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FORM 10-K
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 COMMISSION FILE NUMBER 0-2315
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EMCOR GROUP, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 11-2125338
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
101 MERRITT SEVEN CORPORATE PARK
NORWALK, CONNECTICUT 06851-1060
(Address of principal executive offices) (zip code)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (203) 849-7800
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of each class)
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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 filings pursuant to
Item 405 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. /x/
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes /x/ No / /
The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant on February 19, 1999 was approximately
$163,300,000.
Number of shares of Common Stock outstanding as of the close of business on
February 19, 1999: 9,706,503 shares.
Part III incorporates certain information by reference from the
Registrant's definitive proxy statement for the annual meeting of stockholders
to be held on June 25, 1999, which proxy statement will be filed no later than
120 days after the close of the Registrant's fiscal year ended December 31,
1998.
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TABLE OF CONTENTS
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PART I
Item 1. Business
General...................................................................................... 1
The Business................................................................................. 2
Item 2. Properties...................................................................................... 6
Item 3. Legal Proceedings............................................................................... 9
Item 4. Submission of Matters to a Vote of Security Holders............................................. 9
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters....................... 11
Item 6. Selected Financial Data......................................................................... 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 14
Item 8. Financial Statements and Supplementary Data..................................................... 21
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............ 51
PART III
Item 10. Directors and Executive Officers of the Registrant.............................................. 51
Item 11. Executive Compensation.......................................................................... 51
Item 12. Security Ownership of Certain Beneficial Owners and Management.................................. 51
Item 13. Certain Relationships and Related Transactions.................................................. 51
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................. 52
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PART I
ITEM 1. BUSINESS
General
EMCOR Group, Inc. ("EMCOR" or the "Company") is the largest mechanical and
electrical construction and facilities services firm in the United States and
Canada and one of the largest in the United Kingdom and the world with 1998
revenues totaling more than $2.2 billion. EMCOR provides services to a broad
range of commercial, industrial, utility, and institutional customers through
approximately 53 principal operating subsidiaries with offices in 20 states and
the District of Columbia in the United States, seven provinces in Canada, and
six primary locations in the United Kingdom and through subsidiaries and joint
ventures in the United Arab Emirates, Saudi Arabia, South Africa and Hong Kong.
The Company specializes in the design, installation, integration and
start-up of:
o Distribution systems for electrical power;
o Lighting systems;
o Low-voltage systems, such as fire alarm, security, communications and
process control systems;
o Voice and data communications systems;
o Heating, ventilation, air conditioning, refrigeration and clean-room
process ventilation systems; and
o Plumbing, process and high-purity piping systems.
The Company also provides services required to support a customer's
facilities. These services, frequently referred to as facilities services,
include customer based operations and maintenance, mobile maintenance and
service, small modification and retrofit projects, consulting, program
development and management for energy systems and maintenance of facilities.
These services are provided to a wide range of commercial, industrial, utility
and institutional facilities, including those for which the Company provided
construction services and at others for which construction services were
provided by other contractors. The Company's facilities services are frequently
bundled to provide integrated service packages and, in addition to the Company's
core mechanical and electrical services, include such other services as building
maintenance and related support services.
The Company provides mechanical and electrical construction services and
facilities services directly to corporations, municipalities and other
governmental entities, owners/developers and tenants of buildings and,
indirectly, by acting as a subcontractor to construction managers, general
contractors, systems suppliers and other subcontractors. Worldwide, the Company
employs approximately 15,000 people.
The Company's revenues are diversified geographically and by customer and
industry. Of EMCOR's 1998 revenues, approximately 68% was generated in the
United States and approximately 32% was generated internationally, while
approximately 80% of revenues was derived from mechanical and electrical
construction services and approximately 20% from facilities services. For the
period 1995 through 1998, revenues and EBITDA grew at compound annual growth
rates of 11.63% and 47.09%, respectively.
EMCOR is a Delaware corporation previously known as JWP INC. The Company
filed for protection from its creditors under Chapter 11 of the United States
Bankruptcy Code in February 1994. None of the Company's subsidiaries were
involved in the Chapter 11 proceedings. The Company's filing was precipitated,
in large part, by a highly leveraged, aggressive acquisition strategy, that
included acquisitions in unrelated fields, implemented by its former management
team. The Company emerged from bankruptcy in December 1994 under its current
management, at which time it changed its name to EMCOR Group, Inc. Since the
restructuring, the Company has sold or otherwise disposed of its non-core
businesses, repaid substantial amounts of debt and returned to profitability.
The Company's executive offices are located at 101 Merritt Seven Corporate Park,
Norwalk, Connecticut 06851-1060, and its telephone number at those offices is
(203) 849-7800.
1
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The Business
The broad scope of the Company's operations are more particularly described
below.
Mechanical and Electrical Construction Services and Facilities Services
The Company believes that the mechanical and electrical construction
services and facilities services business is highly fragmented, consisting of
hundreds of small companies across the United States and around the world. This
fragmentation provides EMCOR with a significant competitive advantage due, in
large part, to the Company's financial strength and expertise. The mechanical
and electrical construction services industry has realized a higher growth rate
than the overall construction industry due, principally, to the increase in
content and complexity of mechanical and electrical systems in all types of
projects. This increased content and complexity is, in part, a result of the
expanded use of computers and more technologically advanced voice and data
communications, lighting, and environmental control systems in all types of
facilities. For these reasons, buildings of all types consume more electricity
per square foot than in the past and thus need more extensive electrical
distribution systems. In addition, advanced voice and data communication systems
require more sophisticated power supplies and extensive low voltage and
fiber-optic communications cabling. Moreover, the need for greater environmental
controls within a building, such as the heightened need for climate control to
maintain extensive computer systems at optimal temperatures, and the growing
demand for environmental control in individual spaces, have created expanded
opportunities for the mechanical and electrical construction services and
facilities services business.
Mechanical and electrical construction services primarily involve the
design, integration, installation and start-up of: (i) distribution systems for
electrical power (including power cables, conduits, distribution panels,
transformers, generators, uninterruptible power supply systems and related
switch gear and controls); (ii) lighting systems, including fixtures and
controls; (iii) low-voltage systems, including fire alarm, security, and process
control systems; (iv) voice and data communications systems, including
fiber-optic and low voltage copper cabling; (v) heating, ventilation, air
conditioning (collectively, "HVAC"), refrigeration and clean-room process
ventilation systems; and (vi) plumbing, process and high-purity piping systems.
Mechanical and electrical construction services generally fall into one of
two categories: (i) large installation projects with contracts often in the
multi-million dollar range which are performed in connection with construction
of industrial and commercial buildings and institutional and public works
facilities or with the fit-out of large blocks of space within commercial
buildings and (ii) smaller installation projects typically involving fit-out,
renovation and retrofit work.
EMCOR's mechanical and electrical construction services operations
generated approximately 80% of 1998 revenues. The Company provides mechanical
and electrical construction services for both large and small installation and
renovation projects. The Company's largest projects include those (i) for
institutional use (such as water and wastewater treatment facilities, hospitals,
correctional facilities, schools and research laboratories); (ii) for industrial
use (such as pharmaceutical factories, steel, pulp and paper mills, chemical,
automotive and semiconductor plants, and oil refineries); (iii) for
transportation systems (such as airports and transit systems); and (iv) for
commercial use (such as office buildings, hotels, casinos, convention centers,
sports stadiums, shopping malls and resorts). Its largest projects, typically in
excess of $10.0 million, are usually multi-year projects and range in size up
to, and occasionally in excess of, $50.0 million; these projects accounted for
approximately 20% of construction services revenues in 1998.
The Company's projects of less than $10.0 million accounted for
approximately 80% of 1998 construction services revenues and are typically
completed in less than a year. These projects usually involve mechanical and
electrical construction services in connection with the fit-out of space when an
end-user or owner undertakes construction or modification of a facility to
accommodate a specific use. These projects frequently require mechanical and
electrical systems to meet special needs such as redundant power supply systems,
special environmental controls, high-purity air systems, sophisticated
electrical and mechanical systems for trading floors in financial services
businesses, new production lines in manufacturing plants and office arrangements
in existing office buildings. Such projects are not typically dependent upon the
new construction market; their demand is often prompted by the expiration of
leases, changes in technology or changes in the customer's plant or office
layout in the normal course of business.
2
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Services are performed pursuant to contracts with owners, such as
corporations, municipalities and other governmental entities, general
contractors, systems suppliers, construction managers, developers, other
subcontractors and tenants of commercial properties. Institutional and public
works projects are frequently long-term, complex projects requiring significant
technical and management skills and financial strength to, among other things,
obtain bid and performance bonds, which are often a condition to bidding for,
and award of, contracts for such projects.
The Company also installs and maintains street, highway, bridge and tunnel
lighting, traffic signals, computerized traffic control systems and signal and
communication systems for mass transit systems in several metropolitan areas. In
addition, in the United States, the Company conducts sheet metal fabrication
operations, manufacturing and installing sheet metal air handling systems for
both its own mechanical construction operations and for unrelated mechanical
contractors. The Company also maintains welding and pipe fabrication shops for
some of its own mechanical operations.
The Company also provides services to support a customer's facilities.
These services, frequently referred to as facilities services, generated
approximately 20% of 1998 revenues. The Company has historically provided
technical support services to its customers, following completion of
construction projects, that typically include maintenance and service of
mechanical and electrical systems and small modification and retrofit projects
that support the day-to-day needs of its customers. In addition to the Company's
core mechanical and electrical services, services are provided to owners,
operators, tenants and managers of facilities of all types on both a contract
basis for a specified period of time and on an individual task order basis.
Facilities services also include customer-based operations and maintenance,
mobile maintenance, service and small modification and retrofit projects,
consulting, program development and management for energy systems and
maintenance activities. These services are provided to a wide range of
commercial, industrial and institutional facilities, including those for which
the Company provided construction services and for which construction services
were provided by others. The services are frequently bundled to provide
integrated service packages and may include services in addition to the
Company's core mechanical and electrical services.
The Company has experienced an expansion in the demand for such support
services which it believes is driven by customers' downsizing programs and their
concomitant focus on core competencies, the increasing technical complexity of
their facilities and their mechanical, electrical, voice and data and other
systems, and the need for increased reliability, especially in mechanical and
electrical systems. These trends have led to outsourcing and privatization
programs whereby customers in both the private and public sectors seek to
contract out their non-core activities, (i.e. those activities that support but
are not directly involved in the customer's business).
In the early 1990's the market for facilities services grew rapidly in the
United Kingdom as a result of Thatcher government initiatives. The Company's
United Kingdom subsidiary expanded its traditional technical service business in
response to these opportunities and established a dedicated unit to focus on the
facilities services business. This unit currently provides a full range of
facilities services to public and private sector customers under multi-year
agreements, including maintaining British Airways' facilities at Heathrow and
Gatwick Airports, the new British Library, the Department of Trade and Industry
offices in London, and the new Jubilee Line Extension of the London Underground.
The Company also provides facilities services at several automotive
manufacturing plants for the Rover Group and various British Aerospace
facilities. In addition, the United Kingdom operations provide on-call and
mobile service support on a task-order or contract basis, small renovation
project work, data communications, security system installation and maintenance
services.
The Company, by virtue of its construction and facilities services
expertise, is involved with teams for several private finance initiatives
("PFIs"), a new set of United Kingdom government programs. The PFIs, which
involve governmental bodies responsible for the national healthcare system,
social security, and air traffic control, among others, seek to transfer
ownership and management of United Kingdom government facilities, such as office
buildings and hospitals, to teams of financial institutions, consulting service
groups, construction groups and facilities services providers, which
competitively bid for PFI contracts. While there is no way to predict the timing
or the recipients of the PFI awards, the Company expects to be a member of one
or more teams awarded such projects. During 1998 the Company was awarded a
contract to provide mechanical and electrical services, ground maintenance and
other ancillary services for five to seven years to approximately 300 buildings
3
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which were formerly owned and managed by the United Kingdom Department of Social
Services; these facilities were privatized as part of the PFI program. The
Company has built on its United Kingdom experience to market its facilities
services business to international markets and currently provides facilities
services through joint ventures to several companies in South Africa.
In 1997, the Company established a new subsidiary to expand its facilities
service operations in North America patterned on its United Kingdom business.
This operating unit seeks to build on existing mechanical and electrical service
capabilities, facilities services activities at existing subsidiaries and the
Company's client relationships to expand the scope of services currently offered
and to develop packages of services for customers on a regional, national and
global basis. The Company's North American facilities services strategy includes
initiation and expansion of facilities services activities at subsidiaries that
provide mechanical and electrical construction services, including the offering
of bundled facilities services programs, integrating two or more services, and
development of facilities services business independent of construction services
through an acquisition program. In addition, other development activities are
focused on opportunities arising from private and public sectors' outsourcing
and privatization programs as these sectors focus on their core operations. In
the United States, management also has targeted as opportunities those arising
from the deregulation of the electric utility industry, deregulation and
expansion of the telecommunications industry and the REIT-driven consolidation
of the commercial real estate industry as a basis for growth in facilities
services.
The deregulation of, and increased competition in the utility industry,
along with government mandates calling for reduced energy consumption by
government entities, has led to renewed focus on energy costs and conservation
measures. These measures typically include energy assessments and engineering
studies, retrofit construction to implement energy savings measures, and the
long-term operation and maintenance of energy savings measures to ensure
continued performance. Various subsidiaries of the Company have participated in
energy savings programs in the past. The Company's facilities services
subsidiary has established strategic alliances with, among others,
DukeSolutions, Inc., a subsidiary of Duke Energy Corp., to provide energy
assessment, design, installation, and operations and maintenance services for
various Department of Defense facilities located in 46 states, the District of
Columbia and Puerto Rico, and with PECO Energy Company to provide similar
services to certain not-for-profit institutions in Massachusetts.
The Company expects additional similar programs to be undertaken as the
deregulation of electric utilities continues in the United States, and believes
that its ability to be a single source provider of construction and facilities
services will place it at a significant competitive advantage. During the past
year, the Company acquired a Bakersfield, California based maintenance program
consulting services firm, a Los Angeles, California area based mobile,
mechanical services firm and a Richmond, Virginia based industrial facilities
services firm to expand its capabilities in this field.
The deregulation and expansion of the telecommunications industry has led
to a rapid expansion of installed infrastructure, including wireless
communication systems and long distance networks much of which has been built by
companies that do not have existing maintenance operations and which seek to
outsource such services. The Company has provided installation services for the
infrastructure of telecommunication companies and facilities services to support
their operations. In this industry, the Company has worked on facilities owned
by such service providers as Sprint, AT&T, and MCI, has installed and maintained
equipment for suppliers such as Lucent, Nortel, and Siemens, and has provided
construction and maintenance services to competitive local service providers,
such as Teleport Communications Group, and to users who maintain their own
systems.
The Company offers its facilities services to customers on single-task and
multi-task bases depending on a customer's needs, under short-term and
multi-year agreements. Such services frequently involve the permanent assignment
of employees to customer premises for the duration of the contract, often around
the clock.
