing,
and (b) no such amendment or waiver may, without the written consent of all of
the holders of Notes at the time outstanding affected thereby, (i) subject to
the provisions of Section 12 relating to acceleration or rescission, change the
amount or time of any prepayment or payment of principal of, or reduce the rate
or change the time of payment or method of computation of interest or of the
Make-Whole Amount on, the Notes, (ii) change the percentage of the principal
amount of the Notes the holders of which are required to consent to any such
amendment or waiver, or (iii) amend any of Sections 8, 11(a), 11(b), 12, 17 or
20.
(b) Supplements. Notwithstanding anything to the contrary contained
herein, the Company may enter into any Supplement providing for the issuance of
one or more Series of Additional Notes consistent with Sections 2.4 and 4.18
hereof without obtaining the consent of any holder of any other Series of Notes.
Section 17.2. Solicitation of Holders of Notes.
(a) Solicitation. The Company will provide each holder of the Notes
(irrespective of the amount of Notes then owned by it) with sufficient
information, sufficiently far in advance of the date a decision is required, to
enable such holder to make an informed and considered decision with respect to
any proposed amendment, waiver or consent in respect of any of the provisions
hereof, any Supplement or of the Notes. The Company will deliver executed or
true and correct copies of each amendment, waiver or consent effected pursuant
to the provisions of
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this Section 17 to each holder of outstanding Notes promptly following the date
on which it is executed and delivered by, or receives the consent or approval
of, the requisite holders of Notes.
(b) Payment. The Company will not directly or indirectly pay or cause
to be paid any remuneration, whether by way of supplemental or additional
interest, fee or otherwise, or grant any security, to any holder of Notes as
consideration for or as an inducement to the entering into by any holder of
Notes of any waiver or amendment of any of the terms and provisions hereof or
any Supplement unless such remuneration is concurrently paid, or security is
concurrently granted, on the same terms, ratably to each holder of Notes then
outstanding even if such holder did not consent to such waiver or amendment.
Section 17.3. Binding Effect, Etc. Any amendment or waiver consented to
as provided in this Section 17 applies equally to all holders of Notes and is
binding upon them and upon each future holder of any Note and upon the Company
without regard to whether such Note has been marked to indicate such amendment
or waiver. No such amendment or waiver will extend to or affect any obligation,
covenant, agreement, Default or Event of Default not expressly amended or waived
or impair any right consequent thereon. No course of dealing between the Company
and the holder of any Note nor any delay in exercising any rights hereunder or
under any Note shall operate as a waiver of any rights of any holder of such
Note. As used herein, the term "this Agreement" and references thereto shall
mean this Agreement as it may from time to time be amended or supplemented.
Section 17.4. Notes Held by Company, Etc. Solely for the purpose of
determining whether the holders of the requisite percentage of the aggregate
principal amount of Notes then outstanding approved or consented to any
amendment, waiver or consent to be given under this Agreement or the Notes, or
have directed the taking of any action provided herein or in the Notes to be
taken upon the direction of the holders of a specified percentage of the
aggregate principal amount of Notes then outstanding, Notes directly or
indirectly owned by the Company or any of its Affiliates shall be deemed not to
be outstanding.
SECTION 18. NOTICES.
All notices and communications provided for hereunder shall be in
writing and sent (a) by telefacsimile if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service
(charges prepaid), or (b) by registered or certified mail with return receipt
requested (postage prepaid), or (c) by a recognized overnight delivery service
(with charges prepaid). Any such notice must be sent:
(i) if to a Purchaser or such Purchaser's nominee, to such
Purchaser or such Purchaser's nominee at the address specified for such
communications in Schedule A to this Agreement, or at such other
address as such Purchaser or such Purchaser's nominee shall have
specified to the Company in writing pursuant to this Section 18,
(ii) if to an Additional Purchaser or such Additional
Purchaser's nominee, to such Additional Purchaser or such Additional
Purchaser's nominee at the address specified for such communications in
Schedule A to any Supplement, or at such other
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address as such Additional Purchaser or such Additional Purchaser's
nominee shall have specified to the Company in writing,
(iii) if to any other holder of any Note, to such holder at
such address as such other holder shall have specified to the Company
in writing pursuant to this Section 18, or
(iv) if to the Company, to the Company at its address set
forth at the beginning hereof to the attention of Chief Financial
Officer, with a copy to the General Counsel, or at such other address
as the Company shall have specified to the holder of each Note in
writing.
Notices under this Section 18 will be deemed given only when actually received.
SECTION 19. REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by each Purchaser at the Closing (except the
Notes themselves), and (c) financial statements, certificates and other
information previously or hereafter furnished to each Purchaser, may be
reproduced by such Purchaser by any photographic, photostatic, microfilm,
microcard, miniature photographic or other similar process and such Purchaser
may destroy any original document so reproduced. The Company agrees and
stipulates that, to the extent permitted by applicable law, any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by such Purchaser in the
regular course of business) and any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence. This
Section 19 shall not prohibit the Company or any other holder of Notes from
contesting any such reproduction to the same extent that it could contest the
original, or from introducing evidence to demonstrate the inaccuracy of any such
reproduction.
SECTION 20. CONFIDENTIAL INFORMATION.
For the purposes of this Section 20, "Confidential Information" means
information delivered to any Purchaser by or on behalf of the Company or any
Subsidiary in connection with the transactions contemplated by or otherwise
pursuant to this Agreement that is proprietary in nature and that was clearly
marked or labeled or otherwise adequately identified when received by such
Purchaser as being confidential information of the Company or such Subsidiary,
provided that such term does not include information that (a) was publicly known
or otherwise known to such Purchaser prior to the time of such disclosure, (b)
subsequently becomes publicly known through no act or omission by such Purchaser
or any Person acting on such Purchaser's behalf, (c) otherwise becomes known to
such Purchaser other than through disclosure by the Company or any Subsidiary or
(d) constitutes financial statements delivered to such Purchaser under Section
7.1 that are otherwise publicly available. Each Purchaser will maintain the
confidentiality of such Confidential Information in accordance with procedures
adopted by such Purchaser in good faith to protect confidential information of
third parties delivered to such
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Purchaser, provided that such Purchaser may deliver or disclose Confidential
Information to (i) such Purchaser's directors, trustees, officers, employees,
agents, attorneys and affiliates (to the extent such disclosure reasonably
relates to the administration of the investment represented by such Purchaser's
Notes), (ii) such Purchaser's financial advisors and other professional advisors
who agree to hold confidential the Confidential Information substantially in
accordance with the terms of this Section 20, (iii) any other holder of any
Note, (iv) any Institutional Investor to which such Purchaser sells or offers to
sell such Note or any part thereof or any participation therein (if such Person
has agreed in writing prior to its receipt of such Confidential Information to
be bound by the provisions of this Section 20), (v) any Person from which such
Purchaser offers to purchase any security of the Company (if such Person has
agreed in writing prior to its receipt of such Confidential Information to be
bound by the provisions of this Section 20), (vi) any federal or state
regulatory authority having jurisdiction over such Purchaser, (vii) the National
Association of Insurance Commissioners or any similar organization, or any
nationally recognized rating agency that requires access to information about
such Purchaser's investment portfolio, or (viii) any other Person to which such
delivery or disclosure may be necessary or appropriate (w) to effect compliance
with any law, Rule, regulation or order applicable to such Purchaser, (x) in
response to any subpoena or other legal process, provided that, to the extent
permitted by law, each holder will use reasonable efforts to notify the Company
of any request to disclose Confidential Information requested pursuant to any
subpoena or other legal process, provided further that the failure to notify the
Company of any such request shall not result in any liability to such holder,
(y) in connection with any litigation to which such Purchaser is a party or (z)
if an Event of Default has occurred and is continuing, to the extent such
Purchaser may reasonably determine such delivery and disclosure to be necessary
or appropriate in the enforcement or for the protection of the rights and
remedies under such Purchaser's Notes and this Agreement. Each holder of a Note,
by its acceptance of a Note, will be deemed to have agreed to be bound by and to
be entitled to the benefits of this Section 20 as though it were a party to this
Agreement. On reasonable request by the Company in connection with the delivery
to any holder of a Note of information required to be delivered to such holder
under this Agreement or requested by such holder (other than a holder that is a
party to this Agreement or its nominee), such holder will enter into an
agreement with the Company embodying the provisions of this Section 20.
SECTION 21. SUBSTITUTION OF PURCHASER.
Each Purchaser shall have the right to substitute any one of such
Purchaser's Affiliates as the purchaser of the Notes that such Purchaser has
agreed to purchase hereunder, by written notice to the Company, which notice
shall be signed by both such Purchaser and such Purchaser's Affiliate, shall
contain such Affiliate's agreement to be bound by this Agreement and shall
contain a confirmation by such Affiliate of the accuracy with respect to it of
the representations set forth in Section 6. Upon receipt of such notice,
wherever the word "Purchaser" is used in this Agreement (other than in this
Section 21), such word shall be deemed to refer to such Affiliate in lieu of
such Purchaser. In the event that such Affiliate is so substituted as a
purchaser hereunder and such Affiliate thereafter transfers to such Purchaser
all of the Notes then held by such Affiliate, upon receipt by the Company of
notice of such transfer, wherever the word "Purchaser" is used in this Agreement
(other than in this Section 21), such
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word shall no longer be deemed to refer to such Affiliate, but shall refer to
such Purchaser, and such Purchaser shall have all the rights of an original
holder of the Notes under this Agreement.
SECTION 22. MISCELLANEOUS.
Section 22.1. Successors and Assigns. All covenants and other
agreements contained in this Agreement (including all covenants and other
agreements contained in any Supplement) by or on behalf of any of the parties
hereto bind and inure to the benefit of their respective successors and assigns
(including, without limitation, any subsequent holder of a Note) whether so
expressed or not.
Section 22.2. Payments Due on Non-Business Days. Anything in this
Agreement or the Notes to the contrary notwithstanding, any payment of principal
of or Make-Whole Amount or interest on any Note that is due on a date other than
a Business Day shall be made on the next succeeding Business Day without
including the additional days elapsed in the computation of the interest payable
on such next succeeding Business Day.
Section 22.3. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall (to the full extent permitted by law)
not invalidate or render unenforceable such provision in any other jurisdiction.
Section 22.4. Construction. Each covenant contained herein shall be
construed (absent express provision to the contrary) as being independent of
each other covenant contained herein, so that compliance with any one covenant
shall not (absent such an express contrary provision) be deemed to excuse
compliance with any other covenant. Where any provision herein refers to action
to be taken by any Person, or which such Person is prohibited from taking, such
provision shall be applicable whether such action is taken directly or
indirectly by such Person.
Section 22.5. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies hereof, each signed by less than all, but together signed by
all, of the parties hereto.
Section 22.6. Governing Law. This Agreement shall be construed and
enforced in accordance with, and the rights of the parties shall be governed by,
the law of the State of New York excluding choice-of-law principles of the law
of such State that would require the application of the laws of a jurisdiction
other than such State.
Section 22.7. Legal Rate of Interest. Regardless of any provision
contained in this Agreement or in any Guaranty Agreement or the Security
Documents, the rate of interest borne by the Notes shall not exceed the maximum
amount of nonusurious interest that may be contracted for, taken, reserved,
charged or received under any applicable law; any interest in excess of that
maximum amount shall be credited on the principal of the Notes of the applicable
Series or, if that has been paid, refunded. On any acceleration or required or
permitted
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prepayment, any such excess shall be canceled automatically as of the
acceleration or prepayment or, if already paid, credited on the principal of the
Notes of the applicable Series or, if the principal of the Notes of such Series
has been paid, refunded. In determining whether or not the interest paid or
payable, under any specific contingency, exceeds the maximum amount of
nonusurious interest, the Company and holders of the Notes shall, to the maximum
extent permitted under applicable law, (a) characterize any nonprincipal payment
as an expense, fee or premium rather than as interest, (b) exclude voluntary
prepayments and the effects thereof, and (c) spread the total amount of interest
throughout the entire contemplated term of the Notes of the applicable Series.
Section 22.8. Submission to Process. THE COMPANY HEREBY AGREES THAT ANY
LEGAL ACTION OR PROCEEDING AGAINST THE COMPANY WITH RESPECT TO THIS AGREEMENT,
ANY SECURITY DOCUMENT OR THE NOTES MAY BE BROUGHT IN THE COURTS OF THE STATE OF
NEW YORK OR (TO THE EXTENT THEY HAVE SUBJECT MATTER JURISDICTION) OF THE UNITED
STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK AS THE HOLDERS OF 51% IN
PRINCIPAL AMOUNT OF THE NOTES MAY ELECT, AND, BY EXECUTION AND DELIVERY HEREOF,
THE COMPANY ACCEPTS AND CONSENTS, FOR ITSELF AND IN RESPECT TO ITS PROPERTY,
GENERALLY AND UNCONDITIONALLY, TO THE JURISDICTION OF THE AFORESAID COURTS AND
AGREES THAT SUCH JURISDICTION SHALL BE EXCLUSIVE, UNLESS WAIVED BY THE HOLDERS
OF 51% IN PRINCIPAL AMOUNT OF THE NOTES IN WRITING, WITH RESPECT TO ANY ACTION
OR PROCEEDING BROUGHT BY THE COMPANY AGAINST THE HOLDERS AND ANY QUESTIONS
RELATING TO USURY. THE COMPANY WAIVES (TO THE EXTENT PERMITTED BY APPLICABLE
LAW) ANY RIGHT TO STAY OR TO DISMISS ANY ACTION OR PROCEEDING BROUGHT BEFORE
SAID COURTS ON THE BASIS OF FORUM NON CONVENIENS. IN FURTHERANCE OF THE
FOREGOING, THE COMPANY HEREBY IRREVOCABLY DESIGNATES AND APPOINTS CAPITOL
SERVICES INC., AS AGENT OF THE COMPANY TO RECEIVE SERVICE OF ALL PROCESS BROUGHT
AGAINST THE COMPANY EACH WITH RESPECT TO ANY SUCH PROCEEDING IN ANY SUCH COURT
IN NEW YORK, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY THE COMPANY TO BE
EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. COPIES OF ANY SUCH PROCESS SO
SERVED SHALL ALSO, IF PERMITTED BY LAW, BE SENT BY REGISTERED MAIL TO THE
COMPANY IN ACCORDANCE WITH SECTION 18 BUT THE FAILURE OF THE COMPANY TO RECEIVE
SUCH COPIES SHALL NOT AFFECT IN ANY WAY THE SERVICE OF SUCH PROCESS AS
AFORESAID. THE COMPANY SHALL FURNISH TO THE HOLDERS A CONSENT OF CAPITOL
SERVICES INC. AGREEING TO ACT HEREUNDER PRIOR TO THE DATE OF CLOSING. NOTHING
HEREIN SHALL AFFECT THE RIGHT OF THE HOLDERS TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE HOLDERS TO BRING
PROCEEDINGS AGAINST THE COMPANY IN THE COURTS OF ANY OTHER JURISDICTION. IF FOR
ANY REASON CAPITOL SERVICES INC. SHALL RESIGN OR OTHERWISE CEASE TO ACT AS
AGENT, THE COMPANY HEREBY IRREVOCABLY AGREES TO (A) IMMEDIATELY DESIGNATE AND
APPOINT A NEW AGENT ACCEPTABLE TO THE HOLDERS OF 51% IN PRINCIPAL AMOUNT OF THE
NOTES TO SERVE IN SUCH CAPACITY AND, IN SUCH EVENT, SUCH NEW AGENT SHALL BE
DEEMED TO BE SUBSTITUTED FOR CAPITOL SERVICES INC. FOR ALL PURPOSES HEREOF AND
(B) PROMPTLY DELIVER TO THE HOLDERS THE WRITTEN CONSENT (IN FORM AND SUBSTANCE
SATISFACTORY TO THE HOLDERS OF 51% IN PRINCIPAL AMOUNT OF THE NOTES) OF SUCH NEW
AGENT AGREEING TO SERVE IN SUCH CAPACITY.
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Section 22.9. Waivers by the Company. THE COMPANY WAIVES (A) THE RIGHT
TO TRIAL BY JURY (WHICH EACH HOLDER OF NOTES HEREBY ALSO WAIVES) IN ANY ACTION,
SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO THIS
AGREEMENT, ANY SECURITY DOCUMENT OR THE NOTES; (B) PRESENTMENT, DEMAND AND
PROTEST AND NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON-PAYMENT, INTENT TO
ACCELERATE, ACCELERATION, MATURITY, RELEASE, COMPROMISE, SETTLEMENT, EXTENSION
OR RENEWAL OF ANY OR ALL DOCUMENTS, INSTRUMENTS, AND GUARANTIES AT ANY TIME HELD
BY THE HOLDERS OF NOTES (OR ANY AGENT THEREFOR) ON WHICH THE COMPANY MAY IN ANY
WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS WHATEVER THE HOLDERS OF NOTES MAY
DO IN THIS REGARD; AND (C) NOTICE OF ACCEPTANCE HEREOF. THE COMPANY ACKNOWLEDGES
THAT THE FOREGOING WAIVERS ARE A MATERIAL INDUCEMENT TO THE HOLDERS' ENTERING
INTO THIS AGREEMENT AND THAT THE HOLDERS ARE RELYING UPON THE FOREGOING WAIVERS
IN THEIR FUTURE DEALINGS WITH THE COMPANY. THE COMPANY WARRANTS AND REPRESENTS
THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND HAS
KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.
* * * * *
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The execution hereof by the Purchasers shall constitute a contract
among the Company and the Purchasers for the uses and purposes hereinabove set
forth. This Agreement may be executed in any number of counterparts, each
executed counterpart constituting an original but all together only one
agreement.
Very truly yours,
QUANTA SERVICES, INC.
By
Name:
-------------------------------
Title:
------------------------------
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Accepted as of the first date written above.
[VARIATION]
By
Name:
-------------------------------
Title:
------------------------------
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DEFINED TERMS
As used herein, the following terms have the respective meanings set
forth below or set forth in the Section hereof following such term:
"Additional Notes" is defined in Section 2.4.
"Additional Purchasers" means purchasers of Additional Notes.
"Affiliate" means, at any time, and with respect to any Person, (a) any
other Person that at such time directly or indirectly through one or more
intermediaries Controls, or is Controlled by, or is under common Control with,
such first Person, and (b) any Person beneficially owning or holding, directly
or indirectly, 10% or more of any class of equity interests of the Company or
any Subsidiary or any corporation of which the Company and its Subsidiaries
beneficially own or hold, in the aggregate, directly or indirectly, 10% or more
of any class of equity interests. As used in this definition, "Control" means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise. Unless the context
otherwise clearly requires, any reference to an "Affiliate" is a reference to an
Affiliate of the Company, provided, however, that Enron Capital & Trade
Resources Corp., Joint Energy Development Investment II Limited Partnership and
Utilicorp United, Inc. and their respective Affiliates shall not be deemed to be
Affiliates of the Company. The ownership of Designated Subordinated Debt shall
not be considered for purposes of determining whether any Person is an Affiliate
for purposes of this Agreement.
"Bank Credit Agreement" means the Third Amended and Restated Secured
Credit Agreement between the Company and its Bank Lenders, dated as of June 14,
1999, as amended, restated, refinanced, replaced, increased or reduced from time
to time, and any successor bank credit agreement.
"Bank Lenders" means the banks or other lenders which are from time to
time party to the Bank Credit Agreement.
"Business Day" means (a) for the purposes of Section 8.6 only, any day
other than a Saturday, a Sunday or a day on which commercial banks in New York
City are required or authorized to be closed, and (b) for the purposes of any
other provision of this Agreement, any day other than a Saturday, a Sunday or a
day on which commercial banks in Houston, Texas or New York, New York are
required or authorized to be closed.
"Capital Lease" means, at any time, a lease with respect to which the
lessee is required concurrently to recognize the acquisition of an asset and the
incurrence of a liability in accordance with GAAP.
"Capital Lease Obligation" means, with respect to any Person and a
Capital Lease, the amount of the obligation of such Person as the lessee under
such Capital Lease which would, in accordance with GAAP, appear as a liability
on a balance sheet of such Person.
SCHEDULE B
(to Note Purchase Agreement)
<PAGE> 53
"Change in Control" has the meaning set forth in Section 8.7.
"Closing" is defined in Section 3.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the rules and regulations promulgated thereunder from time to time.
"Collateral" means the personal property of the Company and the
Guarantors described in the Security Documents.
"Collateral Agent" means NationsBank, N.A. d/b/a Bank of America, N.A.,
and any successor collateral agent appointed in accordance with the terms of the
Security Documents.
"Collateral Release Event" shall have the meaning assigned thereto in
Section 2.3.
"Company" means Quanta Services, Inc., a Delaware corporation.
"Competitor" means any Person (including any subsidiary or affiliate
thereof) primarily engaged in contracting and maintenance services relating to
electric, utility, telecommunications or cable television infrastructure in
North America provided, however, that the term "Competitor" shall exclude any
Person which is an Institutional Investor and which, but for this provision
would fall within the definition of "Competitor" solely through holding passive
investments in a Competitor.