The Company believes its mechanical and electrical construction services
and facilities services activities are complementary, permitting it to offer
customers a comprehensive package of services. The ability to offer both
construction and facilities services should enhance the Company's competitive
position with customers. Furthermore, the facilities services operations tend to
be less cyclical than the construction operations as such facilities services
are more responsive to the needs of an industry's operations requirements rather
than its construction requirements.
4
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Competition
The Company believes that the mechanical and electrical construction
services business is highly fragmented and competitive. A majority of the
Company's revenues are derived from jobs requiring competitive bids; however, an
invitation to bid is often conditioned upon prior experience, technical
capability and financial strength. The Company competes with national, regional
and local companies, most of which are small, owner-operated entities that
operate in a limited geographic area. There are few public companies focused on
providing mechanical and electrical construction services, although in the last
three years more public national and regional firms have been established. The
Company is the largest provider of mechanical and electrical construction
services in the United States and Canada and one of the largest in the United
Kingdom and the world. In the future, significant competition may be encountered
from new entrants, such as public utilities and other companies attempting to
consolidate mechanical and electrical construction services companies.
Competitive factors in the mechanical and electrical construction services
business include: (i) the availability of qualified and/or licensed personnel;
(ii) reputation for integrity and quality; (iii) safety record; (iv) cost
structure; (v) relationships with customers; (vi) geographic diversity;
(vii) ability to control project costs; (viii) experience in specialized
markets; (ix) ability to obtain bonding; and (x) adequate working capital.
While the facilities services business is also highly fragmented, a number
of large corporations such as Johnson Controls, Inc., Fluor Corp., and
ServiceMaster Limited Partnership are engaged in this field, and there are other
companies seeking to consolidate facilities services businesses. The Company's
facilities services operations are well established in the United Kingdom but
are in the initial growth stage in the United States.
Employees
The Company presently employs approximately 15,000 people, approximately
75% of whom are represented by various unions pursuant to collective bargaining
agreements between the Company's individual subsidiaries and local unions. The
Company believes that its employee relations are generally good.
Backlog
The Company had backlog as of December 31, 1998 of approximately
$1,329.1 million, compared with backlog of approximately $996.5 million as of
December 31, 1997. Backlog includes facilities services revenues to be derived
during the immediately succeeding 12 months pursuant to then-existing contracts.
For the year ended December 31, 1998, the Company had more than $2.21 billion in
revenues compared to more than $1.95 billion in revenues for the year ended
December 31, 1997.
5
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ITEM 2. PROPERTIES
The operations of the Company are conducted primarily in leased properties.
The following table lists major facilities:
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LEASE EXPIRATION
APPROXIMATE DATE, UNLESS
SQUARE FEET OWNED
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CORPORATE HEADQUARTERS
101 Merritt Seven Corporate Park
Norwalk, Connecticut................................ 15,725 4/8/00
OPERATING FACILITIES
1200 North Sickles Road
Tempe, Arizona...................................... 29,000 Owned
3208 Landco Drive
Bakersfield, California............................. 49,875 6/30/02
25601 Clawiter Road
Hayward, California................................. 34,800 6/30/03
3102-3120 Diablo Avenue
Hayward, California................................. 20,300 5/31/01
5 Vanderbilt
Irvine, California.................................. 18,000 7/31/04
4462 Corporate Center Drive
Los Alamitos, California............................ 41,400 12/31/00
825 Howe Road
Martinez, California................................ 109,800 12/31/02
4464 Alvarado Canyon Road
San Diego, California............................... 40,000 10/31/07
414 Brannan Street
San Francisco, California........................... 17,500 3/31/01
4405 and 4420 Race Street
Denver, Colorado.................................... 16,890 9/30/01
345 Sheridan Boulevard
Lakewood, Colorado.................................. 63,000 Owned
367 Research Parkway
Meriden, Connecticut................................ 23,500 7/31/04
5697 New Peachtree Road
Atlanta, Georgia.................................... 27,200 11/30/00
2100 South York Road
Oak Brook, Illinois................................. 77,700 5/31/08
2655 Garfield Road
Highland, Indiana................................... 39,644 7/08/01
70-70D Hawes Way
Stoughton, Massachusetts............................ 24,400 12/31/00
22925-22931 Industrial Drive West
St. Clair Shores, Michigan.......................... 19,000 4/30/05
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LEASE EXPIRATION
APPROXIMATE DATE, UNLESS
SQUARE FEET OWNED
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1100 Combermere
Troy, Michigan...................................... 9,500 12/31/00
6060 Hix Road
Westland, Michigan.................................. 23,000 12/31/03
3555 W. Oquendo Road
Las Vegas, Nevada................................... 90,000 11/30/03
6325 South Valley Boulevard
Las Vegas, Nevada................................... 23,190 12/31/02
6754 W. Washington Avenue
Pleasantville, New Jersey........................... 45,400 1/14/02
26 West 81st Street
Brooklyn, New York.................................. 15,000 Owned
111-01 14th Avenue
College Point, New York............................. 77,000 2/28/06
305 Suburban Avenue
Deer Park, New York................................. 20,000 3/31/00
111 West 19th Street
New York, New York.................................. 27,200 5/31/03
Two Penn Plaza
New York, New York.................................. 57,200 2/01/06
4906 Barrow Avenue
Cincinnati, Ohio.................................... 16,300 9/28/03
2300-2310 International Street
Columbus, Ohio...................................... 25,500 8/30/01
5550 Airline Road
Houston, Texas...................................... 74,483 6/30/01
515 Norwood Road
Houston, Texas...................................... 26,676 6/30/01
1574 South West Temple
Salt Lake City, Utah................................ 38,800 12/31/99
2925-2941 Space Road
Richmond, Virginia.................................. 26,000 8/19/03
22930 Shaw Road
Dulles, Virginia.................................... 32,600 7/31/99
109-D Executive Drive
Dulles, Virginia.................................... 19,000 8/31/99
1 Thameside Centre
Kew Bridge Road
Kew Bridge, Middlesex, United Kingdom............... 14,000 12/22/12
86 Talbot Road
Old Trafford, Manchester, United Kingdom............ 24,300 12/24/06
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LEASE EXPIRATION
APPROXIMATE DATE, UNLESS
SQUARE FEET OWNED
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2116 Logan Avenue
Winnipeg, Manitoba, Canada.......................... 19,800 Owned
3455 Landmark Bouldvard
Burlington, Ontario, Canada......................... 16,100 Owned
305 Milner Avenue
Scarborough, Ontario, Canada........................ 16,500 5/31/00
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The Company believes that all of its property, plant and equipment are well
maintained, in good operating condition and suitable for the purposes for which
they are used.
See Note K to the consolidated financial statements for additional
information regarding lease costs. The Company utilizes substantially all of its
leased facilities and believes there will be no difficulty either in negotiating
the renewal of its real property leases as they expire or in finding alternative
space, if necessary.
8
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ITEM 3. LEGAL PROCEEDINGS
The Company's subsidiary Dynalectric Company ("Dynalectric") is a party to
an arbitration proceeding arising out of Dynalectric's participation in a joint
venture with Computran Systems Corp. ("Computran"). The proceeding, which was
instituted in 1988 in the Superior Court of New Jersey, Bergen County ("Superior
Court") by Computran, a participant in, and a subcontractor to, the joint
venture, alleges that Dynalectric wrongfully terminated its subcontract,
fraudulently diverted funds due to it, misappropriated its trade secrets and
proprietary information, fraudulently induced it to enter into the joint venture
and conspired with others to commit certain acts in violation of the New Jersey
Racketeering Influence and Corrupt Organization Act. Dynalectric believes that
Computran's claims are without merit and has defended this matter vigorously.
Dynalectric has filed counterclaims against Computran. As a result of a motion
made by Dynalectric, the Superior Court ordered that the matters in dispute
between Dynalectric and Computran be resolved by binding arbitration in
accordance with an original agreement between the parties. The parties are
awaiting a decision of the arbitrator.
In February 1995 as part of an investigation by the New York County
District Attorney's office into the business affairs of Herbert Construction
Company ("Herbert"), a general contractor that did business with the Company's
subsidiary, Forest Electric Corporation ("Forest"), a search warrant was
executed at Forest's executive offices. At that time, the Company was informed
that Forest and certain of its officers are targets of the continuing
investigation. Neither the Company nor Forest has been advised of the precise
nature of any suspected violation of law by Forest or its officers. On April 7,
1997, Ted Kohl, a principal of Herbert, pled guilty to one count of money
laundering, one count of offering a false instrument for filing and one count of
filing a false New York State Resident Income Tax Return. DPL Interiors, Inc., a
Company allegedly owned by Mr. Kohl, also pled guilty to one count of failing to
file New York City General Income Tax Returns. Mr. Kohl and DPL Interiors, Inc.
have not yet been sentenced.
On July 31, 1998 a former employee of a subsidiary of EMCOR filed a
class-action complaint on behalf of the participants in two employee benefit
plans sponsored by EMCOR against EMCOR and other defendants for breach of
fiduciary duty under the Employee Retirement Income Security Act. All of the
claims relate to alleged acts or omissions which occurred during the period
May 1, 1991 to December 1994. The principal allegations of the complaint are
that the defendants breached their fiduciary duties by causing the plans to
purchase and hold stock of EMCOR when it was then known as JWP INC. and when the
defendants knew or should have known it was imprudent to do so. The plaintiff
has not made claim for a specific dollar amount of damages but generally seeks
to recover for the benefit plans the loss in value of JWP stock held by the
plans. EMCOR and the other defendants intend to vigorously defend the case.
Insurance coverage may be applicable under an EMCOR pension trust liability
insurance policy for EMCOR and those present and former employees of EMCOR who
are defendants in the action.
Substantial settlements or damage judgements arising out of these matters
could have a material adverse effect on the Company's business, operating
results and financial condition.
In addition to the above, the Company is involved in other legal
proceedings and claims asserted by and against the Company, which have arisen in
the ordinary course of business.
The Company believes it has a number of valid defenses to these actions and
the Company intends to vigorously defend or assert these claims and does not
believe that a significant liability will result. However, the Company cannot
predict the outcome thereof or the impact that an adverse result of the matters
discussed above will have upon the Company's financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
9
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EXECUTIVE OFFICERS OF THE REGISTRANT
FRANK T. MACINNIS, Age 52; Chairman of the Board and Chief Executive
Officer of the Company since April 1994 and President of the Company from April
1994 to April 1997. From April 1990 to April 1994 Mr. MacInnis served as
President and Chief Executive Officer, and from August 1990 to April 1994 as
Chairman of the Board, of Comstock Group, Inc., a nationwide electrical
contracting company. From 1986 to April 1990, Mr. MacInnis was Senior Vice
President and Chief Financial Officer of Comstock Group, Inc. In addition, from
1986 to April 1994 Mr. MacInnis was also President of Spie Group Inc., which
owned Comstock Group, Inc., Spie Construction Inc., a Canadian pipeline
construction company, and Spie Horizontal Drilling Inc., a U.S. company engaged
in underground drilling for the installation of pipelines and communications
cable.
JEFFREY M. LEVY, Age 46; President of the Company since April 1997 and
Chief Operating Officer of the Company since February 1994, Executive Vice
President of the Company from November 1994 to April 1997, Senior Vice President
of the Company from December 1993 to November 1994. From May 1992 to December
1993, Mr. Levy was President and Chief Executive Officer of the Company's
subsidiary EMCOR Mechanical/Electrical Services (East) Inc. From January 1991 to
May 1992 Mr. Levy served as Executive Vice President and Chief Operating Officer
of Lehrer McGovern Bovis, Inc., a construction management and construction
company.
SHELDON I. CAMMAKER, Age 59; Executive Vice President and General Counsel
of the Company since September 1987 and Secretary of the Company since May 1997.
Prior to September 1987, he was a senior partner of the New York City law firm
of Botein, Hays & Sklar.
LEICLE E. CHESSER, Age 52; Executive Vice President and Chief Financial
Officer of the Company since May 1994. From April 1990 to May 1994 Mr. Chesser
served as Executive Vice President and Chief Financial Officer of Comstock
Group, Inc. and from 1986 to May 1994 he was also Executive Vice President and
Chief Financial Offiert of Spie Group, Inc.
THOMAS D. CUNNINGHAM, Age 49; Executive Vice President of the Company since
July 1997. From March 1994 to May 1997, Mr. Cunningham was Executive Vice
President and Chief Financial Officer of Swiss Army Brands, Inc., an importer
and distributor of Swiss Army knives and watches and Sabatier and Forschner
cutlery. For more than five years prior thereto, Mr. Cunningham was a Managing
Director of J.P. Morgan & Co., an international bank.
R. KEVIN MATZ, Age 40; Vice President and Treasurer of the Company since
April 1996 and Staff Vice President--Financial Services of the Company from
March 1993 to April 1996. From March 1991 to March 1993, Mr. Matz was Treasurer
of Sprague Technologies Inc., a manufacturer of electronic components.
MARK A. POMPA, Age 34; Vice President and Controller of the Company since
September 1994. From June 1992 to September 1994, Mr. Pompa was an Audit and
Business Advisory Manager of Arthur Andersen LLP, an accounting firm.
10
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market Information. The Company's Common Stock trades on the Nasdaq
National Market tier of the Nasdaq Stock Market under the symbol "EMCG".
The following table sets forth high and low sales prices for the Common
Stock for the periods indicated as reported by the Nasdaq National Market:
<TABLE>
<CAPTION>
1998 HIGH LOW
- ----------------------------------------------------------------- ------------- -----------
<S> <C> <C>
First Quarter.................................................... $23 1/8 $19 1/4
Second Quarter................................................... $22 1/8 $19 1/8
Third Quarter.................................................... $20 1/4 $12 1/2
Fourth Quarter................................................... $16 11/16 $13 3/8
1997
- -----------------------------------------------------------------
First Quarter.................................................... $17 3/16 $12 3/4
Second Quarter................................................... $16 5/8 $13
Third Quarter.................................................... $20 1/4 $15
Fourth Quarter................................................... $22 1/4 $16 1/2
</TABLE>
Holders. As of February 19, 1999 there were 72 shareholders of record and,
as of that date, the Company estimates there were approximately 1,100 beneficial
owners holding stock in nominee or "street" name.
Dividends. The Company did not pay dividends on its Common Stock during
1998 or 1997, and it does not anticipate that it will pay dividends on its
Common Stock in the foreseeable future. The Company's working capital credit
facility limits the payment of dividends on its Common Stock.
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected financial data has been derived from audited
financial statements and should be read in conjunction with the consolidated
financial statements, the related notes thereto and the report of independent
public accountants thereon, included elsewhere in this Form 10-K and in
previously filed annual reports on Form 10-K of the Company. On December 15,
1994 (the "Effective Date"), the Company emerged from Chapter 11 of the United
States Bankruptcy Code pursuant to its Third Amended Joint Plan of
Reorganization dated August 9, 1994, as amended (the "Plan of Reorganization"),
proposed by EMCOR and its subsidiary SellCo Corporation ("SellCo"). In
connection with the Plan of Reorganization, the Company adopted the American
Institute of Certified Public Accountants' Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code"
("SOP 90-7"). The Company has accounted for its reorganization by using the
principles of Fresh-Start Accounting as required by SOP 90-7. For accounting
purposes, the Company assumed that the Plan of Reorganization was consummated on
December 31, 1994.
INCOME STATEMENT DATA (a) (b)
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
REORGANIZED COMPANY YEAR ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31,
----------------------------------------------------- ------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Revenues....................................... $2,210,374 $1,950,868 $1,669,274 $1,588,744 $1,763,961
Gross profit................................... 223,287 182,183 160,788 143,147 156,372
Operating income (loss)........................ 37,224 27,414 17,114 5,893 (22,203)
Reorganization items........................... -- -- -- -- (91,318)
Income (loss) from continuing operations before
extraordinary items and change in method of
accounting................................... 17,092 8,581 9,437 (10,853) (118,934)
Income from discontinued operations............ -- -- -- -- 10,216
Extraordinary items:
-Loss on early extinguishment of debt net of
income taxes............................... (4,777) (1,004) -- -- --
-Gain on debt discharge...................... -- -- -- -- 413,249
Cumulative effect of change in method of
accounting for post employment benefits...... -- -- -- -- (2,100)
---------- ---------- ---------- ---------- ----------
Net income (loss).............................. $ 12,315 $ 7,577 $ 9,437 $ (10,853) $ 302,431
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Basic earnings (loss) per share: (c) (d)
Income (loss) from continuing operations before
extraordinary items and change in method of
accounting................................... $ 1.67 $ 0.90 $ 1.00 $ (1.13) $ (12.62)
Discontinued operations........................ -- -- -- -- 1.08
Extraordinary items:
-Loss on early extinguishment of debt, net of
income taxes............................... (0.47) (0.11) -- -- --
-Gain on debt discharge...................... -- -- -- -- 43.85
Cumulative effect of change in method of
accounting for post employment benefits...... -- -- -- -- (0.22)
---------- ---------- ---------- ---------- ----------
Basic earnings (loss) per share................ $ 1.20 $ 0.79 $ 1.00 $ (1.13) $ 32.09
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Diluted earnings (loss) per share: (c) (d)
Income (loss) from continuing operations before
extraordinary items and change in method of
accounting................................... $ 1.46 $ 0.84 $ 0.96 $ (1.13) $ (12.62)
Discontinued operations........................ -- -- -- -- 1.08
Extraordinary items:
-Loss on early extinguishment of debt, net of
income taxes............................... (0.35) (0.10) -- -- --
-Gain on debt discharge...................... -- -- -- -- 43.85
Cumulative effect of change in method of
accounting for post employment benefits...... -- -- -- -- (0.22)
---------- ---------- ---------- ---------- ----------
Diluted earnings (loss) per share.............. $ 1.11 $ 0.74 $ 0.96 $ (1.13) $ 32.09
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
12
<PAGE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
REORGANIZED COMPANY
AS OF DECEMBER 31,
---------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Stockholders' equity (d)................................ $119,816 $ 95,323 $ 83,883 $ 70,610 $ 81,130
Total assets............................................ $801,002 $660,654 $620,700 $710,945 $707,498
Net assets held for sale................................ -- -- -- $ 61,969 $ 55,401
Notes payable........................................... -- -- -- $ 14,665 $ 4,803
Borrowings under working capital credit lines........... -- $ 9,497 $ 14,200 $ 25,000 $ 40,000
7% Senior Secured Notes................................. -- -- -- $ 61,969 $ 55,401
Long-term debt, including current maturities............ $124,400 $ 62,657 $ 72,405 $ 68,989 $ 61,290
Capital lease obligations............................... $ 837 $ 1,482 $ 1,007 $ 1,284 $ 2,029
</TABLE>
- ------------------
(a) The income statement data for the year ended December 31, 1995 exclude the
operating results of businesses held for sale since the operations of these
businesses accrued to the benefit of holders of the notes issued by the
Company's subsidiary SellCo Corporation and, prior to their payment in full
during 1996, the Company's Series A Notes, and certain other obligations
(See Note E and F to the consolidated financial statements). Income
statement data has been reclassified for 1994 to reflect the Company's water
supply business and other businesses for sale as discontinued operations.
(b) Selected financial data for periods as of and after the adoption of
Fresh-Start Accounting are not comparable to selected financial data of
periods presented prior to December 31, 1994 and have been separated by a
black line.
(c) Effective December 31, 1997 the Company adopted Statement of Financial
Accounting Standards No. 128, Earnings Per Share. Accordingly, earnings per
share information for years prior to December 31, 1997 has been restated to
conform to current year presentation. (See Note D to the consolidated
financial statements.)
(d) No cash dividends on the Company's Common Stock have been paid during the
past five years.
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS--YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED
DECEMBER 31, 1997
EMCOR Group, Inc.'s ("EMCOR" or the "Company") Revenues for the years ended
December 31, 1998 and 1997 were $2,210.4 million and $1,950.9 million,
respectively. Net income for the year ended December 31, 1998 was $12.3 million
compared to net income of $7.6 million for the year ended December 31, 1997.
Basic Earnings Per Share ("Basic EPS") was $1.20 per share for the year ended
December 31, 1998 compared to Basic EPS of $0.79 per share in the year earlier
period. Net income for the years ended December 31, 1998 and 1997 includes
after-tax charges of approximately $4.8 million and $1.0 million ($7.5 million
and $1.7 million pre-tax) associated with the early retirement of approximately
$61.9 million and $11.9 million, respectively, of the Company's Series C Notes.
These extraordinary charges are reflected in the accompanying Consolidated
Statements of Operations under the caption "Extraordinary item--loss on early
extinguishment of debt, net of income taxes".
The 13% increase in Revenues for the year ended December 31, 1998 compared
to 1997 was primarily attributable to the continued increase in new construction
projects started in 1998, an increase in project activity of all types in
previously lagging market segments in the Northeastern United States commercial
and Western United States industrial markets, and the acquisition of ten
businesses in 1998 which contributed approximately $65.0 million of additional
revenues.
Gross Profit (Revenues less COS) ("GP") increased to $233.3 million for
for the year ended December 31, 1998 compared to $182.2 million for the year
ended December 31, 1997. As a percentage of Revenues, GP increased to 10.1% from
9.3% for the years ended December 31, 1998 and 1997, respectively. The increase
in GP as a percentage of Revenues is a result of increased operating volume in
markets where higher gross profit projects are available.
Selling, general and administrative expenses ("SG&A") for the year ended
December 31, 1998 was $186.1 million, or 8.4% of Revenues, compared to
$154.8 million, or 7.9% of Revenues, for the year ended December 31, 1997. The
dollar increase in SG&A for the year ended December 31, 1998 compared to the
prior year is attributable to the increase in operating volume and corresponding
increases in variable SG&A costs. The increase in SG&A as a percentage of
Revenues is primarily due to the geographic area in which the revenue is earned
and the continued development of the Company's facilities services activities,
which activities usually require greater SG&A than construction services.
The Company had Operating income of $37.2 million for the year ended
December 31, 1998 compared with Operating income of $27.4 million for the year
ended December 31, 1997. The increase in operating income of $9.8 million for
the year ended December 31, 1998 as compared to the same period in 1997 was due
to increased Revenues, improved GP and incremental operating income
attributable to 1998 acquisitions.
The Company's Interest expense decreased by $2.0 million to $11.0 million
in 1998 due to the Company's lower cost of capital, lower average outstanding
borrowings during 1998 and the repurchase and redemption of the Company's Series
C Notes discussed above. Interest income increased to $3.6 from $1.1 million in
1998 versus 1997 due to an increase in cash available to invest principally as a
result of the common stock and debt offerings in March 1998 (see Notes F and H
to the consolidated financial statements in Item 8).
The Income tax provision increased by $5.7 million to $12.6 million for
1998, versus $6.9 million for 1997. The increase in dollars was due to increased
Income before taxes and extraordinary item, offset partially by a decrease in
the effective income tax rate for 1998 to 42.5% from 44.5% for 1997. The
decrease in the effective income tax rate is due to the tax jurisdiction in
which income is earned as well as continued income tax planning strategies. A
portion of the liability for income taxes, $8.2 million for 1998 and
$5.6 million for 1997, is not payable in cash due to the utilization of NOL's
and is recorded as an increase in Capital surplus for both years.
The Company's backlog was $1,329.1 million at December 31, 1998 and
$996.4 million at December 31, 1997. Between December 31, 1997 and December 31,
1998, the Company's backlog in Canada increased by $8.3 million, its backlog in
the United Kingdom increased by $37.1 million and its backlog in the United
States increased by $290.2 million. The increase in the Company's Canadian
backlog was primarily attributable to improved economic conditions in Eastern
Canada. The increase in the United Kingdom backlog was due to
14
<PAGE>
improved economic conditions in the Southern United Kingdom and the award of
several large facilities service contracts. The increase in the United States
backlog was due primarily to the acquisition of new electrical and mechanical
construction and facilities services operations (approximately $158.8 million)
with organic growth throughout the United States which contributed an additional
$131.4 million to backlog.
UNITED STATES OPERATIONS
The Company's United States operations consist of three segments:
electrical construction and facilities services, mechanical construction and
facilities services and other.
Revenues of electrical construction and facilities services business units
("Electrical Business Units") for the year ended December 31, 1998 were
$888.6 million compared to $745.0 million for the year ended December 31, 1997.
Operating income of the Electric Business Units (before deduction of general
corporate and other expenses discussed below) for the year ended December 31,
1998 was $36.3 million or 4.1% of Revenues compared to $28.7 million or 3.9% of
Revenues for the year ended December 31, 1997. The $143.6 million or 19.3%
increase in 1998 Revenues is attributable to $19.4 million of Revenues related
to 1998 acquisitions as well as continuing favorable market conditions in the
Eastern and Midwestern United States. Eastern United States activities were
favorably impacted by increased interior renovation projects in New York City
commercial office buildings principally attributable to corporate relocations.
Revenues of mechanical construction and facilities services business units
("Mechanical Business Units") for the year ended December 31, 1998 were
$599.6 million compared to $577.6 million for the year ended December 31, 1997.
Operating income of the Mechanical Business Units (before deduction of general
corporate and other expenses discussed below) for the year ended December 31,
1998 was $21.0 million or 3.5% of Revenues compared to $18.6 million or 3.2% of
Revenues for the year ended December 31, 1997. The $22.0 million or 3.8%
increase in revenues is attributable to $38.2 million of Revenues related to
1998 acquisitions offset by the planned reduction of business activities in the
Western United States.
Other United States revenues of $14.4 million for the year ended
December 31, 1998, which include those operations which principally provide
consulting and maintenance services increased by $11.4 million which is
primarily attributable to 1998 acquisitions of $7.3 million. Increased
activities of the Company's subsidiaries in the Northeastern United States
accounted for the balance of the increase in Revenues. Operating losses relative
to these activities were $4.8 million for the year ended December 31, 1998
compared to $2.1 million of losses for the year ended December 31, 1997 which
included incremental costs associated with the continued development of its
facilities services activities.
INTERNATIONAL OPERATIONS
The Company's International operations consists of three segments; Canada
construction and facilities services, United Kingdom construction and facilities
services and other international construction and facilities services. Revenues
of Canada construction and facilities services business units ("Canada Business
Units") for the year ended December 31, 1998 were $201.9 million compared to
$179.0 million for the year ended December 31, 1997. Operating income of the
Canada Business Units (before deduction of general corporate and other expenses
discussed below) for the year ended December 31, 1998 was $5.0 million compared
to $4.2 million for the year ended December 31, 1997. The $22.9 million or 12.8%
increase in Revenues from 1997 levels is attributable to the increase in
construction and facilities service activities in the Eastern Canadian markets.
Revenues of United Kingdom construction and facilities services business
units ("United Kingdom Business Units") for the year ended December 31, 1998
were $493.3 million compared to $ 407.4 million for the year ended December 31,
1997. Operating losses of the United Kingdom Business Units (before deduction of
general corporate and other expenses discussed below) for the year ended
December 31, 1998 were $0.9 million compared to $4.9 million of losses for the
year ended December 31, 1997. The $85.8 million or 21.0% increase in Revenues is
attributable to the growth in the United Kingdom construction and facilities
services market primarily in the Southern United Kingdom.
15
<PAGE>
Other International construction and facilities services business units
("Other International Business Units") primarily consists of the Company's
operations in the Middle East and Asia-Pacific. Revenues for the year ended
December 31, 1998 were $12.6 million compared to $38.8 million for the year
ended December 31, 1997. Operating losses of Other International Business Units
were $1.3 million compared to $1.1 million of losses for the year ended
December 31, 1997. The $26.2 million decline in 1998 Revenues compared to 1997
is due to the Company's planned reductions in activities outside of its core
geographic markets.
GENERAL CORPORATE AND OTHER EXPENSES
General Corporate expenses for the year ended December 31, 1998 and 1997
were $18.1 million and $16.0 million, respectively. The increase in General
Corporate expenses is attributable to increased variable overhead costs
associated with the Company's increased operating volume. Net interest expense
for the year ended December 31, 1998 was $7.5 million compared to $12.0 million
in the year earlier period. The $4.5 million decrease is attributable to the
Company's lower cost of capital and lower average outstanding borrowings during
1998 due to the repurchase and redemption of the Company's Series C Notes.
Additionally, the increase in available cash balances resulting from the sale of
Convertible Subordinated Notes and net proceeds from issuance of common stock
during 1998 contributed to increased interest income compared to 1997 as
discussed in Liquidity and Capital Resources.
RESULTS OF OPERATIONS--YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED
DECEMBER 31, 1996
The Company's Revenues for the years ended December 31, 1997 and 1996 were
$1,950.9 million and $1,669.3 million, respectively. Net income for the year
ended December 31, 1997 was $7.6 million compared to Net income of $9.4 million
for the year ended December 31, 1996. Basic EPS was $0.79 per share for the year
ended December 31, 1997 compared to Basic EPS of $1.00 per share in the year
earlier period. Net income for the year ended December 31, 1997 includes an
after-tax charge of approximately $1.0 million ($1.7 million pre-tax) associated
with the early retirement of approximately $11.9 million of the Company's Series
C Notes. Net income for the year ended December 31, 1996 reflects a net
after-tax gain of $8.1 million ($12.5 million pre-tax) on the sale of certain
assets held for sale, including the sale of substantially all of the assets of
Jamaica Water Supply Company ("JWS"). JWS and the Company's other water supply
subsidiary, Sea Cliff Water Company, are referred to hereafter as the "Water
Companies". Net income for 1996 also reflects an after-tax charge of
$2.8 million ($4.3 million pre-tax) included in SG&A related to an adverse
arbitration award.
The 16.9% increase in Revenues for the year ended December 31, 1997 when
compared to 1996 was primarily attributable to the continued increase in
commercial construction activity in the Western United States, the acquisition
of the businesses of two mechanical construction companies in late 1996 and
early 1997 in Connecticut and New Jersey, respectively, a general increase in
industrial construction activity in Canada, and continued progress on several
large jobs in the United Kingdom.