"Confidential Information" is defined in Section 20.
"Consolidated Debt" means, as of any date of determination, the total
of all Debt of the Company and its Subsidiaries outstanding on such date, after
eliminating all offsetting debits and credits between the Company and its
Subsidiaries and all other items required to be eliminated in the course of the
preparation of consolidated financial statements of the Company and its
Subsidiaries in accordance with GAAP.
"Consolidated Debt Ratio" means, as of any date of determination, the
ratio of (a) Consolidated Debt as of such date of determination to (b)
Consolidated Proforma Operating Cash Flow for the period of four consecutive
fiscal quarters ending immediately preceding such date of determination. For
purposes of determining the Consolidated Debt Ratio, Consolidated Proforma
Operating Cash Flow shall include the historical financial results of any
"business", as defined in Regulation S-X (17 CFR 210), acquired during such
period of four consecutive fiscal quarters, calculated as if such business
entity had been acquired on the first day of such four quarter fiscal period (to
the extent such results are not already reflected in the consolidated financial
results of the Company and its Subsidiaries), and shall also give effect, on a
pro forma basis, to the incurrence of Debt in connection with the acquisition of
a business and the application of the proceeds thereof, including retirement of
any Debt of such business.
"Consolidated Income Available for Interest Charges" means, with
respect to any period, Consolidated Net Income for such period plus all amounts
deducted in the computation thereof
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on account of (a) all Interest Charges during such period, (b) all taxes imposed
on or measured by income or excess profits during such period, and (c) the total
amount of Management Fees expensed during such period.
"Consolidated Net Income" means, with reference to any period, the net
income (or loss) of the Company and its Subsidiaries for such period (taken as a
cumulative whole), as determined in accordance with GAAP, after eliminating all
offsetting debits and credits between the Company and its Subsidiaries and all
other items required to be eliminated in the course of the preparation of
consolidated financial statements of the Company and its Subsidiaries in
accordance with GAAP.
"Consolidated Net Worth" means the consolidated stockholders' equity of
the Company and its Subsidiaries, as determined in accordance with GAAP, less
the sum of (i) to the extent included in consolidated stockholders' equity, all
amounts properly attributable to minority interests, if any, and (ii) the
aggregate amount of all Restricted Investments in excess of 10% of such
consolidated stockholders' equity.
"Consolidated Proforma Operating Cash Flow" means, in respect of any
period, the sum of (a) Consolidated Net Income for such period, plus (b) to the
extent deducted in the determination of Consolidated Net Income for such period,
(x) all Interest Charges during such period, (y) the total amount of expenses
for depreciation, amortization, income taxes, deferred items and other non-cash
expenses of the Company and its Subsidiaries during such period, and (z) the
total amount of Management Fees expensed during such period.
"Consolidated Total Assets" means, as of any date of determination, the
total amount of all assets of the Company and its Subsidiaries, determined on a
consolidated basis in accordance with GAAP.
"Debt" means, with respect to any Person, without duplication,
(a) its liabilities for borrowed money and its redemption
obligations in respect of mandatorily redeemable Preferred Stock which
is redeemable prior to the maturity of any Note;
(b) its liabilities for the deferred purchase price of
property acquired by such Person (excluding accounts payable and other
accrued liabilities arising in the ordinary course of business but
including, without limitation, all liabilities created or arising under
any conditional sale or other title retention agreement with respect to
any such property);
(c) its Capital Lease Obligations;
(d) all liabilities for borrowed money secured by any Lien
with respect to any property owned by such Person (whether or not it
has assumed or otherwise become liable for such liabilities); and
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(e) Guarantees of such Person with respect to liabilities of a
type described in any of clauses (a) through (d) hereof.
Debt of any Person shall include all obligations of such Person of the
character described in clauses (a) through (e) to the extent such Person remains
legally liable in respect thereof notwithstanding that any such obligation is
deemed to be extinguished under GAAP.
"Default" means an event or condition the occurrence or existence of
which would, with the lapse of time or the giving of notice or both, become an
Event of Default.
"Default Rate" means for any Note that rate of interest that is the
greater of (i) 2% per annum above the rate of interest stated in clause (a) of
the first paragraph of such Note or (ii) 2% over the rate of interest publicly
announced by Bank of America, N.A. in New York, New York as its "base" or
"prime" rate.
"Designated Subordinated Debt" shall mean the Enron Subordinated Debt
and any other Subordinated Debt of the Company or any Subsidiary which has been
designated as "Designated Subordinated Debt" in writing by at least 51% of the
outstanding Notes of each Series (voting as separate classes).
"Domestic Subsidiary" means any Subsidiary organized under the laws of
the United States or any jurisdiction thereof.
"Enron Subordinated Debt" shall mean the Convertible Subordinated Notes
issued by the Company pursuant to the Securities Purchase Agreement dated as of
September 29, 1998, among the Company, Enron Capital & Trade Resources Corp. and
Joint Energy Development Investments II Limited Partnership, as amended from
time to time.
"Environmental Laws" means any and all federal, state, local, and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to pollution and the protection of the
environment or the release of any materials into the environment, including but
not limited to those related to hazardous substances or wastes, air emissions
and discharges to waste or public systems.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the rules and regulations promulgated thereunder
from time to time in effect.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that is treated as a single employer together with the Company
under Section 414 of the Code.
"Event of Default" is defined in Section 11.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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"Excluded Sale and Leaseback Transaction" shall mean any sale or
transfer of property acquired by the Company or any Subsidiary after the date of
this Agreement to any Person within 180 days following the acquisition or
construction of such property by the Company or any Subsidiary if the Company or
a Subsidiary shall concurrently with such sale or transfer, lease such property,
as lessee.
"Excluded Subsidiary Obligations" means (a) the Guaranty Agreement and
any other Guaranty of Debt of the Company by a Guarantor which shall be a party
to the Guaranty Agreement and (b) obligations of Guarantors as co-obligors with,
or guarantors of, the Company on Debt; provided that each creditor which is a
beneficiary of an Excluded Subsidiary Obligation shall have become a party to
either (i) the Intercreditor Agreement or (ii) an intercreditor agreement
between such beneficiary and the holders of Notes pursuant to which the parties
have agreed to be treated on a pari passu basis with respect to any recovery on
such obligation.
"Fair Market Value" means, at any time and with respect to any
property, the sale value of such property that would be realized in an
arm's-length sale at such time between an informed and willing buyer and an
informed and willing seller (neither being under a compulsion to buy or sell),
as reasonably determined in the good faith opinion of the Company's board of
directors.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States of America.
"Governmental Authority" means
(a) the government of
(i) the United States of America or any state or
other political subdivision thereof, or
(ii) any jurisdiction in which the Company or any
Subsidiary conducts all or any part of its business, or which
has jurisdiction over any properties of the Company or any
Subsidiary, or
(b) any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any such
government.
"Guarantor" shall mean those certain Subsidiaries of the Company which
shall be a party to a Guaranty Agreement.
"Guaranty" means, with respect to any Person, any obligation (except
the endorsement in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing or in effect guaranteeing any
Debt, dividend or other obligation of any other Person in any manner, whether
directly or indirectly, including (without limitation) obligations incurred
through an agreement, contingent or otherwise, by such Person:
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(a) to purchase such Debt or obligation or any property
constituting security therefor primarily for the purpose of assuring
the owner of such Debt or obligation of the ability of any other Person
to make payment of the Debt or obligation;
(b) to advance or supply funds (i) for the purchase or payment
of such Debt or obligation, or (ii) to maintain any working capital or
other balance sheet condition or any income statement condition of any
other Person or otherwise to advance or make available funds for the
purchase or payment of such Debt or obligation;
(c) to lease properties or to purchase properties or services
primarily for the purpose of assuring the owner of such Debt or
obligation of the ability of any other Person to make payment of the
Debt or obligation; or
(d) otherwise to assure the owner of such Debt or obligation
against loss in respect thereof.
In any computation of the Debt or other liabilities of the obligor under any
Guaranty, the Debt or other obligations that are the subject of such Guaranty
shall be assumed to be direct obligations of such obligor, provided that the
amount of such Debt outstanding for purposes of this Agreement shall not be
exceed the maximum amount of Debt that is the subject of such Guaranty.
"Guaranty Agreement" is defined in Section 2.2.
"Guaranty Release Event" shall have the meaning assigned thereto in
Section 2.2.
"Hazardous Material" means any and all pollutants, toxic or hazardous
wastes or any other substances that might pose a hazard to health or safety, the
removal of which may be required or the generation, manufacture, refining,
production, processing, treatment, storage, handling, transportation, transfer,
use, disposal, release, discharge, spillage, seepage, or filtration of which is
or shall be restricted, prohibited or penalized by any applicable law
(including, without limitation, asbestos, urea formaldehyde foam insulation and
polychlorinated biphenyls).
"holder" means, with respect to any Note, the Person in whose name such
Note is registered in the register maintained by the Company pursuant to Section
13.1.
"Institutional Investor" means (a) any original purchaser of a Note,
(b) any holder of more than $2,000,000 of the aggregate principal amount of the
Notes then outstanding, and (c) any bank, trust company, savings and loan
association or other financial institution, any pension plan, any investment
company, any insurance company, any broker or dealer, or any other similar
financial institution or entity, regardless of legal form.
"Intercreditor Agreement" is defined in Section 2.3.
"Interest Charges" means, with respect to any period, the sum (without
duplication) of the following (in each case, eliminating all offsetting debits
and credits between the Company
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and its Subsidiaries and all other items required to be eliminated in the course
of the preparation of consolidated financial statements of the Company and its
Subsidiaries in accordance with GAAP): (a) all interest in respect of Debt of
the Company and its Subsidiaries (including imputed interest on Capital Lease
Obligations) deducted in determining Consolidated Net Income for such period,
and (b) all debt discount and expense amortized or required to be amortized in
the determination of Consolidated Net Income for such period.
"Interest Charges Coverage Ratio" means, at any time, the ratio of (a)
Consolidated Income Available for Interest Charges for the period of four
consecutive fiscal quarters ending on, or most recently ended prior to, such
time to (b) the sum of (i) all Interest Charges during such period, (ii) the
total amount of the Management Fees paid during such period, and (iii) the total
amount of any dividends or distributions paid or scheduled to be paid in respect
of the Utilicorp Preferred Stock during such period.
"Investments" shall mean all investments, in cash or by delivery of
property made, directly or indirectly in any Person, whether by acquisition of
shares of capital stock, indebtedness or other obligations or securities or by
loan, advance, capital contribution or otherwise.
"Lien" means, with respect to any Person, any mortgage, lien, pledge,
charge, security interest or other encumbrance, or any interest or title of any
vendor, lessor, lender or other secured party to or of such Person under any
conditional sale or other title retention agreement or Capital Lease, upon or
with respect to any property or asset of such Person.
"Make-Whole Amount" shall have the meaning (i) set forth in Section 8.6
with respect to any Series 2000-A Note and (ii) set forth in the applicable
Supplement with respect to any other Series of Notes.
"Management Fee" means the management fee due from the Company to
Utilicorp under the terms of the management services agreement between the
Company and Utilicorp under which Utilicorp will provide to the Company advice
regarding (a) corporate and strategic planning, (b) development, evaluation and
marketing of the Company's products and services, (c) potential acquisition
candidates and business opportunities and (d) other similar and related
services.
"Material" means material in relation to the business, operations,
affairs, financial condition, assets or properties of the Company and its
Subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on (a) the
business, operations, affairs, financial condition, assets or properties of the
Company and its Subsidiaries taken as a whole, or (b) the ability of the Company
to perform its obligations under this Agreement (including any Supplement) and
the Notes, or (c) the validity or enforceability of this Agreement (including
any Supplement) or the Notes.
"Memorandum" is defined in Section 5.3.
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<PAGE> 59
"Multiemployer Plan" means any Plan that is a "multiemployer plan" (as
such term is defined in Section 4001(a)(3) of ERISA).
"Notes" is defined in Section 1.
"Officer's Certificate" means a certificate of a Senior Financial
Officer or of any other officer of the Company whose responsibilities extend to
the subject matter of such certificate.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.
"Person" means an individual, partnership, corporation, limited
liability company, association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.
"Plan" means an "employee benefit plan" (as defined in Section 3(3) of
ERISA) that is or, within the preceding five years, has been established or
maintained, or to which contributions are or, within the preceding five years,
have been made or required to be made, by the Company or any ERISA Affiliate or
with respect to which the Company or any ERISA Affiliate may have any liability.
"Pledged Stock" means the capital stock of the Subsidiaries of the
Company pledged pursuant to the Security Documents.
"Preferred Stock" means any class of capital stock of a corporation
that is preferred over any other class of capital stock of such corporation as
to the payment of dividends or the payment of any amount upon liquidation or
dissolution of such corporation.
"Priority Debt" means, without duplication, the sum of (a) all Debt of
the Company or its Subsidiaries secured by a Lien other than Liens permitted by
paragraphs (a) through (k) of Section 10.5 and (b) all unsecured Debt of
Subsidiaries other than (i) Debt owed to the Company or any other Subsidiary and
(ii) unsecured Debt of a Subsidiary existing on the date hereof and listed on
Schedule 5.15 and (iii) Excluded Subsidiary Obligations.
"property" or "properties" means, unless otherwise specifically
limited, real or personal property of any kind, tangible or intangible, choate
or inchoate.
"Purchasers" means the purchasers of the Series 2000-A Notes named in
Schedule A hereto.
"QPAM Exemption" means Prohibited Transaction Class Exemption 84-14
issued by the United States Department of Labor.
"Required Holders" means, at any time, the holders of at least 51% in
principal amount of the Notes at the time outstanding (exclusive of Notes then
owned by the Company or any of its Affiliates).
B-8
<PAGE> 60
"Responsible Officer" means any Senior Financial Officer and any other
officer of the Company with responsibility for the administration of the
relevant portion of this Agreement.
"Restricted Investments" shall mean all Investments except any of the
following: (i) property to be used in the ordinary course of business; (ii)
assets arising from the sale of goods and services in the ordinary course of
business; (iii) Investments in one or more Subsidiaries or any Person that
becomes a Subsidiary; (iv) Investments existing at the date of Closing and
reflected in Schedule 5.4; (v) Investments in obligations, maturing within one
year, issued by or guaranteed by the United Sates of America, or an agency
thereof, or Canada, or any province thereof; (vi) Investments in tax-exempt
obligations, maturing within one year, which are rated in one of the top two
rating classifications by at least one national rating agency; (vii) Investments
in bank deposits, certificates of deposit or banker's acceptances maturing
within one year issued by a commercial bank which is rated in one of the top two
rating classifications by at least one national rating agency; (viii)
Investments in commercial paper, maturing within 270 days, rated in one of the
top two rating classifications by at least one national rating agency; (ix)
Investments in repurchase agreements; (x) treasury stock; (xi) Investments in
money market instrument programs which are classified as current assets in
accordance with GAAP; (xii) Investments constituting loans and advances to
employees in the ordinary course of business not exceeding $5,000,000 in the
aggregate; (xiii) Investments received in settlement of litigation or
bankruptcy; (xiv) swap agreements, cap agreements, collar agreements, forward
contracts, options and other similar hedging agreements and arrangements
designed to protect against fluctuations in interest rate and currency exchange
rates which are entered into by the Company and its Subsidiaries in the ordinary
course of business and not as a speculative investment; (xv) prepaid expenses in
the ordinary course of business; and (xvi) deposits for leases, utility services
and workers compensation and similar deposits made in the ordinary course of
business.
"Securities Act" means the Securities Act of 1933, as amended from time
to time.
"Security Documents" means (i) the separate security agreements among
the Collateral Agent and the Company and the Guarantors, (ii) the separate
pledge agreements among the Collateral Agent and the Company and certain
Guarantors, and (iii) the patent collateral assignment between the Collateral
Agent and a Guarantor, whether in existence on the date hereof or hereafter
entered into, in each case as supplemented, amended, modified, renewed and
replaced.
"Senior Financial Officer" means the chief financial officer, principal
accounting officer, treasurer or comptroller of the Company.
"Senior Debt" means, as of the date of any determination thereof, all
Consolidated Debt, other than Subordinated Debt.
"Series" means any series of Notes issued pursuant to this Agreement or
any Supplement hereto.
B-9
<PAGE> 61
"Significant Subsidiary" means, at any time, any Subsidiary that
accounts for more than (i) 5% of the consolidated assets of the Company and its
Subsidiaries or (ii) 5% of consolidated revenue of the Company and its
Subsidiaries.
"Significant Subsidiary" shall also mean any two or more Subsidiaries
which in the aggregate account for more than (i) 5% of the consolidated assets
of the Company and its Subsidiaries or (ii) 5% of consolidated revenue of the
Company and its Subsidiaries.
"Subordinated Debt" means, as of the date of any determination thereof,
the Enron Subordinated Debt and all other unsecured Debt of the Company which
shall contain or have applicable thereto subordination provisions providing for
the subordination thereof to other Debt of the Company (including, without
limitation, the Notes).
"Subsidiary" means, as to any Person, any corporation, association or
other business entity in which such Person or one or more of its Subsidiaries or
such Person and one or more of its Subsidiaries owns sufficient equity or voting
interests to enable it or them (as a group) ordinarily, in the absence of
contingencies, to elect a majority of the directors (or Persons performing
similar functions) of such entity, and any partnership or joint venture if more
than a 50% interest in the profits or capital thereof is owned by such Person or
one or more of its Subsidiaries or such Person and one or more of its
Subsidiaries (unless such partnership can and does ordinarily take major
business actions without the prior approval of such Person or one or more of its
Subsidiaries). Unless the context otherwise clearly requires, any reference to a
"Subsidiary" is a reference to a Subsidiary of the Company.
"Supplement" shall have the meaning assigned thereto in Section 2.4.
"Utilicorp" means Utilicorp United, Inc., a Delaware corporation.
"Utilicorp Preferred Stock" means the perpetual preferred stock issued
by the Company to Utilicorp which (a) has a dividend at a 0.5% annual coupon
rate payable for six (6) years after the date of issuance, (b) is convertible
into common stock of the Company at the option of Utilicorp at a conversion
price which is fixed (or the method of its determination is fixed) on the date
issued, (c) is not subject to voluntary redemption by the Company or mandatory
redemption by the Company at the request of Utilicorp, (d) participates with the
Company's common stock in permitted distributions, (e) has voting rights equal
to the number of shares into which it could be converted as of the applicable
record date, (f) has preemptive rights to maintain its proportionate equity
ownership in the Company, and (g) gives the Company the option to pay, defer, or
pay in kind any scheduled dividend.
"Wholly-Owned Subsidiary" means, at any time, any Subsidiary one
hundred percent (100%) of all of the equity interests (except directors'
qualifying shares) and voting interests of which are owned by any one or more of
the Company and the Company's other Wholly-Owned Subsidiaries at such time.
B-10
<PAGE> 62
[FORM OF TRANCHE 1 NOTE]
QUANTA SERVICES, INC.
8.46% SERIES 2000-A SENIOR SECURED NOTE, TRANCHE 1, DUE MARCH 1, 2005
No. [______] [Date]
$[__________] PPN [_________]
FOR VALUE RECEIVED, the undersigned, QUANTA SERVICES, INC. (herein
called the "Company"), a corporation organized and existing under the laws of
the State of Delaware, hereby promises to pay to [_____________________] or
registered assigns, the principal sum of [______________] DOLLARS on March 1,
2005 with interest (computed on the basis of a 360-day year of twelve 30-day
months) (a) on the unpaid balance thereof at the rate of 8.46% per annum from
the date hereof, payable semi-annually, on the fifteenth day of January and July
in each year and at maturity, commencing with the January or July next
succeeding the date hereof, until the principal hereof shall have become due and
payable, and (b) to the extent permitted by law on any overdue payment
(including any overdue prepayment) of principal, any overdue payment of interest
and any overdue payment of any Make-Whole Amount (as defined in the Note
Purchase Agreement referred to below), payable semi-annually as aforesaid (or,
at the option of the registered holder hereof, on demand), at a rate per annum
from time to time equal to the greater of (i) 10.46% or (ii) 2% over the rate of
interest publicly announced by Bank of America, N.A. from time to time in New
York, New York as its "base" or "prime" rate.
Payments of principal of, interest on and any Make-Whole Amount with
respect to this Note are to be made in lawful money of the United States of
America at the principal office of Bank of America, N.A. in New York, New York
or at such other place as the Company shall have designated by written notice to
the holder of this Note as provided in the Note Purchase Agreement referred to
below.
This Note is one of a series of Senior Secured Notes (herein called the
"Notes") issued pursuant to the Note Purchase Agreement, dated as of March 1,
2000 (as from time to time amended, supplemented or modified, the "Note Purchase
Agreement"), between the Company and the respective Purchasers named therein and
is entitled to the benefits thereof. Each holder of this Note will be deemed, by
its acceptance hereof, (i) to have agreed to the confidentiality provisions set
forth in Section 20 of the Note Purchase Agreement and (ii) to have made the
representation set forth in Section 6.2 of the Note Purchase Agreement.