GP increased to $182.2 million for the year ended December 31, 1997
compared to $160.8 million for the year ended December 31, 1996. GP as a
percentage of Revenues decreased to 9.3% from 9.6% for the years ended December
31, 1997 and 1996, respectively. This percentage decrease is due to lower GP on
certain projects, particularly in the United Kingdom in 1997.
SG&A for the year ended December 31, 1997 was $154.8 million, or 7.9% of
Revenues, compared to $143.7 million, or 8.6% of Revenues, for the year ended
December 31, 1996. SG&A expenses for the year ended December 31, 1996, exclusive
of the adverse arbitration award noted above, were $139.4 million, or 8.3% of
revenues. The dollar increase in SG&A for the year ended December 31, 1997
compared to the prior year is attributable to the increase in volume. The
reduction in SG&A as a percentage of Revenues is due to the maintenance of the
fixed cost portion of SG&A.
The Company generated operating income of $27.4 million for the year ended
December 31, 1997 compared with operating income of $17.1 million for the year
ended December 31, 1996. Operating income for the year ended December 31, 1997
as compared to 1996 increased by $10.3 million due to increases in operating
volume during 1997 as well as reductions in SG&A as a percentage of Revenues. In
addition, operating income for 1996 reflected the negative impact during 1996 of
the adverse arbitration award referred to above, offset against favorable
closeouts of certain contracts in the first quarter of 1996.
16
<PAGE>
The Company's Interest expense decreased by $1.9 million to $13.0 million
in 1997 due to the Company's lower cost of capital, lower average outstanding
borrowings during 1997 and the repurchase and partial redemption of the
Company's Series C Notes discussed above. Beginning with the second quarter of
1997, the Company was relieved of covenants under the terms of its then domestic
bonding and revolving credit agreements. The covenants restricted the use of
cash generated by certain subsidiaries, and the Company used this cash to reduce
borrowings under its 1996 Credit Facility referred to below. As a consequence,
the Company maintained less cash on deposit in banks in 1997 than in 1996, and
interest income decreased from $2.2 million in 1996 to $1.1 million in 1997.
The Income tax provision decreased to $6.9 million for the year ended
December 31, 1997, versus $7.5 million for the year ended December 31, 1996. The
effective income tax rate for 1997 was 44.5%, versus 44.8% for 1996. The
decrease in dollars was due to lower Income before taxes and extraordinary item
in 1997 compared to 1996.
The Company's backlog was $996.4 million at December 31, 1997 and
$1,043.7 million at December 31, 1996. Between December 31, 1996 and
December 31, 1997, the Company's backlog in Canada increased by $0.5 million,
its backlog in the United Kingdom decreased by $43.8 million and its backlog in
the United States decreased by $4.0 million. The increase in the Company's
Canadian backlog was primarily attributable to improved economic conditions in
Western Canada. The decrease in the United Kingdom backlog was due to the
continued progress towards completion of several large projects and exchange
rate fluctuations. The decline in the domestic backlog was due to the continued
progress towards completion of several large projects, primarily in the Western
United States.
UNITED STATES OPERATIONS
Revenues of Electrical Business Units for the year ended December 31, 1997
were $745.0 million compared to $731.9 million for the year ended December 31,
1996. Operating income of the Electric Business Units (before deduction of
general corporate and other expenses discussed below) for the year ended
December 31, 1997 were $28.7 million or 3.9% of Revenues compared to $28.6
million or 3.9% of Revenues for the year ended December 31, 1996. The
$13.1 million or 1.8% increase in 1997 Revenues is attributable to growth in the
rocky mountain region of the United States primarily with customers in the
telecommunications and high tech industries.
Revenues of Mechanical Business Units for the year ended December 31, 1997
were $577.6 million compared to $399.2 million for the year ended December 31,
1996. Operating income of the Mechanical Business Units (before deduction of
general corporate and other expenses discussed below) for the year ended
December 31, 1997 were $18.6 million or 3.2% of Revenues compared to
$2.0 million or 0.5% of Revenues for the year ended December 31, 1996. The
$178.4 million or 24.4% increase in Revenues is attributable to $24.8 million of
Revenues related to 1997 acquisitions and to strong growth in the Midwestern and
Western United States.
Other United States revenues of $3.0 million for the year ended
December 31, 1997, which include those operations which principally provide
consulting and maintenance services, increased by $2.2 million which is
primarily attributable to organic growth. Operating losses relative to these
activities were $2.1 million for the year ended December 31, 1997 compared to
break even operations in 1996.
INTERNATIONAL OPERATIONS
Revenues of Canada Business Units for the year ended December 31, 1997 were
$179.0 million compared to $139.6 million for the year ended December 31, 1996.
Operating income of the Canada Business Units (before deduction of general
corporate and other expenses discussed below) for the year ended December 31,
1997 was $4.2 million compared to $1.5 million for the year ended December 31,
1996. The $39.4 million or 28.2% increase in revenues from 1996 levels is
attributable to the increase in construction and facilities service activities
in the Western Canadian markets.
Revenues of United Kingdom Business Units for the year ended December 31,
1997 were $407.5 million compared to $358.3 million for the year ended
December 31, 1996. Operating losses of the United Kingdom
17
<PAGE>
Business Units (before deduction of general corporate and other expenses
discussed below) for the year ended December 31,1997 were $4.9 million compared
to operating income of $0.9 million for the year ended December 31, 1996. The
$49.2 million or 13.7% increase in revenues is attributable to increased scope
of work in connection with the London Underground Project.
Other International Business Units primarily consists of the Company's
operations in the Middle East and Asia-Pacific. Revenues for the year ended
December 31, 1997 were $38.8 million compared to $39.5 million for the year
ended December 31, 1996. Operating losses of Other International Business Units
were $1.1 million for the year ended December 31, 1997 compared to $1.8 million
for the year ended December 31, 1996.
GENERAL CORPORATE AND OTHER EXPENSES
General Corporate expenses for the year ended December 31, 1997 and 1996
were $15.9 million and $14.2 million, respectively. The increase in general
expenses is attributable to increased variable overhead costs associated with
the Company's increased operating volume. Net interest expense for the year
ended December 31, 1997 was $12.0 million compared to $12.6 million in the year
earlier period.
LIQUIDITY AND CAPITAL RESOURCES
On March 18, 1998, the Company sold, pursuant to underwritten public
offerings, $100.0 million principal amount of 5.75% Convertible Subordinated
Notes (the "Notes") and 1,100,000 shares of its Common Stock. Interest on the
Notes is payable semi-annually and commenced October 1, 1998. The Notes are
unsecured indebtedness of the Company and are convertible at any time into
Common Stock of the Company at a conversion price of $27.34 per share.
On March 24, 1998, the underwriter of the Notes offering exercised in full
its over-allotment option to purchase an additional $15.0 million of Notes, and,
accordingly, an additional $15.0 million principal amount of such notes were
issued.
During the third quarter of 1998, the Company's Board of Directors
authorized a stock repurchase program under which the Company may repurchase up
to $20.0 million of its common stock. As of December 31, 1998 the Company had
repurchased 957,900 shares of its Common Stock at an aggregate cost of
approximately $14.0 million.
Proceeds received from the sale of the Notes along with proceeds from the
sale of the Common Stock were used to redeem the Series C Notes, repay then
outstanding borrowings under the Company's working capital credit lines, prepay
the Supplemental SellCo Note and accrued interest thereon and for the
acquisition of certain businesses through December 31, 1998 and will be used for
possible additional acquisitions and for other general corporate purposes.
The Company's consolidated cash balance increased by $33.7 million from
$49.4 million at December 31, 1997 to $83.1 million at December 31, 1998. Net
cash provided by operating activities was $35.3 million for 1998, an increase of
$9.7 million from $25.6 million for 1997. This increase was primarily due to
increased net income and non-cash net income items. Net cash provided by
financing activities of $38.6 million was primarily due to the issuance of
convertible subordinated notes of $115.0 million, net proceeds from issuance of
common stock of $22.5 million, offset partially by the retirement of Series C
Notes for $61.9 million, purchases of treasury stock for $14.0 million, payment
of working capital credit lines of $9.5 million, and retirement of the
Supplemental SellCo Note for $5.5 million. In 1997, the primary generator of net
cash used in financing activities was the partial repayment and redemption of
Series C Notes for $11.9 million. Net cash used in investing activities for 1998
of $40.2 million primarily consisted of $28.5 million for acquisitions and
$10.9 million for the net purchase of property, plant and equipment, versus
$1.5 million and $9.8 million used in the same activities for 1997,
respectively.
On December 22, 1998 the Company and certain of its subsidiaries amended
and restated the June 19, 1996 Credit Agreement providing the Company with a
working capital credit facility (the "1998 Credit Facility") for borrowings up
to $150.0 million. The 1998 Credit Facility has an expiration date of June 30,
2002 and is guaranteed by certain direct and indirect subsidiaries of the
Company. It is secured by substantially all of the assets of the Company and
those subsidiaries and it provides for borrowing capacity available in the form
of
18
<PAGE>
revolving loans ("Revolving Loans") and/or letters of credit ("LCs"). The
Revolving Loans bear interest at a rate, which is the prime commercial lending
rate announced by Harris Trust and Savings Bank from time to time (7.75% at
December 31, 1998) plus 0%--0.5%, based on certain financial tests, for Domestic
Rate Loans, as defined. Eurodollar Loans, as defined, bear interest at a
variable rate which is LIBOR as published from time to time (5.08% at December
31, 1998) plus 1.25%--2.0% based on certain financial tests. The interest rates
on Domestic Rate Loans and Eurodollar Loans, as defined, at December 31, 1998
were 7.75% and 6.58%, respectively. LC fees ranging from 0.5% to 2.0% are
charged based on type of LC issued and certain financial tests.
As of December 31, 1998, the Company had approximately $30.2 million of LCs
and no Revolving Loans outstanding under 1998 Credit Agreement.
On June 19, 1996, the Company and its subsidiary, Dyn Specialty Contracting
Inc. ("Dyn"), entered into a credit agreement with Harris Trust and Savings Bank
("Harris") providing the Company with a working capital credit facility for
borrowings up to $100.0 million for a three-year period (the "1996 Credit
Facility"). The 1996 Credit Facility, as amended, which was guaranteed by
certain direct and indirect subsidiaries of the Company and was secured by
substantially all of the assets of the Company and those subsidiaries provided
for borrowing capacity available in the form of revolving loans and/or letters
of credit. The Revolving Loans bear interest at a variable rate, which was the
prime commercial lending rate announced by Harris from time to time (8.5% at
December 31, 1997) plus 1.0% to 2.0% based on certain financial tests. The
interest rate on the Revolving Loans was 9.5% at December 31, 1997. LC fees
ranging from 1.50% to 3.25% were charged based on the type of LC issued. The
1996 Credit Facility expires on June 19, 1999. As of December 31, 1997, the
Company had approximately $25.7 million of LCs and approximately $9.5 million of
Revolving Loans outstanding under the 1996 Credit Facility. The 1996 Credit
Facility was replaced by the 1998 Credit Facility in December 1998.
In October 1997, the Company's Canadian subsidiary, Comstock Canada LTD.,
renewed a credit agreement with a bank providing for an overdraft facility of up
to Cdn. $0.5 million. The facility is secured by a standby letter of credit and
provides for interest at the bank's prime rate (6.75% at December 31, 1998).
There were no borrowings outstanding under this credit agreement at
December 31, 1998 and 1997. The Canadian subsidiary may utilize the Company's
revolving credit facility for any future working capital requirements.
In 1998, the Company issued Notes Payable in connection with the
acquisition of two companies. One Note Payable, issued in August 1998 requires a
payment plus accrued interest of $1.0 million in August 1999 and $1.15 million,
in August 2000. The other Note Payable issued in December 1998 was paid in
January 1999.
The Company believes that current cash balances and borrowing capacity
available under lines of credit, combined with cash expected to be generated
from operations, will be sufficient to provide short-term and foreseeable
long-term liquidity and meet expected capital expenditure requirements.
CERTAIN INSURANCE MATTERS
As of December 31, 1998, the Company was utilizing approximately
$30.2 million of letters of credit obtained under the 1996 Credit Facility as
collateral for its current insurance obligations, and therefore presently is not
required to deposit cash for such obligations.
YEAR 2000
The Year 2000 issue concerns the potential inability of certain systems to
properly recognize and process date sensitive information beyond January 1,
2000.
The Company has performed a comprehensive review of its internal
application systems ("Internal Systems"), including information technology
("IT") system and Non-IT systems, to identify those systems that could be
affected by the Year 2000 issue (the "Issue") and has developed a plan to
resolve the Issue. The Company is utilizing both internal and external resources
to identify, correct or reprogram, and test its systems to ensure Year 2000
compliance.
The Company estimates that it is approximately 75% complete with its
Internal Systems modifications and expects the balance of any required
modifications to be completed by mid 1999. Cost estimates of testing and
19
<PAGE>
converting system applications range from $1.0 million to $2.0 million.
Modification costs will be expensed as incurred and costs of new software will
be capitalized and amortized over the expected useful life of the related
software.
The Company expects its Year 2000 conversion project to be completed before
January 1, 2000. While the Company believes its planning efforts are adequate to
address its Year 2000 concerns, the Company's operations and financial results
could be adversely impacted by the Year 2000 issue if the conversion schedule
and cost estimate for its Internal Systems are not met or suppliers and other
businesses on which the Company relies do not address the Issue successfully.
The Company is requesting that its significant suppliers confirm that they have
plans achieving Year 2000 compliance. The Company continues to assess these
risks in order to reduce any impact on the Company.
The Company has not yet been able to clearly identify the most reasonably
likely worst case scenarios, if any, and the appropriate contingency plans for
such scenarios. As the Company completes all phases of its Year 2000 conversion
project, it will prepare contingency plans, where identified as necessary, to
deal with any significant noncompliance risks.
Based on currently available information, the Company does not believe that
the matters discussed above related to its Internal Systems or to services
provided to customers will have a material adverse impact on the Company's
financial condition or overall trends in results of operations; however, it is
uncertain to what extent the Company may be affected by such matters. In
addition, there can be no assurance that the failure to ensure year 2000
capability by a supplier, customer or another third party would not have a
material adverse effect on the Company.
This Annual Report on Form 10-K contains certain forward-looking statements
within the meaning of the Private Securities Reform Act of 1995, particularly
statements regarding market opportunities, market share growth, competitive
growth, gross profit, and selling, general and administrative expenses. These
forward-looking statements involve risks and uncertainties, that could cause
actual results to differ materially from those in any such forward-looking
statements. Such factors include, but are not limited to, adverse changes in
general economic conditions, including changes in the specific markets for the
Company's services, adverse business conditions, decreased or lack of growth in
the mechanical and electrical construction and facilities services industries,
increased competition, pricing pressures, risks associated with foreign
operations and other factors.
20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
EMCOR GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 83,053 $ 49,376
Accounts receivable, less allowance for doubtful accounts of $24,006 and $20,456,
respectively......................................................................... 538,457 480,997
Costs and estimated earnings in excess of billings on uncompleted contracts............. 91,569 73,974
Inventories............................................................................. 7,188 7,363
Prepaid expenses and other.............................................................. 11,702 10,951
-------- --------
Total current assets............................................................... 731,969 622,661
Investments, notes and other
long-term receivables................................................................... 6,974 5,901
Property, plant and equipment, net........................................................ 32,098 27,164
Other assets............................................................................ 29,961 4,928
-------- --------
Total assets.............................................................................. $801,002 $660,654
-------- --------
-------- --------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
21
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under working capital lines.................................................. $ -- $ 9,497
Current maturities of long-term debt and capital lease obligations...................... 7,963 927
Accounts payable........................................................................ 246,856 234,714
Billings in excess of costs and estimated earnings on uncompleted contracts............. 135,094 112,833
Accrued payroll and benefits............................................................ 62,008 49,058
Other accrued expenses and liabilities.................................................. 59,996 49,566
-------- --------
Total current liabilities............................................................. 511,917 456,595
Long-term debt and capital lease obligations............................................ 117,274 63,212
Other long-term obligations............................................................. 51,995 45,524
-------- --------
Total liabilities..................................................................... 681,186 565,331
-------- --------
Stockholders' equity:
Preferred Stock, $0.10 par value, 1,000,000 shares authorized zero issued and
outstanding............................................................................. -- --
Common Stock, $0.01 par value, 13,700,000 shares authorized, 9,830,603 and 9,590,827
shares issued and outstanding or issuable, respectively................................. 109 96
Warrants.................................................................................. 2,154 2,154
Capital surplus........................................................................... 114,867 87,107
Accumulated other comprehensive income.................................................... (1,822) (195)
Retained earnings......................................................................... 18,476 6,161
Treasury stock, at cost, 957,900 shares................................................... (13,968) --
-------- --------
Total stockholders' equity.............................................................. 119,816 95,323
-------- --------
Total liabilities and stockholders' equity................................................ $801,002 $660,654
-------- --------
-------- --------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
22
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues................................................................ $2,210,374 $1,950,868 $1,669,274
Costs and expenses:
Cost of sales......................................................... 1,987,087 1,768,685 1,508,486
Selling, general and administrative................................... 186,063 154,769 143,674
---------- ---------- ----------
2,173,150 1,923,454 1,652,160
---------- ---------- ----------
Operating income........................................................ 37,224 27,414 17,114
Interest expense........................................................ (11,041) (13,029) (14,890)
Interest income......................................................... 3,558 1,077 2,244
Other income............................................................ -- -- 12,500
---------- ---------- ----------
Income before income taxes and extraordinary items...................... 29,741 15,462 16,968
Income tax provision.................................................... 12,649 6,881 7,531
---------- ---------- ----------
Income before extraordinary items....................................... 17,092 8,581 9,437
Extraordinary items--loss on early extinguishment of debt, net of income
taxes................................................................. (4,777) (1,004) --
---------- ---------- ----------
Net income.............................................................. $ 12,315 $ 7,577 $ 9,437
---------- ---------- ----------
---------- ---------- ----------
Basic earnings per share:
Income before extraordinary item...................................... $ 1.67 $ 0.90 $ 1.00
Extraordinary item--loss on early extinguishment of debt, net of
income taxes....................................................... (0.47) (0.11) --
---------- ---------- ----------
Basic earnings per share................................................ $ 1.20 $ 0.79 $ 1.00
---------- ---------- ----------
---------- ---------- ----------
Diluted earnings per share:
Income before extraordinary item...................................... $ 1.46 $ 0.84 $ 0.96
Extraordinary item--loss on early extinguishment of debt, net of
income taxes....................................................... (0.35) (0.10) --
---------- ---------- ----------
Diluted earnings per share.............................................. $ 1.11 $ 0.74 $ 0.96
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
23
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................................... $ 12,315 $ 7,577 $ 9,437
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................... 9,846 8,140 7,864
Amortization of goodwill.................................................... 734 52 --
Provision for doubtful accounts............................................. 3,508 4,300 1,258
Non-cash interest expense................................................... 408 1,319 4,748
Non-cash income tax provision............................................... 8,151 5,587 6,771
Non-cash portion of extraordinary items..................................... 3,152 533 --
Other, net.................................................................. 416 612 252
-------- -------- --------
38,530 28,120 30,330
Change in operating assets and liabilities excluding effect of businesses
acquired:
Increase in accounts receivable............................................. (27,219) (41,885) (8,214)
Decrease (increase) in inventories and contracts in progress................ 1,236 3,029 (11,228)
Increase (decrease) in accounts payable and other accrued expenses and
liabilities.............................................................. 16,841 31,740 (6,891)
Decrease in insurance cash collateral....................................... -- -- 30,812
Decrease in funds held in escrow............................................ -- -- 8,271
Changes in other assets and liabilities, net................................ 5,924 4,613 (9,997)
-------- -------- --------
Net cash provided by operating activities..................................... 35,312 25,617 33,083
-------- -------- --------
Cash flows from financing activities:
Proceeds from working capital credit lines.................................. -- 136,862 45,625
Payments of working capital credit lines.................................... (9,497) (141,565) (56,425)
Net (payments) proceeds from long-term debt and capital lease obligations... (1,840) 221 (647)
Repayment of Series A Notes................................................. -- -- (66,424)
Repayment and redemption of Series C Notes.................................. (61,854) (11,920) --
Exercise of stock options................................................... 518 427 487
Premiums paid on early extinguishment of debt............................... (2,437) -- --
Repayment and redemption of Supplemental SellCo Note........................ (5,464) -- --
Issuance of convertible subordinated notes.................................. 115,000 -- --
Net proceeds from issuance of common stock.................................. 22,485 -- --
Purchase of common stock.................................................... (13,968) -- --
Proceeds from notes payable................................................. -- -- 9,596
Payments of notes payable................................................... -- -- (24,363)
Debt issuance costs......................................................... (4,347) (304) (1,600)
-------- -------- --------
Net cash provided by (used in) financing activities........................... 38,596 (16,279) (93,751)
-------- -------- --------
Cash flows from investing activities:
Proceeds from sale of assets................................................ 308 750 353
Proceeds from sales of net assets held for sale............................. -- -- 66,424
Purchase of property, plant and equipment................................... (10,946) (9,753) (7,428)
Payments for acquisitions of businesses..................................... (28,520) (1,500) --
Net disbursements for other investments..................................... (1,073) (164) (983)
-------- -------- --------
Net cash (used in) provided by investing activities........................... (40,231) (10,667) 58,366
-------- -------- --------
Increase (decrease) in Cash and Cash Equivalents.............................. 33,677 (1,329) (2,302)
Cash and Cash Equivalents at Beginning of Year................................ 49,376 50,705 53,007
-------- -------- --------
Cash and Cash Equivalents at End of Year...................................... $ 83,053 $ 49,376 $ 50,705
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
24
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND
COMPREHENSIVE INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATIVE RETAINED
OTHER EARNINGS
COMMON CAPITAL COMPREHENSIVE (ACCUMULATED TREASURY COMPREHENSIVE
TOTAL STOCK WARRANTS SURPLUS INCOME DEFICIT) STOCK INCOME
-------- ------ -------- -------- ------------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996..... $ 70,610 $ 94 $2,179 $ 78,863 $ 327(1) ($10,853) $ --
Net income................. 9,437 -- -- -- -- 9,437 -- $ 9,437
Foreign currency
translation adjustment... 1,051 -- -- -- 1,051 -- -- 1,051
---------
Comprehensive income....... -- -- -- -- -- -- -- $ 10,488
---------
---------
NOL utilization, net....... 2,298 -- -- 2,298 -- -- --
Common stock issued under
stock option plans....... 487 1 -- 486 -- -- --
Other...................... -- -- (25) 25 -- -- --
-------- ---- ------ -------- ------- -------- --------
Balance, December 31, 1996... 83,883 95 2,154 81,672 1,378 (1,416) --
Net income................. 7,577 -- -- -- -- 7,577 -- $ 7,577
Foreign currency
translation adjustment... (1,573) -- -- -- (1,573) -- -- (1,573)
---------
Comprehensive income....... -- -- -- -- -- -- -- $ 6,004
---------
---------
NOL utilization, net....... 5,009 -- -- 5,009 -- -- --
Common stock issued under
stock option plans....... 427 1 -- 426 -- -- --
-------- ---- ------ -------- ------- -------- --------
Balance, December 31, 1997... 95,323 96 2,154 87,107 (195) 6,161 --
Net income................. 12,315 -- -- -- -- 12,315 -- $ 12,315
Foreign currency
translation adjustment... (1,627) -- -- -- (1,627) -- -- (1,627)
---------
Comprehensive income....... -- -- -- -- -- -- -- $ 10,688
---------
---------
NOL utilization, net....... 4,770 -- -- 4,770 -- -- --
Issuance of common stock... 22,485 11 -- 22,474 -- -- --
Common stock issued under
stock option plans....... 518 2 -- 516 -- -- --......
Treasury stock
repurchased.............. (13,968) -- -- -- -- -- (13,968)
-------- ---- ------ -------- ------- -------- --------
Balance, December 31, 1998... $119,816 $109 $2,154 $114,867 $(1,822) $ 18,476 $(13,968)
-------- ---- ------ -------- ------- -------- --------
-------- ---- ------ -------- ------- -------- --------
</TABLE>
- ------------------
(1) Represents cumulative foreign currency translation adjustments.
The accompanying notes to consolidated financial statements are an integral part
of these statements.
25
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--NATURE OF OPERATIONS
EMCOR Group, Inc. ("EMCOR" or the "Company") is the largest mechanical and
electrical construction and facilities services firm in the United States and
Canada and one of the largest in the United Kingdom. The Company specializes in
the design, integration, installation and start-up of: (i) distribution systems
for electrical power (including power cables, conduits, distribution panels,
transformers, generators, uninterruptible power supply systems and related
switch gear and controls); (ii) lighting systems, including fixtures and
controls; (iii) low-voltage systems, including fire alarm, security and process
control systems; (iv) voice and data communications systems, including
fiber-optic and low voltage copper cabling; (v) heating, ventilation, air
conditioning, refrigeration and clean room process ventilation systems; and
(vi) plumbing, process and high-purity piping systems. EMCOR provides mechanical
and electrical construction services and facilities services directly to
corporations, municipalities and other governmental entities, owners/developers,
and tenants of buildings and, indirectly, by acting as a subcontractor to
construction managers, general contractors, systems suppliers and other
subcontractors. Mechanical and electrical construction services often fall into
one of two categories: (i) large installation projects with contracts often in
the multi-million dollar range and (ii) smaller installation projects typically
involving fit-out renovation and retrofit work. In addition, the Company also
provides services required to support customer's facilities. These services,
frequently referred to as facilities services, include customer-based operations
and maintenance, mobile maintenance and service, small modification and retrofit
projects, consulting, program development and management for energy systems and
maintenance activities. These services are provided to a wide range of
commercial, industrial, and institutional buildings, including facilities for
which the Company provided construction services and for which construction
services were provided by others. Facilities services are frequently bundled to
provide integrated service packages and include services in addition to the
Company's core mechanical and electrical services.
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated.
Principles of Preparation
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Reclassifications of prior years data have been made in the accompanying
consolidated financial statements where appropriate to conform to the current
presentation.
Revenue Recognition
Revenues from long-term contracts are recognized on the
percentage-of-completion method. Percentage-of-completion is measured
principally by the percentage of costs incurred and accrued to date for each
contract to the estimated total costs for each contract at completion. Certain
of the Company's electrical contracting business units measure
percentage-of-completion by the percentage of labor costs incurred to date for
each contract to the estimated total labor costs for such contract.
Provisions for estimated losses on uncompleted contracts are made in the
period in which such losses are determined. In forecasting ultimate
profitability on certain contracts, estimated recoveries are included for work
performed under customer change orders to contracts for which firm prices have
not yet been negotiated. Due to
26
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
uncertainties inherent in the estimation process, it is reasonably possible that
completion costs, including those arising from contract penalty provisions and
final contract settlements, will be revised in the near-term. Such revisions to
costs and income are recognized in the period in which the revisions are
determined.
Costs and Estimated Earnings on Uncompleted Contracts
Costs and estimated earnings in excess of billings on uncompleted contracts
arise when revenues have been recorded but the amounts cannot be billed under
the terms of the contracts. Such amounts are recoverable from customers upon
various measures of performance, including achievement of certain milestones,
completion of specified units or completion of the contract.
Also included in costs and estimated earnings on uncompleted contracts are
amounts the Company seeks or will seek to collect from customers or others for
errors or changes in contract specifications or design, contract change orders
in dispute or unapproved as to both scope and price, or other customer-related
causes of unanticipated additional contract costs (claims and pending change
orders). These amounts are recorded at their estimated net realizable value when
realization is probable and can be reasonably estimated. No profit is recognized
on the construction costs incurred in connection with these amounts. Pending
change orders involve the use of estimates and it is reasonably possible that
revisions to the estimated recoverable amounts of recorded pending change orders
may be made in the near-term. Claims made by the Company involve negotiation
and, in certain cases, litigation. The Company expenses such costs as incurred,
although it may seek to recover these costs as part of the claim. The Company
believes that it has established legal bases for pursuing recovery of recorded
claims and it is management's intention to pursue and litigate these claims, if
necessary, until a decision or settlement is reached. Claims also involve the
use of estimates and it is reasonably possible that revisions to the estimated
recoverable amounts of recorded claims may be made in the near-term. Claims
against the Company are recognized when a loss is considered probable and
amounts are reasonably determinable.
Costs and estimated earnings on uncompleted contracts and related amounts
billed as of December 31, 1998 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Costs incurred on uncompleted contracts................................ $2,737,507 $2,282,127
Estimated earnings..................................................... 202,211 158,832
---------- ----------
2,939,718 2,440,959
Less: billings to date................................................. 2,983,243 2,479,998
---------- ----------
$ (43,525) $ (39,039)
---------- ----------
---------- ----------
</TABLE>
Such amounts are included in the accompanying Consolidated Balance Sheets
at December 31, 1998 and 1997 under the following captions (in thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Costs and estimated earnings in excess of billings on uncompleted
contracts.............................................................. $ 91,569 $ 73,794
Billings in excess of costs and estimated earnings on uncompleted
contracts.............................................................. (135,094) (112,833)
--------- ---------
$ (43,525) $ (39,039)
--------- ---------
--------- ---------
</TABLE>
27
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
As of December 31, 1998 costs and estimated earnings in excess of billings
on uncompleted contracts included unbilled revenues for pending change orders of
approximately $17.3 million and claims of approximately $8.0 million. In
addition, accounts receivable as of December 31, 1998 includes claims and
contractually billed amounts related to such contracts of approximately
$29.0 million. Claims and related amounts, included in accounts receivable,
aggregated approximately $44.5 million as of December 31, 1997. Generally,
contractually billed amounts will not be paid by the customer to the Company
until final resolution of related claims.