This Note is a registered Note and, as provided in the Note Purchase
Agreement, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Company will not be affected by any notice to
the contrary.
EXHIBIT 1(a)
(to Note Purchase Agreement)
<PAGE> 63
The Company will make required prepayments of principal on the dates
and in the amounts specified in the Note Purchase Agreement. This Note is also
subject to optional prepayment, in whole or from time to time in part, at the
times and on the terms specified in the Note Purchase Agreement, but not
otherwise.
If an Event of Default, as defined in the Note Purchase Agreement,
occurs and is continuing, the principal of this Note may be declared or
otherwise become due and payable in the manner, at the price (including any
applicable Make-Whole Amount) and with the effect provided in the Note Purchase
Agreement.
Pursuant to the Guaranty Agreement dated as of March 1, 2000, certain
subsidiaries of the Company have absolutely and unconditionally guaranteed
payment in full of the principal of, Make-Whole Amount if any, and interest on
this Note and the performance by the Company of all of its obligations contained
in the Note Purchase Agreement all as more fully set forth in said Guaranty
Agreement.
This Note shall be construed and enforced in accordance with, and the
rights of the issuer and holder hereof shall be governed by, the law of the
State of New York excluding choice-of-law principles of the law of such State
that would require the application of the laws of a jurisdiction other than such
State.
QUANTA SERVICES, INC.
By
Name:
-------------------------------
Title:
-------------------------------
E-1(a)-2
<PAGE> 64
[FORM OF TRANCHE 2 NOTE]
QUANTA SERVICES, INC.
8.55% SERIES 2000-A SENIOR SECURED NOTE, TRANCHE 2, DUE MARCH 1, 2007
No. [______] [Date]
$[__________] PPN [_________]
FOR VALUE RECEIVED, the undersigned, QUANTA SERVICES, INC. (herein
called the "Company"), a corporation organized and existing under the laws of
the State of Delaware, hereby promises to pay to [_____________________] or
registered assigns, the principal sum of [______________] DOLLARS on March 1,
2007 with interest (computed on the basis of a 360-day year of twelve 30-day
months) (a) on the unpaid balance thereof at the rate of 8.55% per annum from
the date hereof, payable semi-annually, on the fifteenth day of January and July
in each year and at maturity, commencing with the January or July next
succeeding the date hereof, until the principal hereof shall have become due and
payable, and (b) to the extent permitted by law on any overdue payment
(including any overdue prepayment) of principal, any overdue payment of interest
and any overdue payment of any Make-Whole Amount (as defined in the Note
Purchase Agreement referred to below), payable semi-annually as aforesaid (or,
at the option of the registered holder hereof, on demand), at a rate per annum
from time to time equal to the greater of (i) 10.55% or (ii) 2% over the rate of
interest publicly announced by Bank of America, N.A. from time to time in New
York, New York as its "base" or "prime" rate.
Payments of principal of, interest on and any Make-Whole Amount with
respect to this Note are to be made in lawful money of the United States of
America at the principal office of Bank of America, N.A. in New York, New York
or at such other place as the Company shall have designated by written notice to
the holder of this Note as provided in the Note Purchase Agreement referred to
below.
This Note is one of a series of Senior Secured Notes (herein called the
"Notes") issued pursuant to the Note Purchase Agreement, dated as of March 1,
2000 (as from time to time amended, supplemented or modified, the "Note Purchase
Agreement"), between the Company and the respective Purchasers named therein and
is entitled to the benefits thereof. Each holder of this Note will be deemed, by
its acceptance hereof, (i) to have agreed to the confidentiality provisions set
forth in Section 20 of the Note Purchase Agreement and (ii) to have made the
representation set forth in Section 6.2 of the Note Purchase Agreement.
This Note is a registered Note and, as provided in the Note Purchase
Agreement, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Company will not be affected by any notice to
the contrary.
EXHIBIT 1(b)
(to Note Purchase Agreement)
<PAGE> 65
The Company will make required prepayments of principal on the dates
and in the amounts specified in the Note Purchase Agreement. This Note is also
subject to optional prepayment, in whole or from time to time in part, at the
times and on the terms specified in the Note Purchase Agreement, but not
otherwise.
If an Event of Default, as defined in the Note Purchase Agreement,
occurs and is continuing, the principal of this Note may be declared or
otherwise become due and payable in the manner, at the price (including any
applicable Make-Whole Amount) and with the effect provided in the Note Purchase
Agreement.
Pursuant to the Guaranty Agreement dated as of March 1, 2000, certain
subsidiaries of the Company have absolutely and unconditionally guaranteed
payment in full of the principal of, Make-Whole Amount if any, and interest on
this Note and the performance by the Company of all of its obligations contained
in the Note Purchase Agreement all as more fully set forth in said Guaranty
Agreement.
This Note shall be construed and enforced in accordance with, and the
rights of the issuer and holder hereof shall be governed by, the law of the
State of New York excluding choice-of-law principles of the law of such State
that would require the application of the laws of a jurisdiction other than such
State.
QUANTA SERVICES, INC.
By
Name:
-------------------------------
Title:
-------------------------------
E-1(b)-2
<PAGE> 66
[FORM OF TRANCHE 3 NOTE]
QUANTA SERVICES, INC.
8.61% SERIES 2000-A SENIOR SECURED NOTE, TRANCHE 3, DUE MARCH 1, 2010
No. [______] [Date]
$[__________] PPN [_________]
FOR VALUE RECEIVED, the undersigned, QUANTA SERVICES, INC. (herein
called the "Company"), a corporation organized and existing under the laws of
the State of Delaware, hereby promises to pay to [_____________________] or
registered assigns, the principal sum of [______________] DOLLARS on March 1,
2010 with interest (computed on the basis of a 360-day year of twelve 30-day
months) (a) on the unpaid balance thereof at the rate of 8.61% per annum from
the date hereof, payable semi-annually, on the fifteenth day of January and July
in each year and at maturity, commencing with the January or July next
succeeding the date hereof, until the principal hereof shall have become due and
payable, and (b) to the extent permitted by law on any overdue payment
(including any overdue prepayment) of principal, any overdue payment of interest
and any overdue payment of any Make-Whole Amount (as defined in the Note
Purchase Agreement referred to below), payable semi-annually as aforesaid (or,
at the option of the registered holder hereof, on demand), at a rate per annum
from time to time equal to the greater of (i) 10.61% or (ii) 2% over the rate of
interest publicly announced by Bank of America, N.A. from time to time in New
York, New York as its "base" or "prime" rate.
Payments of principal of, interest on and any Make-Whole Amount with
respect to this Note are to be made in lawful money of the United States of
America at the principal office of Bank of America, N.A. in New York, New York
or at such other place as the Company shall have designated by written notice to
the holder of this Note as provided in the Note Purchase Agreement referred to
below.
This Note is one of a series of Senior Secured Notes (herein called the
"Notes") issued pursuant to the Note Purchase Agreement, dated as of March 1,
2000 (as from time to time amended, supplemented or modified, the "Note Purchase
Agreement"), between the Company and the respective Purchasers named therein and
is entitled to the benefits thereof. Each holder of this Note will be deemed, by
its acceptance hereof, (i) to have agreed to the confidentiality provisions set
forth in Section 20 of the Note Purchase Agreement and (ii) to have made the
representation set forth in Section 6.2 of the Note Purchase Agreement.
This Note is a registered Note and, as provided in the Note Purchase
Agreement, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Company will not be affected by any notice to
the contrary.
EXHIBIT 1(c)
(to Note Purchase Agreement)
<PAGE> 67
The Company will make required prepayments of principal on the dates
and in the amounts specified in the Note Purchase Agreement. This Note is also
subject to optional prepayment, in whole or from time to time in part, at the
times and on the terms specified in the Note Purchase Agreement, but not
otherwise.
If an Event of Default, as defined in the Note Purchase Agreement,
occurs and is continuing, the principal of this Note may be declared or
otherwise become due and payable in the manner, at the price (including any
applicable Make-Whole Amount) and with the effect provided in the Note Purchase
Agreement.
Pursuant to the Guaranty Agreement dated as of March 1, 2000, certain
subsidiaries of the Company have absolutely and unconditionally guaranteed
payment in full of the principal of, Make-Whole Amount if any, and interest on
this Note and the performance by the Company of all of its obligations contained
in the Note Purchase Agreement all as more fully set forth in said Guaranty
Agreement.
This Note shall be construed and enforced in accordance with, and the
rights of the issuer and holder hereof shall be governed by, the law of the
State of New York excluding choice-of-law principles of the law of such State
that would require the application of the laws of a jurisdiction other than such
State.
QUANTA SERVICES, INC.
By
Name:
-------------------------------
Title:
-------------------------------
E-1(c)-2
<PAGE> 68
FORM OF OPINION OF GENERAL COUNSEL
TO THE COMPANY
The closing opinion of Brad Eastman, General Counsel to the Company,
which is called for by Section 4.11 of the Note Purchase Agreement, shall be
dated the date of Closing and addressed to the Purchasers, shall be satisfactory
in scope and form to each Purchaser and shall be to the effect that:
1. The Company is a corporation, duly incorporated, validly existing
and in good standing under the laws of its jurisdiction of incorporation, has
the corporate power and the corporate authority to execute and perform the Note
Purchase Agreement and the Security Documents to which the Company is a party
and to issue the Notes and has the full corporate power and the corporate
authority to conduct the activities in which it is now engaged and is duly
licensed or qualified and is in good standing as a foreign corporation in each
jurisdiction in which the character of the properties owned or leased by it or
the nature of the business transacted by it makes such licensing or
qualification necessary except in jurisdictions where the failure to be so
qualified or licensed would not have a material adverse effect on the business
of the Company.
2. Each Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation, has
the corporate power and the corporate authority to execute and perform the
Guaranty Agreement and the Security Documents to which such Subsidiary is a
party and is duly licensed or qualified and is in good standing in each
jurisdiction in which the character of the properties owned or leased by it or
the nature of the business transacted by it makes such licensing or
qualification necessary except in jurisdictions where the failure to be so
qualified or licensed would not have a material adverse effect on the business
of such Subsidiary. All of the issued and outstanding shares of capital stock of
each such Subsidiary have been duly issued, are fully paid and non-assessable
and are owned by the Company, by one or more Subsidiaries, or by the Company and
one or more Subsidiaries. All such outstanding shares have been duly pledged to
the Collateral Agent as security for the Notes under the Pledge Agreements.
3. The Note Purchase Agreement has been duly authorized by all
necessary corporate action on the part of the Company, has been duly executed
and delivered by the Company and constitutes the legal, valid and binding
contract of the Company enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent conveyance and similar laws affecting
creditors' rights generally, and general principles of equity (regardless of
whether the application of such principles is considered in a proceeding in
equity or at law).
4. The Series 2000-A Notes have been duly authorized by all necessary
corporate action on the part of the Company, have been duly executed and
delivered by the Company and constitute the legal, valid and binding obligations
of the Company enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent conveyance and similar laws affecting
creditors' rights generally, and general principles of equity (regardless of
whether the application of such principles is considered in a proceeding in
equity or at law).
EXHIBIT 4.11(a)
(to Note Purchase Agreement)
<PAGE> 69
5. The Guaranty Agreement has been duly authorized by all necessary
corporate action on the part of the Guarantors, has been duly executed and
delivered by the Guarantors and constitutes the legal, valid and binding
contract of the Guarantors enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent conveyance and similar laws affecting
creditors' rights generally, and general principles of equity (regardless of
whether the application of such principles is considered in a proceeding in
equity or at law).
6. Each of the Security Documents has been duly authorized by all
necessary corporate action on the part of the respective obligor thereunder, has
been duly executed and delivered by the respective obligor thereunder and
constitutes the legal, valid and binding contract of the respective obligor
thereunder enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent conveyance and similar laws affecting creditors' rights
generally, and general principles of equity (regardless of whether the
application of such principles is considered in a proceeding in equity or at
law).
7. The issuance and sale of the Series 2000-A Notes and the execution,
delivery and performance by the Company of the Note Purchase Agreement and the
Security Documents to which it is a party do not violate any provision of any
law or other rule or regulation of any Governmental Authority applicable to the
Company or conflict with or result in any breach of any of the provisions of or
constitute a default under or result in the creation or imposition of any Lien
upon any of the property of the Company pursuant to the provisions of the
Articles of Incorporation or By-laws of the Company or any agreement or other
instrument known to such counsel to which the Company is a party or by which the
Company may be bound.
8. The execution, delivery and performance by each of the Guarantors of
the Guaranty Agreement and the Security Documents to which such Guarantor is a
party do not violate any provision of any law or other rule or regulation of any
Governmental Authority applicable to the Company or conflict with or result in
any breach of any of the provisions of or constitute a default under or result
in the creation or imposition of any Lien upon any of the property of such
Guarantor pursuant to the provisions of the Articles of Incorporation or By-laws
of such Guarantor or any agreement or other instrument known to such counsel to
which such Guarantor is a party or by which such Guarantor may be bound.
9. There are no actions, suits or proceedings pending or, to the
knowledge of such counsel after due inquiry, threatened against or affecting the
Company or any Subsidiary in any court or before any governmental authority or
arbitration board or tribunal which, if adversely determined, would have a
materially adverse effect on the properties, business, prospects, profits or
condition, (financial or otherwise) of the Company and its Subsidiaries or the
ability of the Company to perform its obligations under the Note Purchase
Agreement, the Series 2000-A Notes and the Security Documents or on the
legality, validity or enforceability of the Company's obligations under the Note
Purchase Agreement, the Series 2000-A Notes, or the Security Documents. To the
knowledge of such counsel, neither the Company nor any Subsidiary is in default
with respect to any court or governmental authority, or arbitration board or
tribunal. The opinion of Brad Eastman, Esq., shall cover such other matters
relating to the sale of the Series 2000-A Notes as each Purchaser may reasonably
request. With respect to matters of fact on which such opinion is based, such
counsel shall be entitled to rely on appropriate certificates of public
officials and other officers of the Company.
EXHIBIT 4.11(a)-2
<PAGE> 70
FORM OF OPINION OF SPECIAL COUNSEL
TO THE COMPANY
The closing opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.,
Special Counsel to the Company, which is called for by Section 4.11 of the Note
Purchase Agreement, shall be dated the date of Closing and addressed to the
Purchasers, shall be satisfactory in scope and form to each Purchaser and shall
be to the effect that:
1. The Company is a corporation, duly incorporated, validly existing
and in good standing under the laws of its jurisdiction of incorporation, has
the corporate power and the corporate authority to execute and perform the Note
Purchase Agreement and to issue the Notes and has the full corporate power and
the corporate authority to conduct the activities in which it is now engaged.
2. The Note Purchase Agreement constitutes the legal, valid and binding
contract of the Company enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent conveyance and similar laws affecting
creditors' rights generally, and general principles of equity (regardless of
whether the application of such principles is considered in a proceeding in
equity or at law).
3. The Series 2000-A Notes constitute the legal, valid and binding
obligations of the Company enforceable in accordance with their terms, subject
to bankruptcy, insolvency, fraudulent conveyance and similar laws affecting
creditors' rights generally, and general principles of equity (regardless of
whether the application of such principles is considered in a proceeding in
equity or at law).
4. The Guaranty Agreement constitutes the legal, valid and binding
contract of the Guarantors enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent conveyance and similar laws affecting
creditors' rights generally, and general principles of equity (regardless of
whether the application of such principles is considered in a proceeding in
equity or at law).
5. Each of the Security Documents constitutes the legal, valid and
binding contract of the respective obligor thereunder enforceable in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent conveyance and
similar laws affecting creditors' rights generally, and general principles of
equity (regardless of whether the application of such principles is considered
in a proceeding in equity or at law).
6. Other than financing statements which have been filed, no approval,
consent or withholding of objection on the part of, or filing, registration or
qualification with, any governmental body, Federal or state, is necessary in
connection with the execution and delivery of the Note Purchase Agreement, the
Series 2000-A Notes, the Security Documents or the Guaranty Agreement.
EXHIBIT 4.11(b)
(to Note Purchase Agreement)
<PAGE> 71
7. The issuance, sale and delivery of the Series 2000-A Notes and the
execution and delivery of the Security Documents and the Guaranty Agreement
under the circumstances contemplated by the Note Purchase Agreement do not,
under existing law, require the registration of the Series 2000-A Notes, the
Security Documents or the Guaranty Agreement under the Securities Act of 1933,
as amended, or the qualification of an indenture under the Trust Indenture Act
of 1939, as amended.
8. Neither the issuance of the Series 2000-A Notes nor the application
of the proceeds of the sale of the Notes will violate or result in a violation
of Section 7 of the Securities Exchange Act of 1934, as amended, or any
regulation issued pursuant thereto, including, without limitation, Regulation T,
U or X of the Board of Governors of the Federal Reserve System.
9. The Company is not an "investment company" or a company "controlled"
by an "investment company", within the meaning of the Investment Company Act of
1940, as amended.
The opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P., shall cover
such other matters relating to the sale of the Series 2000-A Notes as each
Purchaser may reasonably request. With respect to matters of fact on which such
opinion is based, such counsel shall be entitled to rely on appropriate
certificates of public officials and other officers of the Company.
EXHIBIT 4.11(b)-2
<PAGE> 72
FORM OF OPINION OF SPECIAL COUNSEL
TO THE PURCHASERS
The closing opinion of Chapman and Cutler, special counsel to the
Purchasers, called for by Section 4.11 of the Note Purchase Agreement, shall be
dated the date of Closing and addressed to each Purchaser, shall be satisfactory
in form and substance to each Purchaser and shall be to the effect that:
1. The Company is a corporation, validly existing and in good standing
under the laws of its jurisdiction of incorporation and has the corporate power
and the corporate authority to execute and deliver the Note Purchase Agreement
and to issue the Series 2000-A Notes.
2. The Note Purchase Agreement has been duly authorized by all
necessary corporate action on the part of the Company, has been duly executed
and delivered by the Company and constitutes the legal, valid and binding
contract of the Company enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent conveyance and similar laws affecting
creditors' rights generally, and general principles of equity (regardless of
whether the application of such principles is considered in a proceeding in
equity or at law).
3. The Series 2000-A Notes have been duly authorized by all necessary
corporate action on the part of the Company, and the Notes being delivered on
the date hereof have been duly executed and delivered by the Company and
constitute the legal, valid and binding obligations of the Company enforceable
in accordance with their terms, subject to bankruptcy, insolvency, fraudulent
conveyance and similar laws affecting creditors' rights generally, and general
principles of equity (regardless of whether the application of such principles
is considered in a proceeding in equity or at law).
4. The issuance, sale and delivery of the Series 2000-A Notes under the
circumstances contemplated by the Note Purchase Agreement do not, under existing
law, require the registration of the Series 2000-A Notes under the Securities
Act of 1933, as amended, or the qualification of an indenture under the Trust
Indenture Act of 1939, as amended.
The opinion of Chapman and Cutler shall also state that the opinions of
Brad Eastman, Esq., general counsel to the Company, and Akin, Gump, Strauss,
Hauer & Field, LLP, special Counsel to the Company, are satisfactory in scope
and form to Chapman and Cutler and that, in their opinion, the Purchasers are
justified in relying thereon. With respect to matters of fact upon which such
opinion is based, Chapman and Cutler may rely on appropriate certificates of
public officials and officers of the Company and upon representations of the
Company and the Purchasers delivered in connection with the issuance and sale of
the Series 2000-A Notes.
EXHIBIT 4.11(c)-1
<PAGE> 73
In rendering the opinion set forth in paragraph 1 above, Chapman and
Cutler may rely, as to matters referred to in paragraph 1, solely upon an
examination of the Articles of Incorporation certified by, and a certificate of
good standing of the Company from, the Secretary of State of the State of
Delaware, the Bylaws of the Company and the general business corporation law of
the State of Delaware. The opinion of Chapman and Cutler is limited to the laws
of the State of New York, the general business corporation law of the State of
Delaware and the Federal laws of the United States.
EXHIBIT 4.11(c)-2
<PAGE> 74
================================================================================
QUANTA SERVICES, INC.
[NUMBER] SUPPLEMENT TO NOTE PURCHASE AGREEMENT
Dated as of ______________________
Re: $____________ _____% Series _______ Senior Secured Notes
DUE _____________________
================================================================================
EXHIBIT S
(to Note Purchase Agreement)
<PAGE> 75
QUANTA SERVICES, INC.
1360 Post Oak Boulevard, Suite 2100
Houston, Texas 77056-3023
Dated as of ___________, 20__
To the Purchaser(s) named in
Schedule A hereto
Ladies and Gentlemen:
This [Number] Supplement to Note Purchase Agreement (the "Supplement")
is between QUANTA SERVICES, INC., a Delaware (the "Company"), and the
institutional investors named on Schedule A attached hereto (the "Purchasers").