Classification of Contract Amounts
In accordance with industry practice, the Company classifies as current all
assets and liabilities related to the performance of long-term contracts. The
contracting cycle for certain long-term contracts may extend beyond one year
and, accordingly, collection or payment of amounts related to these contracts
may extend beyond one year. Accounts receivable at December 31, 1998 and 1997
included $91.6 million and $88.2 million, respectively, of retainage billed
under terms of the contracts. The Company estimates that approximately 85% of
retainage recorded at December 31, 1998 will be collected during 1999.
Cash and Cash Equivalents
For purposes of the consolidated financial statements, the Company
considers all highly liquid instruments with original maturities of three months
or less to be cash equivalents. The Company maintains a centralized cash
management program whereby its excess cash balances are invested in high
quality, short-term, money market instruments which are considered cash
equivalents. At times, cash balances in the Company's bank accounts may exceed
federally insured limits.
Inventories
Inventories, which consist primarily of construction materials, are stated
at the lower of cost or market. Cost is determined principally using average
cost.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation is recorded
principally using the straight-line method over estimated useful lives ranging
from 3 to 40 years.
Property, plant and equipment in the accompanying Consolidated Balance
Sheets consisted of the following amounts as of December 31, 1998 and 1997 (in
thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Machinery and equipment..................................................... $ 33,894 $ 24,824
Furniture and fixtures...................................................... 6,953 5,728
Land, buildings and leasehold improvements.................................. 15,566 13,758
-------- --------
56,413 44,310
Accumulated depreciation and amortization................................... (24,315) (17,146)
-------- --------
$ 32,098 $ 27,164
-------- --------
-------- --------
</TABLE>
28
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Other Assets
Other assets at December 31, 1998 primarily consists of approximately
$22.8 million of the excess of cost over fair market value of net identifiable
assets ("Goodwill") of companies acquired in purchase transactions.
Additionally, approximately $4.7 million of debt issuance costs incurred in
connection with the Company's offering of its 5.75% Convertible Subordinated
Notes (hereafter discussed) are included in Other assets. Other assets at
December 31, 1997 included approximately $1.0 million of Goodwill and
$0.3 million of debt issuance costs. Goodwill is being amortized using the
straight-line method over periods ranging from 5 to 15 year periods. Debt
issuance costs are amortized using the effective interest method.
At the end of each quarter, the Company reviews events and changes in
circumstances to determine whether the recoverability of the carrying value of
Goodwill should be reassessed. Should events or circumstances indicate that the
carrying value may not be recoverable based on undiscounted future cash flows,
an impairment loss measured by the difference between the discounted future cash
flows (or another acceptable method for determining fair value) and the carrying
value of Goodwill would be recognized by the Company.
Fair Value of Financial Instruments
The Company's financial instruments include accounts receivable,
investments, notes and other long-term receivables, long-term debt (excluding
the Company's Series C Notes), foreign currency contracts and other financing
commitments whose carrying values approximate their fair values.
At December 31, 1998, the fair value of the Company's 5.75% Convertible
Subordinated Notes was $98.0 million compared to the carrying value of
$115.0 million. The fair value was estimated based on quoted market prices and
market interest rates as of December 31, 1998.
Foreign Operations
The financial statements and transactions of the Company's foreign
subsidiaries are maintained in their functional currency and translated into
U.S. dollars in accordance with Statement of Financial Accounting Standards
No. 52, "Foreign Currency Translation". Translation adjustments have been
accumulated as a separate component of stockholders' equity.
Other Income
Other income in the accompanying Consolidated Statement of Operations for
the year ended December 31, 1996 includes a pre-tax gain of $12.5 million
($8.1 million after-tax) on the sale of certain assets held for sale, including
the sale of substantially all of the assets of the Company's principal water
supply subsidiary Jamaica Water Supply Company ("JWS"). JWS and the Company's
other water supply subsidiary, Sea Cliff Water Company ("Sea Cliff"), are
referred to hereafter as the "Water Companies."
Income Taxes
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 requires an asset and liability approach which
requires the recognition of deferred tax assets and deferred tax liabilities for
the expected future tax consequences of temporary differences between the
carrying amounts and the tax bases of assets and liabilities. Valuation
allowances are established when necessary to reduce net deferred tax assets to
the amount expected to be realized.
29
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Foreign Exchange Contracts
Gains and losses on contracts designated as hedges of net investments in
foreign subsidiaries are recognized in the Consolidated Statements of
Stockholders' Equity and Comprehensive Income as a component of Accumulated
other comprehensive income.
As of December 31, 1998, the Company had one forward contract that is
designated as, and is effective as, an economic hedge of a net investment in a
foreign entity. The amount of this forward contract is not material to the
Consolidated Financial Statements.
Valuation of Stock Option Grants
The Company accounts for its stock option plans under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). See
Note I for pro forma information relating to treatment of the Company's stock
option plans under Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123").
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133" or the "Statement"), which establishes
accounting and reporting standards requiring derivative instruments, as defined,
to be measured in the financial statements at fair value. The Statement also
requires that changes in the derivatives' fair value be recognized currently in
earnings unless certain accounting criteria are met. SFAS 133 is effective for
fiscal years beginning after June 15, 1999 and cannot be applied retroactively.
The Company currently has one forward exchange contract which is designated as a
hedge against intercompany loans to the Company's U.K. subsidiary. The Company
does not expect the provisions of SFAS 133 to have a significant effect on the
current forward exchange contract or on the financial condition or results of
operations of the Company.
NOTE C--ACQUISITIONS OF BUSINESSES
During 1998, the Company acquired ten businesses for an aggregate purchase
price of $36.8 million, $28.5 million of which was paid in cash, and
$8.3 million was paid in notes made by the Company. These acquisitions were
accounted for by the purchase method, and the purchase price has been allocated
to the assets acquired and liabilities assumed, based upon the estimated fair
values at the dates of acquisition. Goodwill, representing the excess purchase
price over the fair value of amounts assigned to the net tangible assets
acquired, was $21.8 million for all 1998 acquisitions and will be amortized over
15 years. Amortization expense for the year ended December 31, 1998 was
$0.7 million. The Company recorded Goodwill of approximately $1.0 million in
1997 and an additional $0.5 million in 1998, for an acquisition in the fourth
quarter of 1997. The pro forma effect on the Company's net income and earnings
per share for 1998 and 1997 is not material.
30
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE D--EARNINGS PER SHARE
The following tables summarize the Company's calculation of Basic and
Diluted Earnings per Share ("EPS") for the years ended December 31, 1998, 1997
and 1996:
<TABLE>
<CAPTION>
INCOME SHARES PER SHARE
1998 (NUMERATOR) (DENOMINATOR) AMOUNT
- -------------------------------------------------------------- ----------- ------------- ---------
<S> <C> <C> <C>
BASIC EPS
Income before extraordinary item available to common
stockholders................................................ $17,092,000 10,232,527 $1.67
-----
-----
EFFECT OF DILUTIVE SECURITIES
Convertible Subordinated Notes including assumed interest
savings..................................................... 2,785,000 2,952,672
Options....................................................... -- 215,531
Warrants...................................................... -- 228,995
----------- -----------
DILUTED EPS................................................... $19,877,000 13,629,725 $1.46
----------- ----------- -----
----------- ----------- -----
</TABLE>
<TABLE>
<CAPTION>
INCOME SHARES PER SHARE
1997 (NUMERATOR) (DENOMINATOR) AMOUNT
- --------------------------------------------------------------- ----------- ------------- ---------
<S> <C> <C> <C>
BASIC EPS
Income before extraordinary item available to common
stockholders................................................. $ 8,581,000 9,547,869 $0.90
-----
-----
EFFECT OF DILUTIVE SECURITIES
Options...................................................... -- 305,336
Warrants..................................................... -- 321,690
----------- -----------
DILUTED EPS.................................................... $ 8,581,000 10,174,895 $0.84
----------- ----------- -----
----------- ----------- -----
</TABLE>
<TABLE>
<CAPTION>
INCOME SHARES PER SHARE
1996 (NUMERATOR) (DENOMINATOR) AMOUNT
- --------------------------------------------------------------- ----------- ------------- ---------
<S> <C> <C> <C>
BASIC EPS
Income before extraordinary item available to common
stockholders................................................. $ 9,437,000 9,479,817 $1.00
-----
-----
EFFECT OF DILUTIVE SECURITIES
Options...................................................... -- 276,960
Warrants..................................................... -- 54,226
----------- -----------
DILUTED EPS.................................................... $ 9,437,000 9,811,003 $0.96
----------- ----------- -----
----------- ----------- -----
</TABLE>
The number of the Company's warrants and options granted, which were
excluded from the computation of Diluted EPS for the years ended December 31,
1998, 1997 and 1996 because they would be antidilutive, is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Series Y..................................................... -- -- 605,000
Options...................................................... 306,785 -- 33,000
------- ------- -------
Total........................................................ 306,785 -- 638,000
------- ------- -------
------- ------- -------
</TABLE>
31
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE E--CURRENT DEBT
1998 Credit Facility
On December 22, 1998 the Company and certain of its subsidiaries amended
the June 19, 1996 credit agreement with Harris Trust and Savings Bank ("Harris")
providing the Company with a working capital credit facility (the "1998 Credit
Facility") for borrowings of up to $150.0 million. The 1998 Credit Facility,
which has an expiration date of June 30, 2002, is guaranteed by certain direct
and indirect subsidiaries of the Company. It is secured by substantially all of
the assets of the Company and those subsidiaries and it provides for borrowing
capacity available in the form of revolving loans ("Revolving Loans") and/or
letters of credit ("LCs"). The Revolving Loans bear interest at a rate which is
the prime commercial lending rate announced by Harris from time to time (7.75%
at December 31, 1998) plus 0% to 0.5%, based on certain financial tests, for
Domestic Rate Loans, as defined. Eurodollar Loans, as defined, bear interest at
a variable rate which is LIBOR as published from time to time (5.08% at
December 31, 1998) plus 1.25% to 2.0% based on certain financial tests. The
interest rates for Domestic Rate Loans and Eurodollar Loans, as defined, at
December 31, 1998 were 7.75% and 6.58%, respectively. LC fees ranging from 0.5%
to 2.0% are charged based on type of LC issued and certain financial tests.
As of December 31, 1998, the Company had approximately $30.2 million of LCs
and no Revolving Loans outstanding under the 1998 Credit Facility.
1996 Credit Facility
On June 19, 1996, the Company and its subsidiary Dyn Specialty Contracting
Inc. ("Dyn") entered into a credit agreement with Harris providing the Company
with a working capital credit facility for borrowings up to $100.0 million for a
three-year period (the "1996 Credit Facility"). The 1996 Credit Facility, as
amended, which was guaranteed by certain direct and indirect subsidiaries of the
Company and was secured by substantially all of the assets of the Company and
those subsidiaries, provided for borrowing capacity available in the form of
Revolving Loans and/or LCs. The Revolving Loans bore interest at a variable
rate, which was the prime commercial lending rate announced by Harris from time
to time (8.5% at December 31, 1997) plus 1.0% to 2.0% based on certain financial
tests. The interest rate on the Revolving Loans was 9.5% at December 31, 1997.
LC fees ranging from 1.50% to 3.25% were charged based on the type of LC issued.
As of December 31, 1997, the Company had approximately $25.7 million of LCs and
approximately $9.5 million of Revolving Loans outstanding under the 1996 Credit
Facility which are classified as Current Liabilities under the caption
"Borrowings under working capital credit lines" in the accompanying Consolidated
Balance Sheets.
MES and Dyn Credit Agreements
On December 14, 1994, the Company and certain of its subsidiaries entered
into two credit agreements (the "1994 Credit Agreements") with Belmont Capital
Partners II, L.P. ("Belmont"), certain directors of the Company and/or their
affiliates and other lenders (the "Lenders") providing the Company and its
subsidiaries MES Holdings Corporation ("MES") and certain of its other
subsidiaries with working capital facilities of up to an aggregate amount of
$45.0 million. The loans bore interest on the principal amount thereof at the
rate of 15.0% per annum.
Borrowings outstanding under the 1994 Credit Agreements were repaid in June
1996 from proceeds received by the Company from the sale of the Water Companies
and from borrowings under the 1996 Credit Facility at which time the 1994 Credit
Agreements were terminated.
32
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE E--CURRENT DEBT--(CONTINUED)
Series A Notes
On December 15, 1994 the Company issued or reserved for issuance
approximately $62.2 million principal amount of Series A Notes and reserved for
issuance up to a maximum of $8.8 million additional principal amount of Series A
Notes upon resolution of disputed and unliquidated pre-petition general
unsecured claims. Approximately $4.7 million of the outstanding Series A Notes
were redeemed in 1995 and the balance of the Series A Notes were paid in full
during the second quarter of 1996 (approximately $66.5 million in principal and
accrued interest thereon) with proceeds received by the Company from the sale of
the Water Companies.
Foreign Borrowings
In October 1997, the Company's Canadian subsidiary, Comstock Canada Ltd.,
renewed a credit agreement with a bank providing for an overdraft facility of up
to Cdn. $0.5 million. The facility is secured by a standby letter of credit and
provides for interest at the bank's prime rate (6.75% at December 31, 1998).
There were no borrowings outstanding under this facility at December 31, 1998
and 1997. The Canadian subsidiary may utilize the Company's revolving credit
facility for any future working capital requirements.
NOTE F--LONG-TERM DEBT
Long-term debt in the accompanying Consolidated Balance Sheets consist of
the following amounts as of December 31, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Convertible Subordinated Notes at 5.75% due 2005........................................... $115,000 --
Series C Notes, outstanding face value of approximately $61.9 million, at 11.0% discounted
to a 14% effective rate, due 2001........................................................ -- $56,290
Supplemental SellCo Note, outstanding face value of approximately $5.5 million at 8.0%,
discounted to a 14.0% effective rate, due 2004........................................... -- 4,733
Notes Payable at 6.0%, $1.0 million due 1999, $1.15 million due 2000....................... 2,150 --
Note Payable, due 1999..................................................................... 6,164 --
Capitalized Lease Obligations at weighted average interest rates from 1.9% to 12.0%,
payable in varying amounts through 2002.................................................. 837 1,482
Other, at weighted average interest rates of approximately 9.6%, payable in varying amounts
through 2012............................................................................. 1,086 1,634
-------- -------
125,237 64,139
Less: current maturities................................................................. (7,963) (927)
-------- -------
$117,274 $63,212
-------- -------
-------- -------
</TABLE>
Convertible Subordinated Notes
On March 18, 1998, the Company sold, pursuant to an underwritten public
offering, $100.0 million principal amount of 5.75% Convertible Subordinated
Notes ("Subordinated Notes"). On March 24, 1998, the underwriter of the
Subordinated Notes offering exercised in full its over-allotment option to
purchase an additional $15.0 million of Subordinated Notes, and accordingly,
Subordinated Notes in the additional principal amount of $15.0 million were
issued. The Subordinated Notes will mature on April 2005 and are general,
unsecured obligations of the Company, subordinated in right to all existing and
future Senior Indebtedness (as defined in the indenture pursuant to which
Subordinated Notes were issued (the "Subordinated Indenture") of the Company.
33
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE F--LONG-TERM DEBT--(CONTINUED)
The Subordinated Indenture does not contain any financial covenants or any
restrictions on the payment of dividends, the repurchase of securities of the
Company or the incurrence of Indebtedness (as defined in the Subordinated
Indenture) or Senior Indebtedness. Holders of the Subordinated Notes have the
right at any time to convert the Subordinated Notes into Common Stock of the
Company at conversion price of $27.34 per share.
Series C Notes
On December 15, 1994 the Company issued approximately $62.8 million
principal amount of Series C Notes. Interest on the Series C Notes was payable
semiannually through June 15, 1996 by the issuance of additional Series C Notes
and was thereafter payable quarterly in cash until redemption. The Series C
Notes were unsecured indebtedness of the Company and were subordinate to
indebtedness under the Company's 1996 Credit Facility. The Series C Notes have
been recorded at a discount to their face amount to yield an estimated effective
interest rate of 14.0%.
On June 3, 1997, the Company purchased $1.0 million of Series C Notes and
retired such notes. On June 27, 1997, the Company called for the partial
redemption of approximately $10.9 million principal amount of Series C Notes. In
accordance with the Indenture governing the Series C Notes, the redemption price
of the Series C Notes was 105% of the principal amount redeemed. Accordingly,
the Company recorded an extraordinary loss of approximately $1.0 million related
to the early retirement of debt. The extraordinary loss consisted primarily of
the write-off of the associated debt discount plus premiums and costs associated
with the redemption, net of income tax benefits of approximately $0.7 million.
On March 18, 1998, the Company called for redemption of approximately
$61.9 million principal amount of Series C Notes and irrevocably funded such
amounts, together with a redemption premium, with the trustee of the Series C
Notes. In accordance with the Indenture governing the Series C Notes, the
redemption price of the Series C Notes was 104% of the principal amount
redeemed. Accordingly, the Company recorded an extraordinary loss of
$4.8 million net of income taxes related to the early retirement of debt. The
extraordinary loss consisted primarily of the write-off of the associated debt
discount plus the redemption premium and costs associated with the redemption,
net of income tax benefits.
Supplemental SellCo Note
On December 15, 1994, the Company issued to its wholly-owned subsidiary
SellCo Corporation ("SellCo") its 8.0% promissory note in the principal amount
of approximately $5.5 million (the "Supplemental SellCo Note"). The Supplemental
Sellco Note provided that it matured on the earlier of (i) December 15, 2004 or
(ii) one day prior to the date on which the SellCo Notes (hereafter defined) are
deemed canceled. The Supplemental SellCo Note was recorded at a discount to its
face amount to yield an estimated effective interest rate of 14.0%.
The Company prepaid in full, including accrued interest thereon, the
Supplemental SellCo Note during June 1998.
SellCo Notes
On December 15, 1994, SellCo issued approximately $48.1 million principal
amount of 12.0% Subordinated Contingent Payments Notes, due 2004, (the "SellCo
Notes"). Interest is payable semiannually in additional SellCo Notes. Net Cash
Proceeds (as defined in the Indenture pursuant to which the SellCo Notes were
issued) from the sales of stock or assets of SellCo subsidiaries are to be used
to redeem SellCo Notes. The SellCo Notes are not obligations of EMCOR and
accordingly are not included in the accompanying Consolidated Balance
34
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE F--LONG-TERM DEBT--(CONTINUED)
Sheets as of December 31, 1998 and 1997. In May 1996, the Company completed the
sale of substantially all of the assets of its subsidiary JWS to the City of New
York and the Water Authority of Western Nassau County. In May 1996, the Company
also completed the sale of the stock of its subsidiary Sea Cliff to a subsidiary
of Aquarion Company. Approximately $2.1 and $0.7 million of the proceeds from
the sale of the stock of Sea Cliff and the sale of assets of JWS, respectively,
were used to redeem, in part, the SellCo Notes during August 1996. On
February 28, 1997, the Company redeemed approximately $6.6 million of SellCo
Notes with proceeds from the sale of assets of JWS which monies had been
retained pending disposition of the lawsuit brought by certain holders of
Warrants of Participation that had been issued by the Company prior to its
Chapter 11 proceedings. On June 22, 1998, the Company redeemed approximately
$9.1 million of SellCo Notes with proceeds from the prepayment by EMCOR of the
Supplemental SellCo Note (approximately $7.2 million) as well as proceeds from
the previously reported sales that were either held in escrow or received
pursuant to deferred payment arrangements. As the liabilities of JWS are finally
determined, JWS' various contingent liabilities are resolved, funds held in
escrow under the sales agreement (the "Sales Agreement") for the sale of assets
of JWS are released, and post closing adjustments under the Sales Agreement are
agreed upon, additional amounts of the sales proceeds may become available, from
time to time, for additional redemptions of the SellCo Notes. The SellCo Notes
mature on December 15, 2004 if not deemed canceled at an earlier date as
discussed above under Supplemental SellCo Note.
Notes Payable for Acquisitions
In 1998, the Company issued notes in connection with the acquisition of two
companies. One note, issued in August 1998, requires a principal payment of
$1.0 million in August 1999 and $1.15 million in August 2000; interest is
payable together with each principal payment. The other note, issued in the
principal amount of $6.2 million in December 1998 was paid in January 1999.
Other Long-Term Debt
Other long-term debt consists primarily of loans for real estate, office
equipment, automobiles and building improvements. As of December 31, 1998 and
1997, respectively, other long-term debt, excluding current maturities, totaling
$1.1 million and $1.6 million was owed by certain of the Company's subsidiaries.
The aggregate amount of other long-term debt maturing during the next five years
is approximately: $0.2 million in 1999, $0.2 million in 2000, $0.1 million in
2001, $0.05 million in each of 2002 and 2003, and $0.5 million thereafter.
NOTE G--INCOME TAXES
The Company files a consolidated federal income tax return including all
its U.S. subsidiaries. At December 31, 1998, the Company had net operating loss
carryforwards ("NOLs") for U.S. income tax purposes of approximately
$150.0 million, which expire in the years 2007 through 2012. The NOLs are
subject to review by the Internal Revenue Service. Future changes in ownership
of the Company, as defined by Section 382 of the Internal Revenue Code, could
limit the amount of NOLs available for use in any one year.
The Company adopted Fresh-Start Accounting in connection with the Company's
reorganization in December, 1994. As a result, the tax benefit of any net
operating loss carryforwards or net deductible temporary differences which
existed as of December 15, 1994 will result in a charge to the tax provision
(provision in lieu of income taxes) and be allocated to reorganization value in
excess of amounts allocable to identifiable assets established in connection
with the Company's emergence from bankruptcy and to capital surplus. For the
year ended December 31, 1996 the Company allocated approximately $4.5 million of
its tax provision to
35
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE G--INCOME TAXES--(CONTINUED)
reorganization value in excess of amounts allocable to identifiable assets
thereby reducing this balance to zero. The remaining utilization of NOLs and
other deferred tax assets, approximately $8.2 million and $5.6 million for the
years ended December 31, 1998 and 1997, respectively, have been applied to
capital surplus for the years then ended.
The income tax provision in the accompanying Consolidated Statements of
Operations for the years ended December 31, 1998, 1997 and 1996 consists of (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Current:
Federal................................................................. $ 8,860 $5,508 $6,068
State and local......................................................... 1,628 1,055 760
Foreign................................................................. 2,161 1,418 703
------- ------ ------
12,649 7,981 7,531
Deferred:
Foreign................................................................. -- (1,100) --
------- ------ ------
$12,649 $6,881 $7,531
------- ------ ------
------- ------ ------
</TABLE>
Factors accounting for the variation from U.S. statutory income tax rates
relating to continuing operations for the years ended December 31, 1998, 1997
and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Federal income taxes at the statutory rate................................ $10,409 $5,412 $5,939
State and local income taxes, net of federal tax benefits................. 1,058 686 494
Foreign income taxes...................................................... 1,247 1,630 1,094
Other..................................................................... (65) (847) 4
------- ------ ------
$12,649 $6,881 $7,531
------- ------ ------
------- ------ ------
</TABLE>
The components of the net deferred income tax asset included in "Other
Assets" in the accompanying Consolidated Balance Sheets for the years ended
December 31, 1998 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward........................................ $ 57,998 $ 63,241
Excess of amounts expensed for financial statement purposes over
amounts deducted for income tax purposes............................. 30,177 29,975
Other.................................................................. 2,899 2,899
-------- --------
Total deferred tax asset............................................... 91,074 96,115
-------- --------
Deferred tax liabilities:
Costs capitalized for financial statement purposes and deducted for
income tax purposes.................................................. 17,823 17,799
-------- --------
Total deferred tax liability........................................... 17,823 17,799
-------- --------
Net deferred tax asset before valuation allowance...................... 73,251 78,316
Valuation allowance for net deferred tax asset......................... (72,151) (77,216)
-------- --------
Net deferred tax asset................................................. $ 1,100 $ 1,100
-------- --------
-------- --------
</TABLE>
36
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE G--INCOME TAXES--(CONTINUED)
Income (loss) before income taxes and extraordinary items for the years
ended December 31, 1998, 1997 and 1996 consists of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
United States........................................................... $27,130 $19,207 $18,086
Foreign................................................................. 2,611 (3,745) (1,118)
------- ------- -------
$29,741 $15,462 $16,968
------- ------- -------
------- ------- -------
</TABLE>
NOTE H--COMMON STOCK
On March 18, 1998, the Company sold, pursuant to an underwritten public
offering, 1,100,000 of its Common Stock at a price of $21.875 per share. The
proceeds of the offering, together with the proceeds of the Subordinated Notes
public offering, will be used for general corporate purposes and possible
acquisitions. Following the public offerings, proceeds were used to repay the
Company's Series C Notes, the Company's Supplemental SellCo Note and the
Company's working capital credit facility.
As part of a program previously authorized by the Board of Directors, the
Company purchased 957,900 shares of its Common Stock during the third and fourth
quarters of 1998. The aggregate amount of $14.0 million paid for those shares
has been classified as "Treasury Stock, at Cost" in the Consolidated Balance
Sheet at December 31, 1998.
NOTE I--STOCK OPTIONS AND WARRANTS
1994 MANAGEMENT STOCK OPTION PLAN
On December 15, 1994, the Company adopted a Management Stock Option Plan
(the "1994 Plan"), which was approved by the stockholders of the Company.
The aggregate number of shares of Common Stock that may be issued pursuant
to options under the 1994 Plan may not exceed 1,000,000 shares. The maximum
number of shares which may be the subject of options granted to any individual
in any calendar year may not exceed 500,000 shares. Options may be granted by
the Compensation Committee (the "Committee") of the Board of Directors to
eligible employees as incentive stock options or as non- qualified stock
options. The exercise price of an incentive stock option and a non-qualified
stock option must be at least equal to the fair market value of the Common Stock
on the date of grant.
Such Options may not be exercised more than ten years after the date of
grant. Options may be exercisable at such rate and times as may be fixed by the
Committee on the date of grant; however, the rate at which the Option first
becomes exercisable may not be more rapid than 33 1/3% on each of the first,
second and third anniversaries, unless the Committee otherwise determines at the
time of grant of such Option.
1995 NON-EMPLOYEE DIRECTORS' NON-QUALIFIED STOCK OPTION PLAN
On March 20, 1995, the Company adopted the 1995 Non-Employee Directors'
Non-Qualified Stock Option Plan (the "1995 Plan"), which was approved by the
stockholders of the Company.
The 1995 Plan provides for automatic grants of non-qualified stock options
to directors of the Company who are not also employees of the Company or a
subsidiary of the Company. Pursuant to the 1995 Plan, each non-employee director
on March 20, 1995 was granted an option to purchase 7,500 shares of Common Stock
at an exercise price of $5.13 per share. Under the 1995 Plan, each person who is
elected to serve as a non-employee director after March 20, 1995 (including
those persons who were non-employee directors on March 20, 1995) is to be
granted an option during each calendar year (beginning with 1995) to purchase
3,000 shares of Common Stock. Accordingly on June 14, 1996, June 20, 1997 and
June 19, 1998 each non-employee director was granted an option to purchase 3,000
shares of Common Stock at an exercise price of $17.12, $16.31 and $19.63 per
share, respectively.
37
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE I--STOCK OPTIONS AND WARRANTS--(CONTINUED)
The exercise price of an option granted under the 1995 Plan is equal to the
fair market value of the Common Stock on the date of grant. Such options are
fully exercisable as of the date of grant. However, no option may be exercised
more than ten years after the date of grant. The aggregate number of shares of
Common Stock that may be issued pursuant to options under the 1995 Plan may not
exceed 200,000 shares and no options may be granted after March 20, 2005.
1997 NON-EMPLOYEE DIRECTORS' NON QUALIFIED STOCK OPTION PLAN
On December 17, 1997, the Board of Directors adopted the 1997 Non-employee
Directors' Non-Qualified Stock Option Plan (the "1997 Directors' Stock Option
Plan"), which was approved by stockholders of the Company.
The 1997 Directors' Stock Option Plan provides, generally, that each
non-employee director (a "Director") may elect prior to the first day of each
calendar year, commencing with the 1998 calendar year, to receive one-third or
two-thirds (each, a "Portion") or all of his annual retainer in the form of
options to purchase shares of the Company's Common Stock. The number of options
to be issued in respect of a Director's annual retainer for a calendar year
shall be determined by dividing the amount of the annual cash retainer to be
converted into options by the value on the Issue Date (as hereafter defined) of
an option to purchase one share. If a Director elects to receive options in lieu
of all or a Portion of his annual cash retainer for a calendar year, the Company
shall also issue to that Director like options for an additional number of
shares equal to the product of 0.5 times the amount of options otherwise issued
to him as a result of such election.
The per share exercise price of an option granted under the 1997 Directors'
Stock Option Plan in respect of a calendar year is equal to the fair market
value of a share of Common Stock (a) on the first business day of such calendar
year with respect to options issued to individuals who are serving as Directors
on such date and (b) on the date of election to the Board of Directors of an
individual who is not a Director as of the first day of a calendar year but who
becomes a Director during the course of such calendar year ("New Director") with
respect to options issued to him (each such date, an "Issue Date"). No option
may be exercised more than five years after the date of issuance.
The aggregate number of shares of Common Stock that may be issued pursuant
to options under the 1997 Directors' Option Plan may not exceed 300,000.
Options to purchase 30,370 shares at $20.00 were granted in January 1998,
and options to purchase an additional 5,415 shares were granted in June 1998 at
$19.63 per share pursuant to the 1997 Directors' Stock Option Plan.
1997 STOCK PLAN FOR DIRECTORS
On December 17, 1997, the Board of Directors adopted the 1997 Stock Plan
for Directors (the "1997 Directors' Stock Plan"), which was approved by
stockholders of the Company.