Reference is hereby made to that certain Note Purchase Agreement dated
as of March 1, 2000 (the "Note Purchase Agreement") between the Company and the
purchasers listed on Schedule A thereto. All capitalized terms not otherwise
defined herein shall have the same meaning as specified in the Note Purchase
Agreement. Reference is further made to Section 4.18 of the Note Purchase
Agreement which requires that, prior to the delivery of any Additional Notes,
the Company and each Additional Purchaser shall execute and deliver a
Supplement.
The Company hereby agrees with the Purchaser(s) as follows:
1. The Company has authorized the issue and sale of $__________
aggregate principal amount of its _____% Series ______ Senior Secured Notes due
_________, ____ (the "Series ______ Notes"). The Series ____ Notes, together
with the Series 2000-A Notes [and the Series ____ Notes] initially issued
pursuant to the Note Purchase Agreement and each series of Additional Notes
which may from time to time hereafter be issued pursuant to the provisions of
Section 2.4 of the Note Purchase Agreement, are collectively referred to as the
"Notes" (such term shall also include any such notes issued in substitution
therefor pursuant to Section 13 of the Note Purchase Agreement). The Series
_____ Notes shall be substantially in the form set out in Exhibit 1 hereto with
such changes therefrom, if any, as may be approved by the Purchaser(s) and the
Company.
2. Subject to the terms and conditions hereof and as set forth in the
Note Purchase Agreement and on the basis of the representations and warranties
hereinafter set forth, the Company agrees to issue and sell to each Purchaser,
and each Purchaser agrees to purchase from the Company, Series _____ Notes in
the principal amount set forth opposite such Purchaser's name on Schedule A
hereto at a price of 100% of the principal amount thereof on the closing date
hereafter mentioned.
<PAGE> 76
3. The sale and purchase of the Series ______ Notes to be purchased by
each Purchaser shall occur at the offices of [Chapman and Cutler, 111 West
Monroe Street, Chicago, Illinois 60603,] at 10:00 A.M. Chicago time, at a
closing (the "Closing") on ______, ____ or on such other Business Day thereafter
on or prior to _______, ____ as may be agreed upon by the Company and the
Purchasers. At the Closing, the Company will deliver to each Purchaser the
Series ______ Notes to be purchased by such Purchaser in the form of a single
Series ______ Note (or such greater number of Series ______ Notes in
denominations of at least $100,000 as such Purchaser may request) dated the date
of the Closing and registered in such Purchaser's name (or in the name of such
Purchaser's nominee), against delivery by such Purchaser to the Company or its
order of immediately available funds in the amount of the purchase price
therefor by wire transfer of immediately available funds for the account of the
Company to account number [__________________________] at ____________ Bank,
[Insert Bank address, ABA number for wire transfers, and any other relevant wire
transfer information]. If, at the Closing, the Company shall fail to tender such
Series ______ Notes to any Purchaser as provided above in this Section 3, or any
of the conditions specified in Section 4 shall not have been fulfilled to any
Purchaser's satisfaction, such Purchaser shall, at such Purchaser's election, be
relieved of all further obligations under this Agreement, without thereby
waiving any rights such Purchaser may have by reason of such failure or such
nonfulfillment.
4. The obligation of each Purchaser to purchase and pay for the Series
______ Notes to be sold to such Purchaser at the Closing is subject to the
fulfillment to such Purchaser's satisfaction, prior to the Closing, of the
conditions set forth in Section 4 of the Note Purchase Agreement with respect to
the Series ______ Notes to be purchased at the Closing, and to the following
additional conditions:
(a) Except as supplemented, amended or superceded by the
representations and warranties set forth in Exhibit A hereto, each of
the representations and warranties of the Company set forth in Section
5 of the Note Purchase Agreement shall be correct as of the date of
Closing and the Company shall have delivered to each Purchaser an
Officer's Certificate, dated the date of the Closing certifying that
such condition has been fulfilled.
(b) Contemporaneously with the Closing, the Company shall sell
to each Purchaser, and each Purchaser shall purchase, the Series ______
Notes to be purchased by such Purchaser at the Closing as specified in
Schedule A.
5. [Here insert special provisions for Series 2000-A Notes including
prepayment provisions applicable to Series ______ Notes (including Make-Whole
Amount) and closing conditions applicable to Series ______ Notes].
6. Each Purchaser represents and warrants that the representations and
warranties set forth in Section 6 of the Note Purchase Agreement are true and
correct on the date hereof with respect to the purchase of the Series ______
Notes by such Purchaser.
7. The Company and each Purchaser agree to be bound by and comply with
the terms and provisions of the Note Purchase Agreement as fully and completely
as if such Purchaser were an original signatory to the Note Purchase Agreement.
-2-
<PAGE> 77
The execution hereof shall constitute a contract between the Company
and the Purchaser(s) for the uses and purposes hereinabove set forth, and this
agreement may be executed in any number of counterparts, each executed
counterpart constituting an original but all together only one agreement.
QUANTA SERVICES, INC.
By
------------------------------------
Name:
-------------------------------
Title:
-------------------------------
Accepted as of __________, _____
[VARIATION]
By
------------------------------------
Name:
-------------------------------
Title:
-------------------------------
-3-
<PAGE> 78
INFORMATION RELATING TO PURCHASERS
<TABLE>
<CAPTION>
PRINCIPAL
NAME AND ADDRESS OF PURCHASER AMOUNT OF SERIES
______ NOTES TO
[NAME OF PURCHASER] BE PURCHASED $
<S> <C>
(1) All payments by wire transfer of
immediately available funds to:
with sufficient information to identify the
source and application of such funds.
(2) All notices of payments and written
confirmations of such wire transfers:
(3) All other communications:
</TABLE>
SCHEDULE A
(to Supplement)
<PAGE> 79
SUPPLEMENTAL REPRESENTATIONS
The Company represents and warrants to each Purchaser that except as
hereinafter set forth in this Exhibit A, each of the representations and
warranties set forth in Section 5 of the Note Purchase Agreement is true and
correct as of the date hereof with respect to the Series ______ Notes with the
same force and effect as if each reference to "Series 2000-A Notes" set forth
therein was modified to refer the "Series ______ Notes" and each reference to
"this Agreement" therein was modified to refer to the Note Purchase Agreement as
supplemented by the _______ Supplement. The Section references hereinafter set
forth correspond to the similar sections of the Note Purchase Agreement which
are supplemented hereby:
Section 5.3. Disclosure. The Company, through its agent, Banc of
America Securities LLC, has delivered to each Purchaser a copy of a Private
Placement Memorandum, dated ____________ (the "Memorandum"), relating to the
transactions contemplated by the ______ Supplement. The Note Purchase Agreement,
the Memorandum, the documents, certificates or other writings delivered to each
Purchaser by or on behalf of the Company in connection with the transactions
contemplated by the Note Purchase Agreement and the _______ Supplement and the
financial statements listed in Schedule 5.5 to the _____ Supplement, taken as a
whole, do not contain any untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein not misleading in
light of the circumstances under which they were made. Since ____________, there
has been no change in the financial condition, operations, business, properties
or prospects of the Company or any Subsidiary except changes that individually
or in the aggregate could not reasonably be expected to have a Material Adverse
Effect.
Section 5.4. Organization and Ownership of Shares of Subsidiaries. (a)
Schedule 5.4 to the ______ Supplement contains (except as noted therein)
complete and correct lists of the Company's Subsidiaries, and showing, as to
each Subsidiary, the correct name thereof, the jurisdiction of its organization,
and the percentage of shares of each class of its capital stock or similar
equity interests outstanding owned by the Company and each other Subsidiary.
Section 5.13. Private Offering by the Company. Neither the Company nor
anyone acting on its behalf has offered the Series A Notes or any similar
securities for sale to, or solicited any offer to buy any of the same from, or
otherwise approached or negotiated in respect thereof with, any Person other
than the Purchasers and not more than [_] other Institutional Investors, each of
which has been offered the Series ______ Notes at a private sale for investment.
Neither the Company nor anyone acting on its behalf has taken, or will take, any
action that would subject the issuance or sale of the Notes to the registration
requirements of Section 5 of the Securities Act.
Section 5.14. Use of Proceeds; Margin Regulations. The Company will
apply the proceeds of the sale of the Series ______ Notes to
______________________________ and for general corporate purposes. No part of
the proceeds from the sale of the Series ______ Notes pursuant to the _____
Supplement will be used, directly or indirectly, for the purpose of buying or
carrying any margin stock within the meaning of Regulation U of the Board of
Governors of
EXHIBIT A
(to Supplement)
<PAGE> 80
the Federal Reserve System (12 CFR 222), or for the purpose of buying or
carrying or trading in any securities under such circumstances as to involve the
Company in a violation of Regulation X of said Board (12 CFR 224) or to involve
any broker or dealer in a violation of Regulation T of said Board (12 CFR 220).
As used in this Section, the terms "margin stock" and "purpose of buying or
carrying" shall have the meanings assigned to them in said Regulation U.
Section 5.15. Existing Debt; Future Liens. (a) Schedule 5.15 to the
_________ Supplement sets forth a complete and correct list of all outstanding
Debt of the Company and its Subsidiaries as of _____________, since which date
there has been no Material change in the amounts, interest rates, sinking funds,
installment payments or maturities of the Debt of the Company or its
Subsidiaries. Neither the Company nor any Subsidiary is in default and no waiver
of default is currently in effect, in the payment of any principal or interest
on any Debt of the Company or such Subsidiary and no event or condition exists
with respect to any Debt of the Company or any Subsidiary that would permit (or
that with notice or the lapse of time, or both, would permit) one or more
Persons to cause such Debt to become due and payable before its stated maturity
or before its regularly scheduled dates of payment.
[Add any additional Sections as appropriate at the time the Series
______ Notes are issued]
-2-
<PAGE> 81
[FORM OF SERIES ______ NOTE]
QUANTA SERVICES, INC.
___% SERIES ______ SENIOR NOTE DUE ______________
No. [_________] [Date]
$[____________] PPN [____________]
FOR VALUE RECEIVED, the undersigned, QUANTA SERVICES, INC. (herein
called the "Company"), a corporation organized and existing under the laws of
the State of ____________, hereby promises to pay to [________________], or
registered assigns, the principal sum of [________________] DOLLARS on
_______________, with interest (computed on the basis of a 360-day year of
twelve 30-day months) (a) on the unpaid balance thereof at the rate of ____% per
annum from the date hereof, payable semiannually, on the _____ day of ______ and
______ in each year, commencing on the first of such dates after the date
hereof, until the principal hereof shall have become due and payable, and (b) to
the extent permitted by law on any overdue payment (including any overdue
prepayment) of principal, any overdue payment of interest and any overdue
payment of any Make-Whole Amount (as defined in the Note Purchase Agreement
referred to below), payable semiannually as aforesaid (or, at the option of the
registered holder hereof, on demand), at a rate per annum from time to time
equal to the greater of (i) [coupon + 2%]% or (ii) 2% over the rate of interest
publicly announced by _________________ from time to time in
____________________ as its "base" or "prime" rate.
Payments of principal of, interest on and any Make-Whole Amount with
respect to this Note are to be made in lawful money of the United States of
America at ______________________, in ______________________, or at such other
place as the Company shall have designated by written notice to the holder of
this Note as provided in the Note Purchase Agreement referred to below.
This Note is one of a series of Senior Notes (the "Notes") issued
pursuant to a Supplement to the Note Purchase Agreement dated as of March 1,
2000 (as from time to time amended, supplemented or modified, the "Note Purchase
Agreement"), between the Company, the Purchasers named therein and Additional
Purchasers of Notes from time to time issued pursuant to any Supplement to the
Note Purchase Agreement. This Note and the holder hereof are entitled equally
and ratably with the holders of all other Notes of all series from time to time
outstanding under the Note Purchase Agreement to all the benefits provided for
thereby or referred to therein. Each holder of this Note will be deemed, by its
acceptance hereof, to have made the representation set forth in Section 6.2 of
the Note Purchase Agreement, provided that such holder may (in reliance upon
information provided by the Company, which shall not be unreasonably withheld)
make a representation to the effect that the purchase by such holder of any Note
will not constitute a non-exempt prohibited transaction under Section 406(a) of
ERISA.
-1-
<PAGE> 82
This Note is registered with the Company and, as provided in the Note
Purchase Agreement, upon surrender of this Note for registration of transfer,
duly endorsed, or accompanied by a written instrument of transfer duly executed,
by the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note of the same series for a like principal amount will be
issued to, and registered in the name of, the transferee. Prior to due
presentment for registration of transfer, the Company may treat the person in
whose name this Note is registered as the owner hereof for the purpose of
receiving payment and for all other purposes, and the Company will not be
affected by any notice to the contrary.
[The Company will make required prepayments of principal on the dates
and in the amounts specified in the Note Purchase Agreement.] [This Note is not
subject to regularly scheduled prepayments of principal.] This Note is [also]
subject to optional prepayment, in whole or from time to time in part, at the
times and on the terms specified in the Note Purchase Agreement, but not
otherwise.
If an Event of Default, as defined in the Note Purchase Agreement,
occurs and is continuing, the principal of this Note may be declared or
otherwise become due and payable in the manner, at the price (including any
applicable Make-Whole Amount) and with the effect provided in the Note Purchase
Agreement.
This Note shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the law of the State of __________
excluding choice-of-law principles of the law of such State that would require
the application of the laws of a jurisdiction other than such State.
QUANTA SERVICES, INC.
By
Name:
-------------------------------
Title:
-------------------------------
-2-
<PAGE> 1
EXHIBIT 10.17
================================================================================
INTERCREDITOR AGREEMENT
AMONG
BANK OF AMERICA, N.A.,
as Collateral Agent
AND
BANK OF AMERICA, N.A.,
individually, and as Administrative Agent for the other Lenders
AND
THE NOTEHOLDERS WHICH ARE PARTIES HERETO
RE: QUANTA SERVICES, INC.
Dated as of March 23, 2000
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION HEADING PAGE
<S> <C>
Parties......................................................................1
Recitals.....................................................................1
SECTION 1. DEFINED TERMS..................................................2
SECTION 2. APPOINTMENT OF COLLATERAL AGENT................................8
SECTION 3. DECISIONS RELATING TO ADMINISTRATION AND EXERCISE OF
REMEDIES VESTED IN THE MAJORITY BENEFITED PARTIES..............8
SECTION 4. APPLICATION OF MONIES AND PROCEEDS............................10
SECTION 5. PREFERENTIAL PAYMENTS AND SPECIAL TRUST ACCOUNT...............11
SECTION 6. INFORMATION...................................................12
SECTION 7. ADDITIONAL PARTIES............................................13
SECTION 8. DISCLAIMERS, INDEMNITY, ETC...................................14
SECTION 9. INVALIDATED PAYMENTS..........................................16
SECTION 10. MISCELLANEOUS.................................................17
Signature Page..............................................................20
</TABLE>
-i-
<PAGE> 3
INTERCREDITOR AGREEMENT
This INTERCREDITOR AGREEMENT (as amended, restated or otherwise
modified from time to time in accordance with the terms hereof, this
"Agreement") is dated as of March 23, 2000 and entered into among the
Noteholders (as hereinafter defined), and Bank of America, N.A., as the
Collateral Agent (as hereinafter defined) individually, and as Agent (as
hereinafter defined). This Agreement is consented to, as evidenced by their
execution of the acknowledgment hereto, by Quanta Services, Inc., a Delaware
corporation (the "Issuer"), and by the subsidiaries of the Issuer (each a
"Subsidiary Guarantor") which have executed Guaranties (as hereinafter defined).
The Issuer and each Subsidiary Guarantor are individually referred to as an
"Obligor" and collectively as the "Obligors."
RECITALS
WHEREAS, the Issuer has entered into that certain Third Amended and
Restated Secured Credit Agreement dated as of June 14, 1999 (said agreement, as
amended prior hereto and as it may hereafter be amended, restated, refinanced,
or otherwise modified (including any increase in or reduction in the principal
amount thereof) from time to time the "Existing Credit Agreement" and together
with any Successor Credit Agreement, as hereinafter defined, the "Credit
Agreement") among the Issuer and the Lenders from time to time parties thereto
(each a "Lender" and collectively the "Lenders"), and Bank of America, N.A. as
administrative agent for the Lenders.
WHEREAS, the Subsidiary Guarantors have or will guaranty the
obligations of the Issuer under the Credit Agreement pursuant to one or more
Subsidiary Guaranties (the "Bank Guaranties").
WHEREAS, the obligations of the Issuer under the Credit Agreement and
in respect of certain Hedging Transactions (as defined below) and the
obligations of the Subsidiary Guarantors under the Bank Guaranties are secured
pursuant to certain Bank Security Documents (as hereinafter defined), among the
Obligors and the Collateral Agent, pursuant to which the Obligors have granted a
security interest to the Collateral Agent (on behalf of the Lenders) in
substantially all of their personal property to secure the Credit Obligations.
WHEREAS, the Issuer has entered into a Note Purchase Agreement dated as
of March 1, 2000 (said agreement as amended, restated, supplemented or otherwise
modified from time to time, the "Note Agreement"), between the Issuer and the
Purchasers named therein (the "Existing Noteholders") pursuant to which the
Existing Noteholders purchased or will purchase the Issuer's (i) $73,000,000
8.46% Series 2000-A Senior Secured Notes, Tranche 1 due March 1 2005, (ii)
$41,500,000 8.55% Series 2000-A Senior Secured Notes, Tranche 2, due March 1,
2007 and (iii) $35,500,000 8.61% Senior Secured Notes, Tranche 3, due March 1,
2010 (collectively, the "Existing Senior Notes").
WHEREAS, it is contemplated that additional series of senior notes may
be issued from time to time pursuant to one or more supplements to the Note
Agreement to institutional investors (which may include the Existing
Noteholders) such additional senior notes together
<PAGE> 4
with the Existing Senior Notes being hereinafter referred to collectively as the
"Senior Notes"). The purchasers of such additional Senior Notes which become
Parties hereto being hereinafter together with the Existing Noteholders
collectively referred to as the "Noteholders".
WHEREAS, the Parties desire that the Proceeds from the commencement of
Enforcement (as hereinafter defined) proceedings with respect to the collateral
under the Security Documents shall be shared equally and ratably among the
Benefited Parties (as hereinafter defined) in accordance with the terms of this
Agreement.
WHEREAS, the Subsidiary Guarantors have or will guaranty the
obligations of the Issuer under the Note Agreement and the Senior Notes pursuant
to one or more Subsidiary Guaranties (the "Noteholder Guaranties").
WHEREAS, the obligations of the Issuer under the Note Agreement and the
Senior Notes and the obligations of the Subsidiary Guarantors under the
Noteholder Guaranties are secured pursuant to certain Noteholder Security
Documents (as hereinafter defined), among the Obligors and the Collateral Agent,
as collateral agent for the Noteholders, pursuant to which the Obligors have
granted a security interest to the Collateral Agent (on behalf of the
Noteholders) in substantially all of their personal property to secure the
Senior Note Obligations.
WHEREAS, the Noteholders, the Lenders and the Collateral Agent
(individually a "Party" and collectively the "Parties") desire to enter into
this Intercreditor Agreement and further desire that Bank of America, N.A. act
as the collateral agent on behalf of all Parties regarding the Collateral, all
as more fully provided herein; and the Parties have entered into this Agreement
to, among other things, further define the rights, duties, authority and
responsibilities of the Collateral Agent and the relationship between the
Parties regarding their pari passu interests in the Collateral.
WHEREAS, it is contemplated that the Lenders or other financial
institutions (the "Successor Lenders") may enter into one or more agreements
with the Obligors either extending the maturity of or refinancing all or any
portion of the Credit Obligations (as hereinafter defined) (including an
increase or decrease in the principal amount thereof).
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the sufficiency and receipt of which are hereby
acknowledged, the Parties hereto hereby agree as follows:
SECTION 1. DEFINED TERMS.
As used in this Agreement the following terms have the following
meanings:
"Acceleration Premium Obligations" means all obligations of the Issuer
to pay a "Make Whole Amount" (as defined in the Note Agreement) to the
Noteholders as a result of the acceleration of their respective Senior Note
Obligations payable under the Note Agreement.
-2-
<PAGE> 5
"Affiliate," as applied to any Person, means any other Person directly
or indirectly controlling, controlled by, or under common control with, that
Person. For the purposes of this definition, "control" (including with
correlative meanings, the terms "controlling," "controlled by" and "under common
control with"), as applied to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of that Person, whether through the ownership of voting securities or
by contract or otherwise.
"Agent" means Bank of America, N.A. in its capacity as Administrative
Agent under the Credit Agreement and any successor Administrative Agent under
the Credit Agreement.
"Agreement" has the meaning ascribed to that term in the introductory
paragraph hereto.
"Bank Documents" means the Credit Agreement, the Bank Guaranties, the
Bank Security Documents, and any other document or instrument whether now
existing or hereafter given to the Collateral Agent or any Lender in respect of
the Credit Obligations.
"Bank Guaranties" has the meaning ascribed to that term in the recitals
hereto.
"Bank Security Documents" means any security agreement, hypothec,
mortgage, deed of trust, pledge agreement or other agreement or instrument
pursuant to which any Obligor grants a Lien to secure the Credit Obligations
whether now existing or hereafter incurred.
"Bankruptcy Proceeding" means, with respect to any Person, a general
assignment by such Person for the benefit of its creditors, or the institution
by or against such Person of any proceeding seeking relief as debtor, or seeking
to adjudicate such Person as bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment or composition of such Person or its debts, under any
law relating to bankruptcy, insolvency, reorganization or relief of debtors, or
seeking appointment of a receiver, trustee, custodian or other similar official
for such Person or for any substantial part of its property.
"Benefited Obligations" means (a) all Credit Obligations, (b) all
Senior Note Obligations, (c) all Hedging Exposure and other obligations of the
Issuer under or arising in connection with any Interest Rate Protection
Agreement, and (d) all other amounts payable by any Obligor under this
Agreement, any Guaranty and the Security Documents (including, without
limitation, the reasonable fees and expenses of the Collateral Agent).
"Benefited Parties" means the holders, from time to time, of the
Benefited Obligations.
"Code" means the Uniform Commercial Code as the same may from time to
time be in effect in the appropriate jurisdiction.
"Collateral" means all property and interests in property of any
Obligor in which a Lien has been created under the Security Documents.
"Collateral Agent" means Bank of America, N.A., in its capacity as
collateral agent hereunder and any successor collateral agent appointed pursuant
to Section 8 hereof.
-3-
<PAGE> 6
"Credit Agreement" has the meaning ascribed to that term in the
recitals hereto.
"Credit Obligations" means all outstanding and unpaid obligations of
every nature of the Obligors (including L/C Obligations) from time to time to
the Lenders or any of them under the Credit Agreement and any other Bank
Documents.
"Directing Party" means, with respect to any particular instruction
given to the Collateral Agent, each Party (and each Benefited Party represented
by such Party) that has given such instruction to the Collateral Agent.
"Enforcement" means the commencement of enforcement, collection
(including judicial or non-judicial foreclosure) or similar proceedings with
respect to the Collateral.
"Event of Default" means an "Event of Default" or "Default" as defined
in any Financing Agreement.
"Existing Credit Agreement" has the meaning ascribed to that term in
the recitals hereto.
"Existing Noteholders" has the meaning ascribed to that term in the
recitals hereto.
"Existing Senior Notes" has the meaning ascribed to that term in the
recitals hereto.
"Financing Agreements" means the Bank Documents, the Noteholder
Documents, any Interest Rate Protection Agreement, this Agreement, the Security
Documents, and any other instruments, documents or agreements entered into in
connection with any Benefited Obligation or Financing Agreement.
"Guaranty" means any Bank Guaranty or any Noteholder Guaranty and
"Guaranties" means the Bank Guaranties and the Noteholder Guaranties.
"Hedging Exposure" means, on any date of determination for any Hedging
Transaction, the amount, as calculated in good faith and in a commercially
reasonable manner by the Lender that is the Issuer's counterpart for such
Hedging Transaction, which such Lender would pay to a third party (such amount
being expressed as a negative number) or receive from a third party (such amount
being expressed as a positive number) in an arm's-length transaction as
consideration for the third party's entering into a new transaction with such
Lender in which: (a) such Lender holds the same position in the Hedging
Transaction as it currently holds; (b) the third party holds the same position
as the Issuer currently holds; and (c) the new transaction has economic and
other terms and conditions identical in all respects to such Hedging Transaction
except that (i) the date of calculation shall be deemed to be the date of
commencement of the new transaction and (ii) all period end dates shall
correspond to all period end dates, if any, for such Hedging Transaction.
"Hedging Transaction" means each interest rate swap transaction, basis
swap transaction, forward rate transaction, commodity swap transaction, equity
index transaction, foreign exchange transaction, cap transaction, floor
transaction, collar transaction, currency swap
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transaction or any other similar transaction (including any option with respect
to any of these transactions and any combination of any of the foregoing)
entered into by the Issuer from time to time pursuant to an Interest Rate
Protection Agreement; provided that such transaction is entered into for risk
management purposes and not for speculative purposes.
"Interest Rate Protection Agreement" means any interest rate swap, cap,
floor, collar, forward rate agreement, or other rate protection transaction, or
any combination of such transactions or agreements or any option with respect to
any such transactions or agreements now existing or hereafter entered into
between the Issuer and any Lender or Successor Lender.
"Issuer" has the meaning ascribed to that term in the introductory
paragraph hereto.
"L/C Obligations" has the meaning set forth in the Credit Agreement.
"Lenders" has the meaning ascribed to that term in the recitals hereto.
"Letter of Credit" has the meaning set forth in the Credit Agreement.
"Lien" means any lien, mortgage, pledge, security interest, charge or
encumbrance of any kind (including any conditional sale or other title retention
agreement, any lease in the nature thereof, and any agreement to give any
security interest).
"Majority Benefited Parties" means (a) the Required Lenders under the
Credit Agreement, and (b) Noteholders holding (or representing) at least 51% of
the outstanding principal amount of the Senior Notes, each voting as a separate
class, provided that if at any time the amount of the Credit Obligations or the
aggregate outstanding principal amount of the Senior Notes represents less than
5% of the sum of the aggregate outstanding principal amount of the indebtedness
evidenced by the Senior Notes and the amount of the Credit Obligations, then
"Majority Benefited Parties" shall mean Benefited Parties, considered as a
single class, holding more than 50% of the sum of (i) the outstanding principal
amount of the Senior Notes, plus (ii) the outstanding amount of the Credit
Obligations. Determination of the "amount of the Credit Obligations" shall be
based on the commitments of the Lenders; provided that if an Event of Default
shall exist such determination shall be based on the amount of the outstanding
Credit Obligations.
"Non-Directing Party" means, with respect to any particular
instruction given to the Collateral Agent, each Party (and each Benefited Party
represented by such Party) that has not given or agreed with such instruction
given to the Collateral Agent.
"Note Agreement" has the meaning ascribed to that term in the recitals
hereto.
"Noteholder Documents" means (i) the Note Agreement; (ii) the Senior
Notes; (iii) the Noteholder Guaranties; and (iv) the Noteholder Security
Documents.
"Noteholder Guaranties" has the meaning ascribed to that term in the
recitals hereto.
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<PAGE> 8
"Noteholder Security Documents" means any security agreement, hypothec,
mortgage, deed of trust, pledge agreement or other agreement or instrument
pursuant to which any Obligor grants a Lien to secure the Senior Note
Obligations.
"Noteholders" has the meaning ascribed to that term in the recitals
hereto.
"Obligors" has the meaning ascribed to that term in the recitals
hereto.
"Opinion of Counsel" means a written opinion of an attorney or firm of
attorneys which is not an employee of the Person requesting such opinion or any
affiliate of such Person but which may be outside counsel engaged or retained by
such Person, a copy of which opinion is furnished to each Benefited Party.
"Party" has the meaning ascribed to that term in the recitals hereto.
"Person" means any individual, corporation, partnership, limited
liability company, trust or other entity.
"Preferential Payment" means any payments (including payments from any
Subsidiary Guarantor) or Proceeds from any Obligor or any other source with
respect to the Benefited Obligations (including from the exercise of any
set-off) which are:
(i) received by a Benefited Party within 90 days prior to the
commencement of a Bankruptcy Proceeding with respect to any Obligor, or
the acceleration of any Senior Notes or the Credit Obligations, and
which payment reduces the amount of the Benefited Obligations owed to
such Benefited Party as of the date of commencement of such Bankruptcy
Proceedings or the date of such acceleration below the amount owed to
such Benefited Party as of the 90th day prior to such occurrence, or
(ii) received by a Benefited Party (A) within 90 days prior to
the occurrence of any other Event of Default which has not been waived
or cured within 45 days after the occurrence thereof and which payment
reduces the amount of the Benefited Obligations owed to such Benefited
Party as of the date of occurrence of such Event of Default below the
amount owed to such Benefited Party as of the 90th day prior to the
occurrence of such Event of Default or (B) within 45 days after the
occurrence of such Event of Default, or
(iii) received by a Benefited Party after the occurrence of a
Special Event of Default (except as provided in Section 5(b)) and such
payment reduces the amount of the Benefited Obligations owed to such
Party as of the date of the occurrence of such Special Event of
Default.
"Proceeds" has the meaning assigned to it under the Code and, in any
event, includes, but is not limited to, (a) any and all proceeds of any
collection, sale or other disposition of the Collateral, (b) any and all amounts
from time to time paid or payable under or in connection with
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<PAGE> 9
any of the Collateral and (c) amounts collected by the Collateral Agent or any
Lender by way of off-set, deduction or counterclaim.
"Required Lenders" means those Lenders having aggregate percentages of
the revolving loan commitments under the Credit Agreement entitled to direct the
Agent to act or refrain from acting in its capacity as agent under the Credit
Agreement.
"Required Noteholders" means, with respect to any particular Event of
Default which shall at the time exist under any Note Agreement, the percentage
of Noteholders required to waive such Event of Default under the provisions of
such Note Agreement or, if the Senior Notes under the applicable Note Agreement
shall have been accelerated, the percentage of Noteholders required to rescind
such acceleration under the provisions of such Note Agreement.
"Security Documents" means the Bank Security Documents and the
Noteholder Security Documents.
"Senior Debt" means debt for borrowed money, including Senior Notes
issued after the date of this Agreement but excluding debt outstanding under the
Credit Agreement, which is not subordinated in right of payment to any other
obligation of the Issuer.
"Senior Note Obligations" means all outstanding and unpaid obligations
of every nature of the Obligors from time to time to the Noteholders under the
Noteholder Documents, including, without limitation, the Acceleration Premium
Obligations and all fees, collection costs and other expenses otherwise accruing
under the Noteholder Documents.
"Senior Notes" means all senior notes issued pursuant to the Note
Agreement.
"Special Event of Default" shall mean (i) the commencement of a
Bankruptcy Proceeding with respect to any Obligor, (ii) any other Event of
Default which has not been waived or cured within 45 days after the occurrence
thereof, or (iii) the acceleration of any Senior Notes or the Credit
Obligations.
"Special Trust Account" shall mean that certain interest bearing trust
account maintained by the Collateral Agent for the purpose of receiving and
holding Preferential Payments.
"Subsidiary Guarantor" has the meaning ascribed to that term in the
recitals hereto.
"Successor Credit Agreement" shall mean any replacement, refinancing or
restructuring of the Existing Credit Agreement; provided that each Successor
Lender thereunder or an agent acting on behalf of all such Successor Lenders has
executed an acknowledgment to this Agreement in the form attached hereto as
Exhibit A.
"Successor Lenders" has the meaning ascribed to that term in the
recitals hereto.
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<PAGE> 10
SECTION 2. APPOINTMENT OF COLLATERAL AGENT.
Agent and each Noteholder hereby acknowledges that it has appointed
Bank of America, N.A. to serve as the Collateral Agent and authorized the
Collateral Agent to act as agent for the Benefited Parties for the purposes of
executing and delivering on behalf of the Benefited Parties the Security
Documents and, subject to the provisions of this Agreement, enforcing the
Benefited Parties' rights in respect of the Collateral and the obligations of
the Obligors under the Security Documents.
SECTION 3. DECISIONS RELATING TO ADMINISTRATION AND EXERCISE OF REMEDIES
VESTED IN THE MAJORITY BENEFITED PARTIES.
(a) The Collateral Agent agrees that it will not commence Enforcement
without the written approval of the Majority Benefited Parties. The Collateral
Agent agrees to administer the Security Documents and the Collateral and to make
such demands and give such notices under the Security Documents as the Majority
Benefited Parties may request in writing, and to take such action to enforce the
Security Documents and to realize upon, collect and dispose of the Collateral or
any portion thereof as may be directed in writing by the Majority Benefited
Parties; provided that the Collateral Agent shall not be required to take any
action (i) that is in the Opinion of Counsel contrary to law or to the terms of
this Agreement or the Security Documents, or that would in the Opinion of
Counsel subject the Collateral Agent or any of its officers, employees, agents
or directors to liability, and (ii) until the Collateral Agent shall be
indemnified to its reasonable satisfaction by one or more of the Benefited
Parties against any and all loss, cost, expense or liability in connection
therewith.
(b) Each Party agrees that the Collateral Agent shall act as the
Majority Benefited Parties may request (regardless of whether any individual
Party or Benefited Party agrees, disagrees or abstains with respect to such
request), that the Collateral Agent shall have no liability for acting in
accordance with such request (provided such action does not conflict with the
express terms of this Agreement) and that no Directing Party or Non-Directing
Party shall have any liability to any Non-Directing Party or Directing Party,
respectively, for any such request. The Collateral Agent shall give prompt
notice to the Non-Directing Parties of action taken pursuant to the instructions
of the Majority Benefited Parties to enforce any Security Document; provided,
however, that the failure to give any such notice shall not impair the right of
the Collateral Agent to take any such action or the validity or enforceability
under this Agreement of the action so taken. Notwithstanding anything herein to
the contrary, the Majority Benefited Parties shall agree to release the
Collateral from the security interests granted for the benefit of any
Non-Directing Party only if the Collateral Agent is concurrently releasing the
security interest granted with respect to such Collateral for all Benefited
Parties having a security interest in such Collateral.
(c) Each Party agrees that the only right of a Non-Directing Party
under the Security Documents is for Benefited Obligations held by such
Non-Directing Party to be secured by the Collateral for the period and to the
extent provided in the Security Documents and in this Agreement and to receive
their pro rata share of the Proceeds of the Collateral, if any, to the extent
and at the time provided in the respective Security Documents and in this
Agreement.
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<PAGE> 11
(d) The Collateral Agent may at any time request approval from the
Majority Benefited Parties as to any course of action or other matter relating
hereto or any Security Document. Except as otherwise provided in this Agreement
or the Security Documents, directions given by the Majority Benefited Parties to
the Collateral Agent hereunder shall be in writing and binding on all Benefited
Parties, including all Non-Directing Parties, for all purposes.
(e) Nothing contained in this Agreement shall affect the rights of any
Party to give the Issuer or any other Obligor notice of any default, accelerate
or make demand for payment of their respective Benefited Obligations under the
Financing Agreements. If the Majority Benefited Parties instruct the Collateral
Agent to take any action, commence any proceedings or otherwise proceed against
the Collateral or enforce any Security Documents, and such action or proceedings
are or may be defective without the joinder of all Parties, then all Parties
shall join in such actions or proceedings. Each Party agrees not to take any
action to enforce any term or provision of the Security Documents (other than
the Guaranties) or to enforce any of its rights in respect of the Collateral
except through the Collateral Agent in accordance with this Agreement.
(f) If the Collateral Agent has been notified in writing that an Event
of Default has occurred, the Collateral Agent shall notify the Benefited Parties
and may notify the Issuer of such determination. Any Benefited Party which has
actual knowledge of an Event of Default, or facts which indicate that an Event
of Default has occurred, shall deliver to the Collateral Agent a written
statement describing such Event of Default or facts. Failure to do so, however,
does not constitute a waiver of such Event of Default by the Benefited Parties.
Upon receipt of a notice from a Benefited Party of the occurrence of an Event of
Default, the Collateral Agent shall promptly (and in any event no later than
three business days after receipt of such notice in the manner provided in
Section 10(a) hereof) give notice of such Event of Default to all Benefited
Parties.
(g) Unless an Event of Default has occurred and is continuing, the
Collateral Agent may, without the approval of the Benefited Parties as required
herein, release any Collateral under the Security Documents which is permitted
to be sold or disposed of by any Obligor pursuant to the Credit Agreement and
the Note Agreement and execute and deliver such releases as may be necessary to
terminate of record the Benefited Parties' security interest in such Collateral.
So long as no Event of Default shall have occurred and shall be continuing, the
Collateral Agent shall release the Collateral upon the written direction of the
Required Lenders. The Collateral Agent shall not be required to obtain the
approval of the Required Noteholders in connection with the release of the
Collateral unless an Event of Default shall have occurred and shall be
continuing.
(h) The Noteholders shall have the right, without the consent of the
Lenders to amend, supplement, restate or replace (including an increase or
decrease in the principal amount thereof) or waive the terms of the existing
Note Agreement and the Senior Notes without in any way affecting the rights of
the Senior Noteholders under this Agreement. The Lenders shall have the right,
without the consent of the Senior Noteholders to amend, supplement, restate or
replace or waive the terms of the existing Credit Agreement and the Credit
Obligations without in any way affecting the rights of the Lenders under this
Agreement. The Noteholders will furnish a copy of any amendment to the
Noteholder Documents to the Agent promptly after the execution and
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delivery thereof. The Agent will furnish a copy of any amendment to the Bank
Documents to the Noteholders promptly after the execution and delivery thereof.
(i) Neither the Lenders nor the Noteholders shall directly or
indirectly take any action, consent to the taking of any action, or cause or
assist any Person to take any action, to challenge the validity, legality,
perfection, priority or enforcement of the Security Documents or the Liens of
the Security Documents on the Collateral. Subject to the terms and conditions of
this Agreement, neither the Lenders nor the Noteholders shall directly or
indirectly take any action, consent to the taking of any action, or cause or
assist any Person to take any action, to challenge, object to, compete with or
impede in any matter any act taken or proceeding commenced by another Party in
connection with the Enforcement of the Credit Obligations or the Senior Note
Obligations, as the case may be.
SECTION 4. APPLICATION OF MONIES AND PROCEEDS.
(a) Any and all monies and Proceeds received by the Collateral Agent or
a Benefited Party in connection with a demand for payment or an Enforcement and
any Preferential Payments required to be paid to all Benefited Parties in
accordance with the provisions of Section 5, shall be delivered to the
Collateral Agent and applied promptly by the Collateral Agent as follows:
FIRST: To the payment of the reasonable costs and expenses of
such sale, collection or other realization, including reasonable fees
and expenses of counsel, and all reasonable expenses, liabilities and
advances made or incurred by the Collateral Agent in connection
therewith;
SECOND: To the ratable payment of the Benefited Obligations
then due and owing by such Obligor; provided that with respect to
Benefited Obligations consisting of the undrawn amounts of outstanding
Letters of Credit, payment shall be made to the Collateral Agent, to be
retained as Collateral, for the ratable portion of the Benefited
Obligations consisting of such undrawn amounts of outstanding Letters
of Credit (provided that (i) if any such Letter of Credit is drawn
upon, the Collateral Agent shall pay to the Benefited Party that issued
such Letter of Credit the ratable portion of the amount of cash held as
Collateral therefor pursuant to this clause which is allocable to the
amount drawn upon such Letter of Credit; and (ii) if and to the extent
that any such Letter of Credit shall expire or terminate, the amount of
cash held as Collateral therefor pursuant to this clause shall be
applied in accordance with this subsection 4(a)), calculated in
accordance with the provisions of subsection 4(b); and
THIRD: After payment in full of all Benefited Obligations, to
the payment to or upon the order of Obligors, or to whomsoever may be
lawfully entitled to receive the same or as a court of competent
jurisdiction may direct, of any surplus then remaining from such
Proceeds.
Until such monies or Proceeds are so applied, the Collateral Agent shall hold
such monies or Proceeds in its custody in accordance with its regular procedures
for handling deposited funds.
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<PAGE> 13
(b) Any monies received by the Collateral Agent from any Obligor under
the Financing Agreements in connection with a demand for payment or an
Enforcement (including, without limitation, any Proceeds received by the
Collateral Agent in respect of the Collateral) and any Preferential Payments
(net of any amounts applied in accordance with Section 4(a) FIRST) shall be
applied in accordance with the priority set forth in Section 4(a) SECOND so that
each Benefited Party shall receive payment of its proportionate amount of all
such Proceeds. Payment shall be based upon the proportion which the amount of
such Benefited Obligations of such Benefited Party bears to the total amount of
all Benefited Obligations of all such Benefited Parties, including, without
limitation, Hedging Exposure to any Lender. For purposes of determining the
proportionate amounts of all Benefited Obligations sharing in any such
distribution, (i) the amount of the outstanding Credit Obligations shall be
deemed to be the principal amount of the Credit Obligations then outstanding and
all accrued interest and fees with respect thereto, and (ii) the amount of the
outstanding Senior Note Obligations shall be deemed to be the principal amount
of the Senior Notes then outstanding plus all accrued interest and fees with
respect thereto including, without limitation, the Acceleration Premium
Obligations, and (iii) the amount of the outstanding Hedging Exposure shall be
deemed to be the amount of Obligor's obligations then due and payable (exclusive
of expenses or similar liabilities, but including early termination payments
then due) in connection with any Hedging Transaction and all accrued interest
and fees with respect thereto.
(c) Payments by the Collateral Agent in respect of (i) the Credit
Obligations shall be made to the Agent for distribution to the Lenders in
accordance with the Credit Agreement; (ii) the Senior Note Obligations shall be
made as directed in writing by the Noteholder to whom such Senior Note
Obligations are owed; and (iii) Hedging Exposure shall be made as directed by
the Lender to which such is owed.
(d) Such monies or Proceeds received by each Benefited Party under this
Section shall be applied on the Benefited Obligations, first to accrued interest
on such Benefited Obligations, second to the Acceleration Premium Obligations
and fees then due and owing, and third to the unpaid principal amount of the
Benefited Obligations and Hedging Exposure held by such Benefited Party.
SECTION 5. PREFERENTIAL PAYMENTS AND SPECIAL TRUST ACCOUNT.
(a) The Collateral Agent shall give each Benefited Party a written
notice (a "Notice of Special Default") promptly, but no later than, three
business days after being notified in writing by a Benefited Party that a
Special Event of Default has occurred. After the receipt of such Notice of
Special Default, all Preferential Payments other than those payments received
pursuant to Section 5(b) shall be deposited into the Special Trust Account. Each
Benefited Party agrees that no Event of Default shall occur as a result of
payments so made on a timely basis to the Collateral Agent.
(b) If (i) such Special Event of Default is waived by the Required
Lenders or the Required Noteholders, or both, as the case may be, and if no
other Event of Default has occurred and is continuing, (ii) such Special Event
of Default is cured by the Obligors or by any waiver, or amendment of the Credit
Agreement or the Note Agreement, as the case may be, and if no other
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<PAGE> 14
Event of Default has occurred and is continuing or (iii) the Benefited
Obligations have not been accelerated and the Majority Benefited Parties have
not instructed the Collateral Agent to seek the appointment of a receiver,
commence litigation against any Obligor, liquidate the Collateral, commence a
Bankruptcy Proceeding against any Obligor, seize Collateral, or exercise other
remedies of similar character prior to the 90th day following such Special Event
of Default, the Collateral Agent thereupon shall return all amounts, together
with their pro rata share of interest earned thereon, held in the Special Trust
Account representing payment of any Benefited Obligations to the Benefited Party
initially entitled thereto, and no payments thereafter received by a Benefited
Party shall constitute a Preferential Payment by reason of such cured or waived
Special Event of Default. No payment returned to a Benefited Party for which
such Benefited Party has been obligated to make a deposit into the Special Trust
Account shall thereafter ever be characterized as a Preferential Payment. If the
Special Event of Default is an Event of Default under the terms of the Credit
Agreement and the Note Agreement, the Collateral Agent shall not return any
payments to the Benefited Parties pursuant to (i) above unless the Required
Lenders and the Required Noteholders have each waived such Special Event of
Default.
(c) Each Benefited Party agrees that upon the occurrence of a Special
Event of Default it shall (i) promptly notify the Collateral Agent of the
receipt of any Preferential Payments, (ii) hold such amounts in trust for the
Benefited Parties and act as agent of the Benefited Parties during the time any
such amounts are held by it, and (iii) deliver to the Collateral Agent such
amounts for deposit into the Special Trust Account.
(d) If the Benefited Obligations have been accelerated or the Majority
Benefited Parties have instructed the Collateral Agent to commence Enforcement
or commence a Bankruptcy Proceeding against any Obligor, then all funds,
together with interest earned thereon, held in the Special Trust Account and all
subsequent Preferential Payments shall be applied in accordance with the
provisions of Section 4(a) above.
SECTION 6. INFORMATION.
If, in accordance with the terms of this Agreement, the Collateral
Agent proceeds to enforce any Security Document or to collect, sell, otherwise
dispose of or take any other action with respect to any of such agreements or
the Collateral or any portion thereof or proposes to take any other action
pursuant to or contemplated by this Agreement, the Parties hereto agree as
follows:
(a) Each Lender shall (i) promptly from time to time, upon the
written request of the Collateral Agent, notify the Collateral Agent of
the outstanding Credit Obligations as at such date as the Collateral
Agent may specify; and (ii) promptly from time to time thereafter
notify the Collateral Agent of any payment received by such Lender to
be applied to satisfy Credit Obligations. Each Lender shall certify as
to such amounts and the Collateral Agent shall be entitled to rely
conclusively upon such certification.
(b) Each Noteholder shall (i) promptly from time to time, upon
the written request of the Collateral Agent, notify the Collateral
Agent of the outstanding Senior Note Obligations owed to such
Noteholder as at such date as the Collateral Agent may
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<PAGE> 15
specify; (ii) promptly from time to time, upon the written request of
the Collateral Agent, notify the Collateral Agent of the amount that
would be payable as a "Make Whole Amount" under the Note Agreement upon
acceleration of such Noteholder's Senior Notes or any successor
provision thereto if such "Make Whole Amount" were payable as of such
date as the Collateral Agent may specify and (iii) promptly from time
to time thereafter, notify the Collateral Agent of any payment received
thereafter by such Noteholder to be applied to the principal of or
interest or "Make Whole Amount" on the Senior Note Obligations owing to
such Noteholder. Each Noteholder shall certify as to such amounts and
the Collateral Agent shall be entitled to rely conclusively upon such
certification.
(c) Each Lender party to a Hedging Transaction shall (i)
promptly from time to time, upon the written request of the Collateral
Agent, notify the Collateral Agent of the notional amount under such
Hedging Transaction and the amount payable by any Obligor upon early
termination of such Hedging Transaction at the date of termination as
fixed by such Interest Rate Protection Agreement and (ii) promptly from
time to time thereafter notify the Collateral Agent of any payment
received by such Lender to be applied to amounts due upon early
termination of such Hedging Transaction. Such Lender shall certify as
to such amounts and the Collateral Agent shall be entitled to rely
conclusively upon such certification.
SECTION 7. ADDITIONAL PARTIES.
(a) The Issuer may enter into one or more Successor Credit Agreements
and such Successor Credit Agreement shall be secured by the Collateral as
provided herein and in the Security Documents; provided that each Successor
Lender party to such Successor Credit Agreement, or the agent on behalf of all
such Successor Lenders to such Successor Credit Agreement, shall sign an
acknowledgment in the form of Exhibit A attached to this Agreement, by which
each such Successor Lender agrees to be bound by the terms of this Agreement,
and by delivering a signed acknowledgment thereof executed by the Obligors to
the Collateral Agent; and provided further that on the date of execution and
delivery of such Successor Credit Agreement, and after giving effect to the
indebtedness outstanding thereunder and the application of the proceeds
therefrom, such indebtedness would be permitted by the Note Agreement.
(b) The Issuer may enter into one or more supplements to the Note
Agreement and the Senior Notes issued pursuant thereto shall be secured by the
Collateral as provided herein and in the Security Documents; provided that each
Noteholder party to such Supplement, shall sign an acknowledgment in the form of
Exhibit B attached to this Agreement, by which each such Noteholder agrees to be
bound by the terms of this Agreement, and by delivering a signed acknowledgment
thereof executed by the Obligors to the Collateral Agent; and provided further
that on the date of issuance of such additional Senior Notes, the incurrence by
the Issuer of such indebtedness would not constitute an Event of Default under
the Credit Agreement.
(c) In the case of any Successor Credit Agreement, the Collateral Agent
shall not be required to release any Collateral to any successor Collateral
Agent unless the Credit Obligations
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in respect of the outstanding Credit Agreement shall have been paid in full or
provision for such payment shall have been made which is satisfactory to the
Required Lenders and the Required Noteholders.
SECTION 8. DISCLAIMERS, INDEMNITY, ETC.
(a) The Collateral Agent shall have no duties or responsibilities as a
trustee except those expressly set forth in this Agreement and the Security
Documents. The Collateral Agent shall not be responsible to any Benefited Party
for any recitals, statements, representations or warranties contained in any
Financing Agreement or in any certificate or other document referred to or
provided for in, or received by any of them under, any Financing Agreement, or
for the value, validity, effectiveness, genuineness, enforceability or
sufficiency of any Financing Agreement or any other document referred to or
provided for therein or any Lien under any of the Security Documents or the
perfection or priority of any such Lien or for any failure by any Obligor, any
Benefited Party or any other Person to perform any of its respective obligations
under any Financing Agreement. Without limiting the foregoing, the Collateral
Agent shall not be required to take any action under any Security Document,
including, without limitation, any action to perfect any security interests
granted in the Collateral pursuant to the Security Documents or to administer
any Collateral unless instructed to do so by the Majority Benefited Parties.
Neither the Collateral Agent nor any of its directors, officers, employees or
agents shall be liable or responsible for any action taken or omitted to be
taken by it or them hereunder or in connection herewith, except for the gross
negligence or willful misconduct of any such Person.
(b) The Collateral Agent shall be entitled to rely upon any
certification, notice or other communication (including any thereof by telephone
or telecopy) believed by it to be genuine and correct and to have been signed or
sent by or on behalf of the proper Person or Persons, and upon advice and
statements of independent legal counsel, independent accountants and other
experts selected by the Collateral Agent. As to any matters not expressly
provided for by this Agreement, the Collateral Agent shall in all cases be fully
protected in acting, or in refraining from acting, hereunder in accordance with
instructions signed by the Majority Benefited Parties, and such instructions of
the Majority Benefited Parties, and any action taken or failure to act pursuant
thereto, shall be binding on all Parties, Directing Parties and Non-Directing
Parties.
(c) The Benefited Parties agree that they will indemnify the Collateral
Agent in its capacity as the Collateral Agent, ratably in accordance with the
amount of the Benefited Obligations held by such Benefited Parties to the extent
neither reimbursed by Obligors under the Security Documents nor reimbursed out
of any Proceeds pursuant to clause FIRST of Section 4(a) hereof, for any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever that may be
imposed on, incurred by or asserted against the Collateral Agent in any way
relating to or arising out of this Agreement or any of the Security Documents or
the enforcement of any of the terms of any thereof, including fees and expenses
of counsel (including the allocated cost of internal counsel); provided,
however, that no such Benefited Party shall be liable for any such payment to
the extent the obligation to make such payment is found in a final judgment by a
court of competent jurisdiction to have arisen solely from the Collateral
Agent's gross negligence or willful misconduct.
-14-
<PAGE> 17
(d) Except for action expressly required of the Collateral Agent
hereunder, the Collateral Agent shall, notwithstanding anything to the contrary
in Section 8(c) hereof, in all cases be fully justified in failing or refusing
to act hereunder unless it shall be further indemnified to its reasonable
satisfaction by the Parties against any and all liability and expense that may
be incurred by it by reason of taking or continuing to take any such action.
(e) The Collateral Agent may deem and treat the payee of any promissory
note or other evidence of indebtedness or obligations relating to any Benefited
Obligation as the owner thereof for all purposes hereof unless and until a
written notice of the assignment or transfer thereof, signed by such payee and
in form reasonably satisfactory to the Collateral Agent, shall have been
delivered to the Collateral Agent. Any request, authority or consent of any
Person who at the time of making such request or giving such authority or
consent is the holder of any such note or other evidence of indebtedness or
obligations shall be conclusive and binding on any subsequent holder, transferee
or assignee of such note or other evidence of indebtedness or obligations and of
any note or notes or other evidences of indebtedness or obligations issued in
exchange therefor.
(f) Except as expressly provided herein and in the Security Documents,
the Collateral Agent shall have no duty to take any affirmative steps with
respect to the administration or collection of amounts payable in respect of the
Security Documents or the Collateral. The Collateral Agent shall incur no
liability (except to the extent the actions or omissions of the Collateral Agent
in connection therewith constitute gross negligence or willful misconduct) as a
result of any sale of any Collateral, whether at any public or private sale.
(g) The Collateral Agent may resign at any time by giving at least 30
days' notice thereof to the Parties (such resignation to take effect upon the
acceptance by a successor Collateral Agent of any appointment as the Collateral
Agent hereunder) and the Collateral Agent may be removed as the Collateral Agent
at any time by the Majority Benefited Parties; provided that if an Event of
Default shall exist such removal may be effected by either (1) the Required
Lenders or (2) the Required Noteholders. In the event of any such resignation or
removal of the Collateral Agent, the Majority Benefited Parties shall thereupon
have the right to appoint a successor Collateral Agent which is not a Benefited
Party. If no successor Collateral Agent shall have been so appointed by the
Majority Benefited Parties and shall have accepted such appointment within 30
days after the notice of the intent of the Collateral Agent to resign or the
removal of the Collateral Agent, then the retiring Collateral Agent may, on
behalf of the other Parties, appoint a successor Collateral Agent. Any successor
Collateral Agent appointed pursuant to this clause shall be a commercial bank or
other financial institution organized under the laws of the United States of
America or any state thereof having (1) a combined capital and surplus of at
least $250,000,000 and (2) a rating upon its long-term senior unsecured
indebtedness of "A-2" or better by Moody's Investors Service, Inc. or "A" or
better by Standard & Poor's Corporation.
Upon the acceptance by a successor Collateral Agent of any appointment
as the Collateral Agent hereunder, such successor Collateral Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring or removed Collateral Agent, and the retiring or
removed Collateral Agent shall thereupon be discharged
-15-
<PAGE> 18
from its duties and obligations hereunder. After any retiring or removed
Collateral Agent's resignation or removal hereunder as the Collateral Agent, the
provisions of this Section 8 shall continue in effect for its benefit in respect
of any actions taken or omitted to be taken by it while it was acting as the
Collateral Agent.
(h) In no event shall the Collateral Agent or any Party be liable or
responsible for any funds or investments of funds held by the Obligors or any of
their Affiliates.
(i) With respect to its pro rata share of the Benefited Obligations,
Bank of America, N.A. (or its successor as the Collateral Agent), in its
capacity as Lender shall have and may exercise the same rights and powers
hereunder and is subject to the same obligations and liabilities as and to the
extent set forth herein for any other Benefited Party, all as if Bank of
America, N.A. were not appointed as the Collateral Agent pursuant hereto. The
terms "Benefited Parties," "Lenders" or "Required Lenders" or any similar terms
shall, unless the context clearly otherwise indicates, include the Collateral
Agent or any Affiliate (or its successor as the Collateral Agent) in its
capacity as Lender and in its individual capacity as a Benefited Party, Lender
or one of the Required Lenders. Bank of America, N.A. and its Affiliates may
lend money to, and generally engage in any kind of business with, any Obligor as
if Bank of America, N.A. were not acting as the Collateral Agent pursuant hereto
and without any duty to account therefor to the Benefited Parties. Without
limiting the foregoing, each Benefited Party acknowledges that (i) Bank of
America, N.A. is both a Lender and an agent under the Credit Agreement and a
collateral agent under the Bank Security Documents, (ii) Bank of America, N.A.
may continue to engage in any credit decisions with respect to the Credit
Agreement and any Hedging Transaction under which it is a Lender without any
duty to account therefor to the Benefited Parties by reason of its appointment
as the Collateral Agent and (iii) Bank of America, N.A. is acting as a
collateral agent under the Noteholders' Security Documents.
(j) Each Party acknowledges that it has, independently and without
reliance upon the Collateral Agent or any other Party and based upon such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement and the other Financing
Agreements to which it is a party. Each Party also acknowledges that it will,
independently and without reliance upon the Collateral Agent or any other Party
and based upon such documents and information as it shall deem appropriate at
the time, continue to make its own credit decisions in taking or not taking
action under the Financing Agreements to which it is a party.
SECTION 9. INVALIDATED PAYMENTS.
If any amount distributed by the Collateral Agent to a Benefited Party
in accordance with the provisions of this Agreement is subsequently required to
be returned or repaid by the Collateral Agent or such Benefited Party to the
Obligors or any Affiliate thereof or their respective representatives or
successors in interest, whether by court order, settlement or otherwise (a
"Repayment Event"), the Collateral Agent shall thereafter apply monies
(including, without limitation, Proceeds) received in a manner consistent with
the terms of this Agreement such that all Benefited Parties receive such portion
of the payments as would have been received had the original payment which gave
rise to such Repayment Event not occurred. If a
-16-
<PAGE> 19
Repayment Event occurs which results in the Collateral Agent being required to
return or repay any amount distributed by it under this Agreement, the Benefited
Party to which such amount was distributed shall, promptly upon its receipt of a
notice thereof from the Collateral Agent, pay the Collateral Agent such amount;
provided, that if any Benefited Party shall fail to promptly pay such amount to
the Collateral Agent, the Collateral Agent may deduct such amount from any
amounts payable thereafter to such Benefited Party under this Agreement.
SECTION 10. MISCELLANEOUS.
(a) The Obligors acknowledge that they have actual notice of the terms
of this Agreement, consent hereto, agree to be bound by the terms hereof and
covenant with each of the Parties that they will at all times during the
continuance hereof comply and act in accordance with the terms and provisions of
this Agreement, and cause each of the other Obligors to do so. The Obligors also
acknowledge that the terms of this Agreement are for the sole benefit of the
Lenders and Noteholders, and that nothing in this Agreement shall be construed
as conferring any rights upon the Obligors or any third party.
(b) All notices and other communications provided for herein shall be
in writing and may be sent by overnight air courier, facsimile communication or
United States mail and shall be deemed to have been given when delivered by
overnight air courier, upon receipt of facsimile communication if concurrently
with transmission of such facsimile, a copy thereof shall be sent by overnight
courier to the address specified for such notice or communication, or five
business days after deposit in the United States mail, registered or certified,
with postage prepaid and properly addressed. For the purposes hereof, the
addresses of the Parties hereto (until notice of a change thereof is delivered
as provided in this Section 10(b)) shall (i) in the case of the Collateral Agent
and the Agent, be as set forth under each such Party's name on the signature
pages (including acknowledgments) hereof and (ii) in the case of the
Noteholders, be as set forth in Schedule A to the Note Agreement or any
supplement thereto.
(c) This Agreement may be amended, modified or waived only by an
instrument or instruments in writing signed by the Required Noteholders, Agent
and the Collateral Agent; provided, however, that Section 7 of this Agreement
may not be amended or modified without the written consent of the Issuer.
(d) This Agreement shall be binding upon and inure to the benefit of
the Collateral Agent, each Party and their respective successors and assigns. In
the event that the holder of any Credit Obligation or Senior Note shall transfer
such Credit Obligation or Senior Note, it shall promptly so advise the
Collateral Agent and the Issuer. Each transferee of any Credit Obligation or
Senior Note shall take such Credit Obligation or Senior Note subject to the
provisions of this Agreement and to any request made, waiver or consent given or
other action taken or authorized hereunder, by each previous holder of such
Credit Obligation or Senior Note, prior to the receipt by the Collateral Agent
of written notice of such transfer; and, except as expressly otherwise provided
in such notice, the Collateral Agent and the Issuer shall be entitled to assume
conclusively that the transferee named in such notice shall thereafter be vested
with all rights and powers as a Party under this Agreement. Upon the written
request of any Party, the Collateral
-17-
<PAGE> 20
Agent will provide any Party with copies of any written notices of transfer
received pursuant hereto.
(e) This Agreement shall continue to be effective among the Parties
even though a case or proceeding under any bankruptcy or insolvency law or any
proceeding in the nature of a receivership, whether or not under any insolvency
law, shall be instituted with respect to the Issuer or any other Obligor, or any
portion of the property or assets of the Issuer or any other Obligor, and all
actions taken by the Parties with regard to such proceeding shall be by the
Majority Benefited Parties; provided, however, that nothing herein shall be
interpreted to preclude any Party from filing a proof of claim with respect to
its Benefited Obligations or from casting its vote, or abstaining from voting,
for or against confirmation of a plan of reorganization in a case of bankruptcy,
insolvency or similar law in its sole discretion; provided further that in the
event any Party fails to file a proof of claim, the Collateral Agent may file a
proof of claim on behalf of such party in respect of a Benefited Obligation.
(f) Each Party hereto agrees to do such further acts and things and to
execute and deliver such additional agreements, powers and instruments as any
other Party hereto may reasonably request to carry into effect the terms,
provisions and purposes of this Agreement or to better assure and confirm unto
such other Party hereto its respective rights, powers and remedies hereunder.
(g) This Agreement may be executed in any number of counterparts, all
of which taken together shall constitute one and the same instrument, and any of
the parties hereto may execute this Agreement by signing any such counterpart. A
telecopy of the signature of any party on any counterpart shall be effective as
the signature of the party executing such counterpart for purposes of
effectiveness of this Agreement.
(h) This Agreement shall become effective immediately upon execution by
the Parties and shall continue in full force and effect among the Parties until
one year following the date upon which all Benefited Obligations are irrevocably
paid in full and all commitments under the Credit Agreement have been
terminated.
(i) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF TEXAS.
(j) Headings of sections of this Agreement have been included herein
for convenience only and should not be considered in interpreting this
Agreement.
(k) Nothing in this Agreement or the Security Documents, expressed or
implied, is intended or shall be construed to confer upon or give to any Person
other than the Benefited Parties, any right, remedy or claim under or by reason
of any such agreement or any covenant, condition or stipulation herein or
therein contained.
(l) In case any provision in or obligation under this Agreement shall
be invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
-18-
<PAGE> 21
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
duly executed as of the date and year first written above.
BANK OF AMERICA, N.A., as Collateral
Agent
By
-----------------------------------
Name: Craig S. Wall
Title: Senior Vice President
Notice Address:
Bank of America, N.A.
Attn: Craig S. Wall
Telecopier No.: (713) 247-7748
BANK OF AMERICA, N.A., individually
and as Administrative Agent for the
Lenders
By
-----------------------------------
Name: Craig S. Wall
Title: Senior Vice President
Notice Address:
Bank of America, N.A.
Attn: Craig S. Wall
Telecopier No.: (713) 247-7748
-19-
<PAGE> 22
-----------------------------------,
as a Noteholder
By
-----------------------------------
Name:
Title:
By
-----------------------------------
Name:
Title:
-----------------------------------,
as a Noteholder
By
-----------------------------------
Name:
Title:
-20-
<PAGE> 23
The undersigned (the "Obligors") hereby acknowledge and agree to the
foregoing terms and provisions contained in this Intercreditor Agreement. By
executing this Intercreditor Agreement, the Obligors agree to be bound by the
provisions thereof as they relate to the relative rights of the Benefited
Parties as among such Benefited Parties; provided, however, that nothing in this
Intercreditor Agreement shall amend, modify, change or supersede the respective
terms of the Financing Agreements as between the Benefited Parties or any of
them and the Obligors. In the event of any conflict or inconsistency between the
terms of this Intercreditor Agreement and the Financing Agreements, the
Financing Agreements shall govern as between the Benefited Parties thereto and
the Obligors further agree that the terms of this Intercreditor Agreement shall
not give the Obligors any substantive rights vis a vis any Benefited Party or
the Collateral Agent and that it shall not use the violation of this
Intercreditor Agreement by any of the Parties hereto as a defense to the
enforcement by any Benefited Party under any Financing Agreement, nor assert
such violation as a counterclaim or basis for set-off or recoupment against any
of them. The Obligors further acknowledge and agree that the scope of the agency
granted by this Intercreditor Agreement to the Collateral Agent hereunder is
strictly limited by this Intercreditor Agreement and is a separate and distinct
grant from the grants of agency contained in the Credit Agreement and the
Noteholders' Security Agreement. By its execution hereof, the Obligors hereby
represent to each of the Benefited Parties and the Collateral Agent that the
execution, delivery and performance by the Obligors of the Note Agreement and
the other Noteholder Documents does not constitute a violation of any of the
provisions of the Credit Agreement or other Bank Documents.
[SUBSIDIARY GUARANTORS] QUANTA SERVICES, INC.
By By
----------------------------- ---------------------------
Title Title
------------------------ ----------------------
-21-
<PAGE> 24
FORM OF ACKNOWLEDGMENT TO
INTERCREDITOR AGREEMENT FOR SUCCESSOR LENDERS
Reference is hereby made to the Intercreditor Agreement dated as of
March 23, 2000 (the "Agreement"), among Bank of America, N.A., as Agent for the
Lenders party to the Credit Agreement and Bank of America, N.A., as the
Collateral Agent, and the Noteholders party thereto and certain other Parties,
if any, thereto. The undersigned Successor Lender or its agent has entered into
a Credit Agreement dated as of _______________ with Quanta Services, Inc. and
desires the Credit Obligations with respect thereto to be secured by the
Security Documents and constitute Benefited Obligations under the Agreement. The
undersigned has obtained the consent of the Collateral Agent under the Agreement
and acknowledges the terms of the Agreement and agrees to be bound thereby.
,
--------------------------------------
as a Successor Lender
By
------------------------------------
Title
----------------------------------
Date
-----------------------------------
Notice Address:
---------------------------------------
---------------------------------------
---------------------------------------
Acknowledged and Agreed:
BANK OF AMERICA, N.A., as Collateral
Agent
By
------------------------------------
Title
----------------------------------
Date
-----------------------------------
QUANTA SERVICES, INC.
By
------------------------------------
Title
----------------------------------
Date
-----------------------------------
--------------------------------------
(Other Obligors)
By
------------------------------------
Title
----------------------------------
Date
-----------------------------------
EXHIBIT A
(to Intercreditor Agreement)
<PAGE> 25
FORM OF ACKNOWLEDGMENT TO
INTERCREDITOR AGREEMENT FOR ADDITIONAL NOTEHOLDERS
Reference is hereby made to the Intercreditor Agreement dated as of
March 23, 2000 (the "Agreement"), among Bank of America, N.A., as Agent for the
Lenders party to the Credit Agreement referenced therein and Bank of America,
N.A., as the Collateral Agent, and the Noteholders party thereto and certain
other Parties, if any, thereto. The undersigned has entered into a supplement to
the Note Agreement with Quanta Services, Inc. and desires the issued thereunder
to be secured by the Security Documents and constitute Benefited Obligations
under the Agreement. The undersigned has obtained the consent of the Collateral
Agent under the Agreement and acknowledges the terms of the Agreement and agrees
to be bound thereby.
,
--------------------------------------
as a Successor Lender
By
------------------------------------
Title
----------------------------------
Date
-----------------------------------
Notice Address:
---------------------------------------
---------------------------------------
---------------------------------------
Acknowledged and Agreed:
BANK OF AMERICA, N.A., as Collateral
Agent
By
------------------------------------
Title
----------------------------------
Date
-----------------------------------
QUANTA SERVICES, INC.
By
------------------------------------
Title
----------------------------------
Date
-----------------------------------
--------------------------------------
(Other Obligors)
By
------------------------------------
Title
----------------------------------
Date
-----------------------------------
EXHIBIT B
(to Intercreditor Agreement)
<PAGE> 1
EXHIBIT 10.19
LOCKUP AGREEMENT
THIS LOCKUP AGREEMENT (the "AGREEMENT") is entered into as of this __
day of January, by and among ____________________ (the "SHAREHOLDER") and Quanta
Services, Inc., a Delaware corporation (the "COMPANY").
WHEREAS, the Shareholder holds common stock of the Company or
securities convertible into or exercisable for common stock of the Company
(collectively, "SECURITIES");
WHEREAS, the Company believes it is in the best interests of its
stockholders to establish an orderly trading market for shares of the Company's
common stock;
WHEREAS, the Company desires the Shareholder to refrain selling
Securities held by the Shareholder to encourage orderly trading in shares of the
Company's common stock;
NOW, THEREFORE, in consideration of the premises, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. LOCKUP OF SECURITIES. The Shareholder agrees, that without the prior
written consent of the Company, that, until the earlier of the first anniversary
of the date of this Agreement or a Change in Control (as defined in the
Company's 1997 Stock Option Plan), the Shareholder will not make or cause any
sale of any Securities listed on Exhibit I hereto which, as of the date of this
Agreement, the Shareholder owns either of record or beneficially, and which the
Shareholder has the power to control the disposition; provided, however, that
the Shareholder may, without the Company's prior written consent, (i) sell or
otherwise transfer Securities to UtiliCorp United Inc. or any of its
wholly-owned subsidiaries, or (ii) make a gift of Securities without
consideration to an organization exempt from taxation under Section 501(c)(3) of
the Internal Revenue Code of 1986, as amended, or (iii) transfer shares to an
exchange fund if such transfer does not require the Shareholder to file a Form
144 pursuant to the rules of the Securities and Exchange Commission.
2. CONSIDERATION FOR LOCKUP. In consideration for the Shareholder
agreeing to be bound by the terms of this Agreement, the Company will issue the
Shareholder a non-qualified option to purchase shares of the Company's common
stock under the Company's 1997 Stock Option Plan for one percent (1%) of that
number of shares of common stock equal to the total number of shares of common
stock subject to the terms of this Agreement (or deemed subject to this
Agreement upon conversion or exercise of Securities held by the Shareholder).
The option granted pursuant to this Section 2 shall be exercisable for ten (10)
years from the date of grant, shall have an exercise price equal to the closing
price for the Company's common stock on the date prior to the date of grant,
shall be immediately vested and shall not be cancelable if the
<PAGE> 2
Shareholder ceases to be employed or otherwise provide services to the Company.
The date of grant shall be the date this grant is ratified by a committee of the
Company's board of directors consisting solely of directors who are not
employees of the Company and who will not be offered an agreement substantially
similar to this Agreement contemporaneously with the date of this Agreement.
3. FAILURE TO ISSUE OPTION. Should the option required by Section 2 of
this Agreement not be issued within 90 days of this Agreement, then this
Agreement shall be null and void and of no further force and effect.
4. TRANSFER; SUCCESSOR AND ASSIGNS. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
5. GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Texas applicable to contracts entered into and
fully to be performed in the State of Texas by residents of the State of Texas.
6. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7. TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
8. NOTICES.
(a) All notices, requests, demands and other communications
under this Agreement or in connection herewith shall be given or made upon (i)
the Shareholder at such Shareholder's address set forth on the signature page
hereto; and (ii) the Company at Quanta Services, Inc., 1360 Post Oak Boulevard,
Suite 2100, Houston, Texas 77056, attention President and General Counsel.
(b) All notices, requests, demands and other communications
given or made in accordance with the provisions of this Agreement shall be in
writing, and shall be sent by overnight courier, or by facsimile with
confirmation of receipt, and shall be deemed to be given or made when receipt is
so confirmed.
(c) Any party may, by written notice to the other, alter its
address or respondent, and such notice shall be given in accordance with the
terms of this Section 8.
2
<PAGE> 3
9. ATTORNEYS' FEES. If any action at law or in equity (including
arbitration) is necessary to enforce or interpret the terms of this Agreement,
the prevailing party shall be entitled to reasonable attorneys' fees, costs and
necessary disbursements in addition to any other relief to which such party may
be entitled as determined by such court, equity or arbitration proceeding.
10. AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
with the written consent of the Company and the Shareholder.
11. SEVERABILITY. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, portions of such provisions, or such
provisions in their entirety, to the extent necessary, shall be severed from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
12. DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to any party to this Agreement, upon any breach or
default of the other party to this Agreement shall impair any such right, power
or remedy of such holder nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any party to this Agreement of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any holder shall be cumulative
and not alternative.
13. ENTIRE AGREEMENT. This Agreement and the documents referred to
herein constitute the entire agreement between the parties hereto pertaining to
the subject matter hereof, and any and all other written or oral agreements
existing between the parties hereto are expressly canceled.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
QUANTA SERVICES, INC.
By:
---------------------------
Name:
Title:
-----------------------------------
Shareholder
Address:
------------------------------
------------------------------
------------------------------
4
<PAGE> 5
EXHIBIT I
SECURITIES SUBJECT TO LOCKUP AGREEMENT
<PAGE> 1
SECOND AMENDMENT AND CONSENT TO
THIRD AMENDED AND RESTATED SECURED CREDIT AGREEMENT
THIS SECOND AMENDMENT AND CONSENT TO THIRD AMENDED AND RESTATED SECURED
CREDIT AGREEMENT (this "AMENDMENT") is entered into as of March 21, 2000, among
QUANTA SERVICES, INC., a Delaware corporation ("BORROWER"), the Lenders, as
defined below, and BANK OF AMERICA, N.A., f/k/a NationsBank, N.A., as
administrative agent for the Lenders (in such capacity, the "AGENT").
Capitalized terms used but not defined in this Amendment have the meaning given
such terms in the Credit Agreement (defined below).
RECITALS
A. The Borrower is party to that certain Third Amended and Restated
Secured Credit Agreement dated as of June 14, 1999 (as amended by the First
Amendment dated as of September 21, 1999, and as may be amended, restated or
supplemented from time to time, the "CREDIT AGREEMENT"), among the Borrower,
Agent, and the lenders from time to time parties thereto (each a "LENDER"
collectively, "LENDERS").
B. The Borrower proposes to engage in a private offering of senior debt
securities pursuant to the Note Purchase Agreement (defined below).
C. The Borrower and the Lenders have agreed to amend the Credit
Agreement, to accommodate the issuance of such senior debt securities, subject
to the terms and conditions set out in this Amendment.
D. The Borrower has requested certain other modifications to the Credit
Agreement and the Lenders are willing to make such modifications, subject to the
terms and conditions set out in this Amendment.
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are acknowledged,
the undersigned agree as follows:
1. New Definitions. SECTION 1.1 of the Credit Agreement shall be
amended to add the following new definitions:
"NOTE PURCHASE AGREEMENT" means that certain Note Purchase
Agreement dated as of March 1, 2000, among the Borrower, as issuer, and
the purchasers listed on "Schedule A" attached thereto, as lenders, as
may be amended, restated or supplemented from time to time.
"SENIOR NOTES" means the notes, guarantees, and all other
obligations now or hereafter arising under or pursuant to the Note
Purchase Agreement."
2. Dividends and Negative Pledges. SECTION 6.10(A) of the Credit
Agreement shall be deleted and replaced in its entirety as follows:
"(a) The Borrower shall not pay any dividends or other
distributions on its capital stock other than those made wholly in the form of
additional shares of the Borrower's capital stock, provided that, in respect of
any stock split, the Borrower may make cash distributions in lieu of issuing
fractional shares of capital stock which would otherwise result from such stock
split."
3. Liens. SECTION 6.13 of the Credit Agreement shall be amended to
delete the "and" at the end of clause (k); to delete the period at the end of
clause (l); to add a semicolon and add "and" at the end of clause (l); and to
add a clause (m) so that clauses (k), (l), and (m) read as follows:
<PAGE> 2
"(k) Liens created by the Credit Documents;
(l) Liens on any assets acquired in an Acquisition, provided
that all such Liens, other than Permitted Liens listed in (a) through
(k) of this Section, shall be released and any notice thereof removed
from the public records on or before thirty (30) days after the date of
such Acquisition; and
(m) Liens created in connection with the Senior Notes and
the Note Purchase Agreement."
4. Indebtedness. SECTION 6.14 of the Credit Agreement shall be amended
to delete the "and" at the end of clause (e); to delete the period at the end of
clause (f); to add a semicolon and "and" at the end of clause (f); and add a
clause (g) so that clauses (e), (f) and (g) read as follows:
"(e) Indebtedness incurred in connection with Subordinated
Debt Investments;
(f) other Indebtedness not included within subsections (a)
through (e) above, provided that such Indebtedness shall not exceed, at
any one time outstanding, an amount equal to 8.5% of Consolidated Net
Worth as of the end of the immediately preceding fiscal quarter; and
(g) Indebtedness not to exceed $400,000,000 at any time
under the Senior Notes and the Note Purchase Agreement."
5. Loans, Advances and Investments. SECTION 6.15 of the Credit
Agreement shall be amended to replace $1,000,000 with $2,500,000 in clause (g);
to delete the "and" at the end of clause (h); to delete the period at the end of
clause (i); to add a semicolon and "and" at the end of clause (i); and add a
clause (j) so that clauses (g), (h), (i) and (j) read as follows:
"(g) Investments in Persons other than Borrower or its
Subsidiaries, provided that all such Investments shall not exceed
$2,500,000 at any one time;
(h) the existing loan to the NorAm Telecommunications, Inc.
employee stock ownership plan;
(i) as permitted by SECTION 6.11; and
(j) Investments in Lightwave L.L.C., an Alabama limited
liability company (or any of its successors or assigns), provided that
all Investments (whether by cash or contribution of assets, but
excluding the reinvestment of its retained earnings) after December 31,
1999 may not in the aggregate exceed $5,000,000."
6. Subordinated Debt Investment. SECTION 6.24 of the Credit Agreement
shall be amended to delete each reference to the term "Change of Control" and in
each case replace it with the defined term "Change in Control" so that such
section shall read in its entirety as follows:
Section 6.24 Subordinated Debt Investment. The Borrower shall
provide written notice to the Agent (by confirmed fax to each of the
Agent and its legal counsel, Porter & Hedges, L.L.P., attention: Mr.
Nick H. Sorensen (fax no.: 713-226-0277)) of (i) any Change in Control
within two (2) Business Days following any such Change in Control, and
(ii) any notice received by the Borrower from any holder of a
Subordinated Debt Investment exercising any right to require the
Borrower to redeem all or any part of a Subordinated Debt Investment
within two (2) Business Days of the
2
<PAGE> 3
Borrower's receipt thereof. The Borrower shall not redeem all or any
part of the Indebtedness evidenced by the Enron Subordinated Debt
Documents as a result of a Change in Control before ten (10) days
following the date of a Redemption Notice (as defined in the Enron
Subordinated Debt Documents) or if prohibited by the subordination
provisions contained therein. The Borrower shall not redeem, pursuant
to any optional redemption right it may have, all or any part of a
Subordinated Debt Investment before the Maturity Date. The Borrower
shall not amend, modify or change in any way any of the Enron
Subordinated Debt Documents so as to change the stated maturity date of
the principal of such Indebtedness, or any installment of interest
thereon, to an earlier date, increase the rate of interest thereon or
any premium payable on the redemption thereof, change any of the
redemption or subordination provisions thereof (or the definitions of
any defined terms contained therein) or otherwise change in any respect
materially adverse to the interests of the Lenders any of the terms
thereof, in each case, without the consent of the Majority Lenders.
7. Events of Default. SECTION 7.1 of the Credit Agreement shall be
deleted and replaced in its entirety as follows (with the underlined portions
showing new or revised language):
"Section 7.1 Events of Default. Any one or more of the following shall
constitute an Event of Default:
(a) default by the Borrower in the payment of the principal
amount of any Loan or any Reimbursement Obligation when it becomes due
and payable under this Agreement, or in the payment of any interest
thereon or any fees payable hereunder within five (5) days following
the date when due;
(b) default by the Borrower in the observance or performance
of any covenant set forth in SECTIONS 6.6(E), 6.10(A), 6.11, 6.16,
6.21, or 6.24;
(c) default by the Borrower in the observance or performance
of any provision hereof or of any other Credit Document not mentioned
in (a) or (b) above which is not remedied within thirty (30) days after
the earlier of (i) such default or event of default first becoming
known to any officer of the Borrower, or (ii) notice to the Borrower by
the Agent of the occurrence of such default or event of default;
(d) any representation or warranty made or deemed made herein,
in any other Credit Document or in any financial or other report or
document furnished in compliance herewith or therewith by the Borrower
or any of its Subsidiaries proves untrue in any material respect as of
the date of the issuance or making, or deemed issuance or making
thereof;
(e) default occurs in the payment when due (after any
applicable grace period) of Indebtedness in an aggregate principal
amount of $1,000,000 or more of the Borrower or any of its
Subsidiaries, or the occurrence of any other default, which with the
passage of time or notice would permit the holder or beneficiary of
such Indebtedness, or a trustee therefor, to cause the acceleration of
the maturity of any such Indebtedness or any mandatory unscheduled
prepayment, purchase, or other early funding thereof;
(f) the Borrower or any of its Subsidiaries (i) has entered
involuntarily against it an order for relief under the United States
Bankruptcy Code or a comparable action is taken under any bankruptcy or
insolvency law of another country or political subdivision of such
country, (ii) generally does not pay, or admits its inability generally
to pay, its debts as they become due, (iii) makes a general assignment
for the benefit of creditors, (iv) applies for, seeks, consents to, or
acquiesces in, the appointment of a receiver, custodian, trustee,
examiner, liquidator or similar official for it or any substantial part
of its property, (v) institutes any proceeding seeking to have entered
against it an order
3
<PAGE> 4
for relief under the United States Bankruptcy Code or any comparable
law, to adjudicate it insolvent, or seeking dissolution, winding up,
liquidation, reorganization, arrangement, adjustment or composition of
it or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors or fails to file an answer or other
pleading denying the material allegations of any such proceeding filed
against it, (vi) makes any board of directors resolution in direct
furtherance of any matter described in clauses (i)-(v) above, or (vii)
fails to contest in good faith any appointment or proceeding described
in SECTION 7.1(G);
(g) a custodian, receiver, trustee, examiner, liquidator or
similar official is appointed for the Borrower or any of its
Subsidiaries or any substantial part of its property, or a proceeding
described in SECTION 7.1(F)(V) is instituted against the Borrower or
any of its Subsidiaries, and such appointment continues undischarged or
such proceeding continues undismissed or unstayed for a period of sixty
(60) days;
(h) the Borrower or any of its Subsidiaries fails within
thirty (30) days (or such earlier date as any steps to execute on such
judgment or order take place) to pay, bond or otherwise discharge, or
to obtain an indemnity against on terms and conditions satisfactory to
the Lenders in their reasonable discretion, any one or more judgments
or orders for the payment of money in excess of $1,000,000 in the
aggregate which is uninsured or underinsured by at least such amount
(provided that there is adequate assurance, in the sole discretion of
the Lenders, that the insurance proceeds attributable thereto shall be
paid promptly upon the expiration of such time period or resolution of
such proceeding), which is not stayed on appeal or otherwise being
appropriately contested in good faith in a manner that stays execution;
(i) the Borrower or any of its Subsidiaries fails to pay when
due an amount aggregating in excess of $1,000,000 that it is liable to
pay to the PBGC or to a Plan under Title IV of ERISA; or a notice of
intent to terminate a Plan having Unfunded Vested Liabilities of the
Borrower or any of its Subsidiaries in excess of $1,000,000 (a
"MATERIAL PLAN") is filed under Title IV of ERISA; or the PBGC
institutes proceedings under Title IV of ERISA to terminate or to cause
a trustee to be appointed to administer any Material Plan; or a
proceeding is instituted by a fiduciary of any Material Plan against
the Borrower or any of its Subsidiaries to collect any liability under
Section 515 or 4219(c)(5) of ERISA and such proceeding is not dismissed
within thirty (30) days thereafter; or a condition exists by reason of
which the PBGC would be entitled to obtain a decree adjudicating that
any Material Plan must be terminated;
(j) the Borrower, any Guarantor, any Person acting on behalf
of the Borrower or any Guarantor, or any governmental, judicial or
arbitral authority challenges the validity of any Credit Document or
the Borrower's or any Guarantor's obligations thereunder, or any Credit
Document ceases to be in full force and effect in all material respects
or ceases to give to the Agent and the Lenders the rights and powers
purported to be granted in its favor thereby in all material respects
other than for any reason solely caused by or within the sole control
of the Agent or any Lender;
(k) a Change in Control shall occur or the common stock of the
Borrower shall be delisted from the New York Stock Exchange;
(l) an Event of Default shall occur and be continuing under
the Enron Subordinated Debt Documents or any other documents evidencing
a Subordinated Debt Investment; or --
(m) an Event of Default shall occur and be continuing under
the Note Purchase Agreement, the Senior Notes, or any other document
evidencing Indebtedness under the Senior Notes or the Note Purchase
Agreement."
4
<PAGE> 5
8. Schedules. SCHEDULE 5.20 to the Credit Agreement is deleted and is
replaced by the SCHEDULE 5.20 attached to this Amendment.
9. Consent. Each Lender which signs this Amendment consents to the
Agent entering into the following agreements on its behalf: (a) an intercreditor
agreement with the purchasers of the Senior Notes, substantially in the form of
EXHIBIT A attached hereto; (b) an omnibus first amendment to the Pledge
Agreements, substantially in the form of EXHIBIT B; (c) an omnibus first
amendment to the Security Agreements, substantially in the form of EXHIBIT C;
(d) a first amendment to the Patent Collateral Assignment with Quanta Services
of Canada Ltd., substantially in the form of EXHIBIT D; and (e) such other
documents contemplated by the documents listed in clauses (a) through (d) above
as the Agent or its counsel deems reasonable and necessary.
10. Exhibits. EXHIBIT 4.1B (Form of Pledge Agreement), EXHIBIT 4.1C
(Form of Security Agreement) and EXHIBIT 4.1D (Form of Patent Collateral
Assignment) of the Credit Agreement are hereby amended to reflect the changes
set out in EXHIBIT B, EXHIBIT C, and EXHIBIT D, respectively, as attached to
this Amendment.
11. Conditions. This Amendment shall not be effective until each of
the following have been delivered to the Agent:
(a) this Amendment signed by the Borrower, Guarantors, and
Majority Lenders;
(b) an intercreditor agreement substantially in the form of
EXHIBIT A attached hereto signed by the Agent on behalf of the Lenders
and the purchasers under the Note Purchase Agreement;
(c) a copy of the Note Purchase Agreement duly executed and
delivered;
(d) such other documents as the Agent may reasonably request.
12. Fees and Expenses. The Borrower agrees to pay the reasonable fees
and expenses of counsel to Agent for services rendered in connection with the
preparation, negotiation and execution of this Amendment.
13. Representations and Warranties. The Borrower and Guarantors
represent and warrant to the Lenders that they possess all requisite power and
authority to execute, deliver and comply with the terms of this Amendment, which
has been duly authorized and approved by all requisite corporate action on the
part of the Borrower and Guarantors, for which no consent of any Person is
required, and which will not violate their respective organizational documents,
and agree to furnish the Lenders with evidence of such authorization and
approval upon request. The Borrower and Guarantors further represent and warrant
to the Lenders that (a) the representations and warranties in each Credit
Document to which they are a party are true and correct in all material respects
on and as of the date of this Amendment as though made on the date of this
Amendment (except to the extent that (i) such representations and warranties
speak to a specific date or (ii) the facts on which such representations and
warranties are based have been changed by transactions contemplated by the
Credit Agreement), (b) it is in full compliance with all covenants and
agreements contained in each Credit Document to which it is a party, and (c) no
Default or Event of Default has occurred and is continuing.
14. Scope of Amendment; Reaffirmation; Release. Except as affected by
this Amendment, the Credit Documents are unchanged and continue in full force
and effect. However, in the event of any inconsistency between the terms of the
Credit Agreement as hereby amended and any other Credit Document, the terms of
the Credit Agreement shall control and such other document shall be deemed to be
amended
5
<PAGE> 6
hereby to conform to the terms of the Credit Agreement. All references to the
Credit Agreement shall refer to the Credit Agreement as amended by this
Amendment. The Borrower and Guarantors hereby reaffirm their respective
obligations under, and agree that, all Credit Documents to which they are a
party remain in full force and effect and continue to evidence their respective
legal, valid and binding obligations enforceable in accordance with their terms
(as the same are affected by this Amendment). The Borrower and Guarantors hereby
release the Lenders from any liability for actions or failures to act in
connection with the Credit Documents prior to the date hereof. This Amendment
shall be binding upon and inure to the benefit of each of the undersigned and
their respective successors and permitted assigns.
15. Miscellaneous.
(a) No Waiver of Defaults. This Amendment does not constitute
a waiver of, or a consent to, any present or future violation of or
default under, any provision of the Credit Documents, or a waiver of
the Lenders' right to insist upon future compliance with each term,
covenant, condition and provision of the Credit Documents, and the
Credit Documents shall continue to be binding upon, and inure to the
benefit of, the Borrower, Guarantors, and the Lenders and their
respective successors and assigns.
(b) Form. Each agreement, document, instrument or other
writing to be furnished Agent under any provision of this instrument
must be in form and substance satisfactory to Agent and its counsel.
(c) Multiple Counterparts. This Amendment may be executed in
any number of counterparts with the same effect as if all signatories
have signed the same document. All counterparts must be construed
together to constitute one and the same instrument.
(d) Governing Law. This Amendment and the other Credit
Documents must be construed-and their performance enforced-under Texas
law.
16. Entirety. THE CREDIT DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE BORROWER, GUARANTORS AND THE LENDERS AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BY THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
The Amendment is executed as of the date set out in the preamble to
this Amendment.
QUANTA SERVICES, INC.
By:
-------------------------------------------
James H. Haddox
Chief Financial Officer
BANK OF AMERICA, N.A., as Administrative Agent
and as a Lender
By:
-------------------------------------------
Craig S. Wall
Senior Vice President
6
<PAGE> 7
BANK ONE, TEXAS, NATIONAL ASSOCIATION,
as a Documentation Agent and as a Lender
By:
-------------------------------------------
Name:
Title:
BANKBOSTON, N.A., as a Documentation Agent
and as Lender
By:
-------------------------------------------
Name:
Title:
CREDIT LYONNAIS NEW YORK BRANCH, as a
Managing Agent and as a Lender
By:
-------------------------------------------
Name:
Title:
THE BANK OF NOVA SCOTIA, as a Managing Agent
and as a Lender
By:
-------------------------------------------
Name:
Title:
NATIONAL CITY BANK, as a Lender
By:
-------------------------------------------
Michael J. Durbin
Vice President
7
<PAGE> 8
LASALLE BANK NATIONAL ASSOCIATION, as a
Lender
By:
-------------------------------------------
Richard J. Kress
Vice President
FIRST UNION NATIONAL BANK, as a Lender
By:
-------------------------------------------
Name:
Title:
COMERICA BANK, as a Lender
By:
-------------------------------------------
Mark B. Grover
Vice President
THE BANK OF TOKYO-MITSUBISHI, LTD., as a
Lender
By:
-------------------------------------------
Name:
Title:
CHASE BANK OF TEXAS, N.A., as a Lender
By:
-------------------------------------------
Name:
Title:
GUARANTY FEDERAL BANK, F.S.B., as a Lender
By:
-------------------------------------------
Kevin J. Hanigan
Senior Vice President
8
<PAGE> 9
SUNTRUST BANK, ATLANTA, as a Lender
By:
-------------------------------------------
David Edge
Vice President
By:
-------------------------------------------
Name:
Title:
BANKERS TRUST COMPANY, as a Lender
By:
-------------------------------------------
Name:
Title:
Exhibit A - Form of Intercreditor Agreement
Exhibit B - Form of Omnibus Amendment
Exhibit C - Form of Omnibus Amendment
Exhibit D - Form of First Amendment
9
<PAGE> 10
GUARANTORS' CONSENT AND AGREEMENT
As an inducement to the Lenders to execute, and in consideration of the
Lenders' execution of this Amendment, each of the undersigned hereby consents to
this Amendment and agrees that the same shall in no way release, diminish,
impair, reduce or otherwise adversely affect the obligations and liabilities of
the undersigned under their respective Guaranties described in the Credit
Agreement executed by the undersigned, or any agreements, documents or
instruments executed by any of the undersigned, all of which obligations and
liabilities are, and shall continue to be, in full force and effect. This
consent and agreement shall be binding upon the undersigned, and their
respective successors and assigns, and shall inure to the benefit of the
Lenders, and their respective successors and assigns.
Advanced Communication Technologies, Inc.
Arby Construction, Inc.
Austin Trencher, Inc.
CCLC, Inc.
Computapole, Inc.
Conti Communications, Inc.
Crown Fiber Communications, Inc.
Dillard Smith Construction Company
Driftwood Electrical Contractors, Inc.
Edwards Pipeline Company, Inc.
Environmental Professional Associates, Limited
Fiber Technology, Inc.
Five Points Construction Company
GEM Engineering Co., Inc.
Golden State Utility Co.
Grand Electric Company
H.L. Chapman Pipeline Construction, Inc.
Haines Construction Company
Harker & Harker, Inc.
Intermountain Electric, Inc.
Manuel Bros., Inc.
Network Communications Services, Inc.
NorAm Telecommunications, Inc.
North Pacific Construction Company
North Sky Communications
Northern Line Layers, Inc.
Pac West Construction, Inc.
PAR Electrical Contractors, Inc.
PDG Electric Company
Potelco, Inc.
QSI, Inc.
Quanta Acquisition XLV, Inc.
Quanta Delaware, Inc.
Quanta L Acquisition, Inc.
Quanta LI Acquisition, Inc.
Quanta LII Acquisition, Inc.
Quanta LIII Acquisition, Inc.
Quanta Services Management Partnership, L.P.
Quanta Utility Installation Co., Inc.
Quanta XLI Acquisition, Inc.
Quanta XLII Acquisition, Inc.
Quanta XLIII Acquisition, Inc.
10
<PAGE> 11
Quanta XLIV Acquisition, Inc.
Quanta XLIX Acquisition, Inc.
Quanta XLVI Acquisition, Inc.
Quanta XLVII Acquisition, Inc.
Quanta XLVIII Acquisition, Inc.
Quanta XVII Acquisition, Inc.
Quanta XXXIX Acquisition, Inc.
R. A. Waffensmith & Co., Inc.
Ranger Directional, Inc.
S.K.S. Pipeliners, Inc.
Seaward Corporation
Spalj Construction Company
Specialty Drilling, Inc.
Sullivan Welding, Inc.
Sumter Builders, Inc.
Telecom Network Specialists, Inc.
The Ryan Company, Inc.
Tom Allen Construction Company
TRANS TECH Electric, Inc.
Trawick Construction Co.
TTM, Inc.
TVS Systems, Inc.
Underground Construction Co., Inc.
Utilco, Inc.
VCI Telecom, Inc.
W.H.O.M. Corporation
Wade D. Taylor, Inc.
West Coast Communications, Inc.
World Fiber, Inc.
By:
------------------------------------------------
Brad Eastman, President or Vice President of
each Guarantor
Coast To Coast, LLC
By: Environmental Professional Associates,
Limited, Its Member
By:
-------------------------------------------
Brad Eastman, Vice President
By: Quanta Services, Inc., Its Member
By:
-------------------------------------------
Brad Eastman, Vice President
Quanta Services Management Partnership, L.P.
By: QSI, Inc., Its General Partner
By:
-------------------------------------------
Brad Eastman, Vice President
11
<PAGE> 12
SCHEDULE 5.20
LIST OF EXISTING LIENS AND INDEBTEDNESS
(REVISED MARCH 21, 2000)
1. Liens listed on SCHEDULE 6.13.
2. Liens listed on Annex 1 to this SCHEDULE 5.20 which are to be released by
no later than April 30, 2000.
3. The following Indebtedness:
<TABLE>
<CAPTION>
Company Amount Creditor
------- ------ --------
<S> <C> <C>
PAR Electrical Contractors 286,729 Caterpillar
Potelco 367,556 First National Auto Leasing
Trans Tech 270,247 Norwest Equipment Financing
79,405 National City Leasing
Union Power 183,155 Ford Motor Credit
Golden State Utility 172,673 Safeco Credit
45,971 GMAC
13,426 Case Credit
32,808 Ford Motor Credit
NorAm Telecommunications 138,069 GMAC
121,750 Case Credit
Environmental Professional Associates 88,203 Ford Motor Credit
Underground Construction 130,553 Caterpillar
795,758 GE Capital
Sumter Builders 494,727 USL Fleet Services
Manuel Brothers 49,024 Al Manuel
142,248 KDC Financial
Dillard Smith Construction 32,457 US Bancorp
378,364 William Dillard Smith
316,332 Caterpillar
PDG 136,933 CIT Group
Tom Allen Construction 678,076 Bank One Leasing
Chapman 18,625 Ford Motor Credit
463,822 KDC Financial
4,387,386 Safeco
3,782,266 Financial Federal Credit
-----------
Total Indebtedness 13,606,563
</TABLE>
<PAGE> 13
ANNEX 1 TO SCHEDULE 5.20
<TABLE>
<CAPTION>
DEBTOR Filing Filing
NAME/ADDRESS Secured Party Jurisdiction Number Date Collateral
------------ ------------- ------------ ------ ------- ----------
<S> <C> <C> <C> <C> <C>
Advanced Communication AT&T Commercial Finance Corp. Oregon 42602 UCC-1 10/11/96 blanket
Technologies, Inc. assigned to 42597 assignment
Finova Capital Corporation
Advanced Communication Finova Capital Corporation Oregon 51646 UCC-1 7/17/98 blanket
Technologies, Inc.
Manuel Bros., Inc. US Bancorp Leasing & Financial California 431361025 UCC-1 10/19/94 equipment
9162C0360 cont 6/7/99
817560341 UCC-1 6/22/98
Noram Telecommunications, Inc. Case Credit Corporation Oregon 35434 UCC-1 8/20/96 equipment
43809 UCC-1 10/22/96
78296 UCC-1 6/19/97
39481 UCC-1 9/19/96
Noram Telecommunications, Inc. Western Power & Equipment Oregon 78296 6/9/97 equipment
Noram Telecommunications, Inc. AT&T Commercial Finance Corporation Oregon 42597 UCC-1 10/11/96 blanket
15701 S.E. 135th Avenue assigned to 42597 assignment 4/8/98
Clackamas, OR 97105
Finova Capital Corporation
1060 First Avenue
King of Prussia, PA 19406
Northern Line Layers Modern Machinery Montana 55798 4/4/95 equipment
Northern Line Layers Roland Machinery Company Montana 59087 4/6/99 equipment
TTM, Inc. f/k/a Branch Banking and Trust Co. North Carolina 000894522 UCC-1 6/1/92 blanket
C&P Enterprises of Charlotte, Inc. f/k/a Southern National Bank of N.C. 001447392 cont 4/7/97
d/b/a The Telephone Man 01549196 amend 3/9/98
1000 Atando Ave
Charlotte, NC 28206
Union Power Construction Company Associates Leasing, Inc. Colorado 9982061271 9/28/98 equipment
9972118402 12/19/97
9992012289 3/4/99
Union Power Construction Company U.S. Bancorp Leasing and Financial Colorado 52058020 12/12/95 equipment
Valverde Communications, Inc. Sanwa Bank California California 706460970 UCC-1 2/27/97 blanket
</TABLE>
<PAGE> 1
EXHIBIT 21.1
ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES; AFFILIATES
<TABLE>
<CAPTION>
============================================================================================================================
SUBSIDIARY STATE OF STOCKHOLDER
INCORPORATION
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Advanced Communication Technologies, Inc. Oregon NorAm Telecommunications, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Arby Construction, Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Austin Trencher, Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
CCLC, Inc. Delaware Conti Communications, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Coast to Coast, L.L.C. California Environmental Professional
Associates, Limited
- ----------------------------------------------------------------------------------------------------------------------------
Computapole, Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Conti Communications, Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Crown Fiber Communications, Inc. Virginia Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Dillard Smith Construction Company Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Driftwood Electrical Contractors, Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Edwards Pipeline Company, Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Environmental Professional Associates, Limited California Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Fiber Technology, Inc. Texas Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Five Points Construction Company Delaware Underground Construction Co., Inc.
- ----------------------------------------------------------------------------------------------------------------------------
GEM Engineering Co., Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Golden State Utility Co. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Grand Electric Company Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
H.L. Chapman Pipeline Construction, Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Haines Construction Company Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Harker & Harker, Inc. Nevada Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Intermountain Electric, Inc. Colorado Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Lake Norman Pipeline, LLC North Carolina Edwards Pipeline Company, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Manuel Bros., Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Network Communications Services, Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
NorAm Telecommunications, Inc. Oregon Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
North Pacific Construction Company Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
North Sky Communications Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Northern Line Layers, Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
1
<PAGE> 2
<TABLE>
<CAPTION>
============================================================================================================================
SUBSIDIARY STATE OF STOCKHOLDER
INCORPORATION
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Pac West Construction, Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
PAR Electrical Contractors, Inc. Missouri Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
PDG Electric Company Florida Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Potelco, Inc. Washington Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
QSI, Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Quanta Acquisition XLV, Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Quanta Delaware, Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Quanta L Acquisition, Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Quanta LI Acquisition, Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Quanta LII Acquisition, Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Quanta LIII Acquisition, Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Quanta Services Management Partnership, L.P. Texas
- ----------------------------------------------------------------------------------------------------------------------------
Quanta Utility Installation Co., Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Quanta XLI Acquisition, Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Quanta XLII Acquisition, Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Quanta XLIII Acquisition, Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Quanta XLIV Acquisition, Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Quanta XLIX Acquisition, Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Quanta XLVI Acquisition, Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Quanta XLVII Acquisition, Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Quanta XLVIII Acquisition, Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Quanta XVII Acquisition, Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Quanta XXXIX Acquisition, Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
R. A. Waffensmith & Co., Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Ranger Directional, Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
S.K.S. Pipeliners, Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Seaward Corporation Maine Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Spalj Construction Company Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Specialty Drillling, Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Sullivan Welding, Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Sumter Builders, Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Telecom Network Specialists, Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
The Ryan Company, Inc. Massachusetts Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Tom Allen Construction Company Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
TRANS TECH Electric, Inc. Indiana Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Trawick Construction Co. Florida Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
TTM, Inc. North Carolina Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
============================================================================================================================
SUBSIDIARY STATE OF STOCKHOLDER
INCORPORATION
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TVS Systems, Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Underground Construction Co., Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Utilco, Inc. Georgia Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
VCI Telecom, Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
W.H.O.M. Corporation California Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Wade D. Taylor, Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
West Coast Communications, Inc. Delaware Quanta Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
World Fiber, Inc. Delaware Quanta Services, Inc.
============================================================================================================================
</TABLE>
3
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our report included in this Form 10-K, into Quanta Services,
Inc.'s previously filed Registration Statements on Form S-8 (File Nos.
333-47069, 333-56849 and 333-86375) and Form S-3 (File Nos. 333-81419 and
333-90961).
ARTHUR ANDERSEN LLP
Houston, Texas
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 10,775
<SECURITIES> 0
<RECEIVABLES> 259,828
<ALLOWANCES> (5,947)
<INVENTORY> 8,741
<CURRENT-ASSETS> 335,063
<PP&E> 238,114
<DEPRECIATION> (46,260)
<TOTAL-ASSETS> 1,159,636
<CURRENT-LIABILITIES> 170,923
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 756,925
<TOTAL-LIABILITY-AND-EQUITY> 1,159,636
<SALES> 0
<TOTAL-REVENUES> 925,654
<CGS> 0
<TOTAL-COSTS> 711,353
<OTHER-EXPENSES> 97,608
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,184
<INCOME-PRETAX> 102,938
<INCOME-TAX> 48,999
<INCOME-CONTINUING> 53,679
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 53,939
<EPS-BASIC> 1.14
<EPS-DILUTED> 1.00
</TABLE>