The 1997 Directors' Stock Plan provides, generally, that each Director may
elect prior to the first day of each calendar year, commencing with 1998, to
receive one-third or two-thirds (each, a "Portion") or all of his annual
retainer in the form of Deferred Stock Units in respect of which shares of the
Company's Common Stock will be issued. The number of Deferred Stock Units to be
issued in respect of a Director's annual retainer for a calendar year,
generally, is to be determined by dividing the amount of the annual cash
retainer to be converted into Deferred Stock Units, by the fair market value of
a share of Common Stock as of the close of business on the first business day of
the applicable calendar year. In addition, if a Director elects to receive
Deferred Stock Units in lieu of all or a Portion of his annual cash retainer for
a calendar year the Company shall also issue to that Director additional
Deferred Stock Units equal to the product of 0.2 times the amount of the
Deferred Stock Units otherwise issued to him as a result of such election.
38
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE I--STOCK OPTIONS AND WARRANTS--(CONTINUED)
The following table summarizes the Company's stock option activity since
December 31, 1995.
<TABLE>
<CAPTION>
1997 DIRECTORS'
STOCK 1997 DIRECTORS'
1994 PLAN 1995 PLAN OPTION PLAN STOCK PLAN
------------------- ------------------ ---------------- ----------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
-------- -------- ------- -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1995.............. 715,000 $ 5.10 63,000 $ 6.34 -- -- -- --
Granted.............................. 15,000 $ 14.90 18,000 $17.13 -- -- -- --
Forfeited............................ (40,334) $ 5.13 -- -- -- -- -- --
Exercised............................ (61,430) $ 5.13 (28,500) $ 6.02 -- -- -- --
-------- ------- ------ ------
Balance December 31, 1996.............. 628,236 $ 5.33 52,500 $10.21 -- -- -- --
Granted.............................. 366,000 $ 19.82 18,000 $16.31 -- -- -- --
Forfeited............................ (2,668) $ 5.13 -- -- -- -- -- --
Exercised............................ (73,191) $ 5.13 (3,000) $17.13 -- -- -- --
-------- ------- ------ ------
Balance December 31, 1997.............. 918,377 $ 11.12 67,500 $11.53 -- -- -- --
Granted.............................. 90,000 $ 20.06 18,000 $19.63 35,785 $19.94 1,800 $20.00
Forfeited............................ (205,000) $ 19.73 -- -- -- -- -- --
Exercised............................ (81,676) $ 5.29 -- -- -- -- -- --
-------- ------- ------ ------
Balance December 31, 1998.............. 721,701 $ 10.44 85,500 $13.24 35,785 $19.94 1,800 $20.00
-------- ------- ------ ------
-------- ------- ------ ------
</TABLE>
At December 31, 1998, 1997 and 1996, approximately 642,000, 386,000 and
208,000 options were exercisable, respectively. The weighted average exercise
price of exercisable options at December 31, 1998, 1997 and 1996 was
approximately $8.43, $6.46 and $6.33, respectively.
The following table summarizes information about the Company's stock
options at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- -------------------------------
RANGE OF WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
EXERCISE PRICES NUMBER REMAINING LIFE EXERCISE PRICE NUMBER EXERCISE PRICE
- ------------------ ------- ------------------- ---------------- ------- -------------------
<S> <C> <C> <C> <C> <C>
1994 PLAN
$4.75-$5.13 443,367 6.3 Years $ 4.96 443,367 $ 4.96
$9.63-$14.31 20,334 7.3 Years $11.50 17,001 $ 10.97
$14.93-$20.38 258,000 8.9 Years $19.77 59,000 $ 19.48
------- -------
721,701 519,368
------- -------
------- -------
1995 PLAN
$5.13 22,500 6.2 Years $ 5.13 22,500 $ 5.13
$9.38 12,000 6.9 Years $ 9.38 12,000 $ 9.38
$16.31-$19.63 51,000 8.6 Years $17.72 51,000 $ 17.72
------- -------
85,500 85,500
------- -------
------- -------
1997 DIRECTORS'
STOCK OPTION PLAN
$19.63-$20.00 35,785 4.1 Years $19.94 35,785 $ 19.94
------- -------
------- -------
1997 DIRECTORS'
STOCK PLAN
$20.00 1,800 4.0 Years $20.00 1,800 $ 20.00
------- -------
------- -------
</TABLE>
39
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE I--STOCK OPTIONS AND WARRANTS--(CONTINUED)
The weighted average fair value of options granted during 1998, 1997 and
1996 were $15.18, $14.67 and $10.10, respectively.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1998, 1997 and 1996: risk-free interest rates of
4.6% to 5.7% representing the risk-free interest rate at the date of grant;
expected dividend yields of zero percent; expected lives of 4.0 to 6.5 years;
and expected volatility of 56.53% for options granted prior to December 31,
1996, and 87.3% and 79.8% for options granted during 1998 and 1997,
respectively.
The Company applies APB 25 and related interpretations in accounting for
its stock option plans. Accordingly, no compensation cost has been recognized in
the accompanying Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 for options granted during those years. Had
compensation cost for these plans been determined consistent with SFAS 123, the
Company's net income, Basic EPS and Diluted EPS would have been reduced from the
following as reported amounts to the following pro forma amounts (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Net Income:
As Reported......................................... $12,315 $7,577 $9,437
Pro Forma........................................... $10,176 $6,842 $8,840
Basic EPS:
As Reported......................................... $ 1.20 $ 0.79 $ 1.00
Pro Forma........................................... $ 0.99 $ 0.72 $ 0.93
Diluted EPS:
As Reported......................................... $ 1.11 $ 0.74 $ 0.96
Pro Forma........................................... $ 0.75 $ 0.67 $ 0.90
</TABLE>
Warrants
On December 15, 1994, the Company issued to the holders of $7,040,000
principal amount of its pre-petition 7.75% Convertible Subordinated
Debentures and $9,600,000 principal amount of its pre-petition 12.0%
Subordinated Notes, their pro rata share of each of two series of five-year
Warrants to purchase shares of Common Stock, namely Series X Warrants and Series
Y Warrants, with an exercise price of $12.55 per share and $17.55 per share,
respectively. In addition, the Company issued to pre-petition holders of other
contingent and statutory subordinate claims and to holders of EMCOR's
pre-petition common stock, preferred stock and Warrants of Participation, as
well as to the plaintiffs in a stockholder class action lawsuit, their pro rata
share of 250,000 Series Z Warrants to purchase shares of Common Stock, which
Series Z Warrants had an exercise price of $50.00 per share. The Series X and Y
Warrants expire on December 15, 1999. The Series Z Warrants expired on December
15, 1996.
In addition to the warrants issued above, approximately 28,000 Series X
Warrants, 28,000 Series Y Warrants and 12,000 Series Z Warrants were issued to
Belmont Capital Partners II, L. P. as a portion of additional interest under a
debtor-in-possession credit facility.
If the Company's Common Stock trades at $30.46 per share for ten of the
preceding fifteen trading days, the Company may accelerate the expiration date
of the Warrants to a date 15 days after notice to such Warrant holders.
As of December 31, 1998 and 1997, there were 605,000 Series X Warrants and
605,000 Series Y Warrants issued and outstanding at each date, respectively.
40
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE J--RETIREMENT PLANS
The Company's United Kingdom subsidiary has a defined benefit pension plan
covering substantially all eligible employees. The benefits under the plan are
based on wages and years of service with the subsidiary. The Company's policy is
to fund the minimum amount required by law.
The change in benefit obligation and plan assets for the years ended
December 31, 1998, 1997 and 1996 consists of the following components (in
thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
CHANGE IN PENSION BENEFIT OBLIGATION
Benefit obligation at beginning of year........................................... $62,597 $57,599
Service cost...................................................................... 4,994 4,224
Interest cost..................................................................... 5,554 4,828
Changes in actuarial assumptions.................................................. 16,679 443
Benefits paid..................................................................... (2,870) (2,708)
Foreign currency exchange rate changes............................................ 620 (1,789)
------- -------
Benefit obligation at end of year................................................. 87,574 62,597
------- -------
CHANGE IN PENSION PLAN ASSETS
Fair value of plan assets at beginning of year.................................... 69,078 58,991
Actual return on plan assets...................................................... 9,666 9,750
Employer contributions............................................................ 3,763 3,019
Plan participants' contributions.................................................. 2,107 1,899
Benefits paid..................................................................... (2,870) (2,708)
Foreign currency exchange rate changes............................................ 684 (1,873)
------- -------
Fair values of plan assets at end of year......................................... 82,428 69,078
------- -------
Funded status..................................................................... (5,146) 6,481
Unrecognized transition amount.................................................... (480) (558)
Unrecognized prior service cost................................................... 615 687
Unrecognized losses/(gains)....................................................... 3,671 (8,378)
------- -------
Net amount recognized............................................................. $(1,340) $(1,768)
------- -------
------- -------
AMOUNTS RECOGNIZED IN THE CONSOLIDATED FINANCIAL STATEMENTS
Employer contributions............................................................ $ 3,763 $ 3,019
Net periodic pension benefit cost................................................. (3,318) (3,290)
Accrued pension cost brought forward.............................................. (1,768) (1,484)
Foreign currency exchange rate changes............................................ (17) (13)
------- -------
Net amount recognized as accrued pension liability................................ $(1,340) $(1,768)
------- -------
------- -------
</TABLE>
41
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE J--RETIREMENT PLANS--(CONTINUED)
The assumptions used as of December 31, 1998, 1997 and 1996 in determining
pension cost and liability shown above were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ --------
<S> <C> <C> <C>
Discount rate........................................ 6.0% 8.5% 8.5%
Annual rate of salary provisions..................... 6.5% 6.5% 6.5%
Annual rate of return on plan assets................. 10.0% 10.0% 10.0%
</TABLE>
For measurement purposes, a 5.0% annual rate of increase in the per capita
cost of covered pension benefits was assumed for 1998. The rate is assumed to
decrease to 2.5% annually beginning in 1999 and remain level thereafter.
The components of net periodic pension benefit cost for the years ended
December 31, 1998, 1997 and 1996 were as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Service cost........................................ $ 4,994 $ 4,224 $ 4,222
Interest cost....................................... 5,554 4,828 4,295
Expected return on plan assets...................... (9,666) (9,750) (6,264)
Net amortization of prior service cost and actuarial
(gain)/loss....................................... 2,436 3,988 1,254
------- ------- -------
Net periodic pension benefit cost................... $ 3,318 $ 3,290 $ 3,507
------- ------- -------
------- ------- -------
</TABLE>
The Company contributes to various union pension funds and based upon wages
paid to union employees of the Company. Such contributions approximated
$57.4 million, $50.8 million and $41.1 million for the years ended December 31,
1998, 1997 and 1996, respectively.
The Company has a defined contribution retirement plan that covers its U.S.
non-union eligible employees. Contributions to this plan are based on a
percentage of the employee's base compensation. The expense recognized for the
years ended December 31, 1998, 1997 and 1996, for the defined contribution plan
was $1.9 million, $2.6 million and $2.1 million, respectively.
NOTE K--COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries lease land, buildings and equipment under
various leases. The leases frequently include renewal options and require the
Company to pay for utilities, taxes, insurance and maintenance expenses.
42
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE K--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Future minimum payments, by year and in the aggregate, under capital
leases, non-cancelable operating leases and related sub-leases with initial or
remaining terms of one or more years at December 31, 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASE LEASE
------- ---------
<S> <C> <C>
1999........................................................... $ 519 $16,476
2000........................................................... 299 13,391
2001........................................................... 83 8,501
2002........................................................... 15 6,649
2003........................................................... -- 4,485
Thereafter..................................................... -- 9,378
------- -------
Total minimum lease payment.................................... 916 $58,880
-------
-------
Amounts representing interest.................................. 79
-------
Present value of net minimum lease payments.................... $ 837
-------
-------
</TABLE>
Rent expense for the years ended December 31, 1998, 1997 and 1996 was
$18.9 million, $20.5 million and $17.5 million, respectively. Rent expense for
the years ended December 31, 1998, 1997 and 1996 includes sub-lease rentals of
$0.1 million, $2.3 million and $2.4 million, respectively.
The Company has employment agreements with certain of its executive
officers and management personnel. These agreements generally continue until
terminated by the executive or the Company and provide for salary continuation
for a specified number of months under certain circumstances. Certain of the
agreements provide the employees with certain additional rights if a change of
control (as defined) of the Company occurs.
The Company is contingently liable to sureties in respect of performance
and payment bonds issued by the sureties in connection with certain contracts
entered into by the Company in the normal course of business. The Company has
agreed to indemnify the sureties for any payments made by them in respect of
such bonds.
The Company is subject to regulation with respect to the handling of
certain materials used in construction which are classified as hazardous or
toxic by Federal, State and local agencies. The Company's practice is to avoid
participation in projects principally involving the remediation or removal of
such materials. However, where remediation is a required part of contract
performance, the Company believes it complies with all applicable regulations
governing the discharge of material into the environment or otherwise relating
to the protection of the environment.
NOTE L--INSURANCE RESERVES
The Company's insurance liability is determined actuarially based on claims
filed and an estimate of claims incurred but not yet reported. The present value
of such claims was determined at December 31, 1998 and 1997 using a 4.0%
discount rate. The estimated current portion of the insurance liability was
approximately $6.2 million and $5.1 million at December 31, 1998 and 1997,
respectively. Such amounts are included in "Other accrued expenses and
liabilities" in the accompanying Consolidated Balance Sheets. The non-current
portion of the insurance liability was approximately $27.2 million and
$24.8 million at December 31, 1998 and 1997, respectively. Such amounts are
included in "Other Long-Term Obligations". The undiscounted liability was
approximately $37.5 million and $33.7 million at December 31, 1998 and 1997,
respectively.
43
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE M--ADDITIONAL CASH FLOW INFORMATION
The following presents information about cash paid for interest and income
taxes for the years ended December 31, 1998, 1997, and 1996 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Cash paid during the year for:
Interest......................................... $10,849 $ 9,116 $ 7,624
Income taxes..................................... $ 1,480 $ 521 $ 168
</TABLE>
NOTE N--SEGMENT INFORMATION
The Company adopted SFAS 131, "Disclosures About Segments of on Enterprise
and Related Information" ("SFAS 131") in 1998 which changed the way the Company
reports information about its operating segments. The accounting policies of the
operating segments are the same as those described in the summary of significant
accounting policies. The Company evaluates financial performance based on the
operating income of the reportable business units.
The Company has the following reportable segments pursuant to SFAS 131:
United States electrical construction and facilities services ("United States
Electrical Business Units"), United States mechanical construction and
facilities services ("United States Mechanical Business Units"), Canada
construction and facilities services ("Canada Business Units") and United
Kingdom construction and facilities services ("United Kingdom Business Units").
United States Other primarily represents those operations which principally
provide consulting and maintenance services. Other International represents the
Company's operations outside of the United States, Canada, and the United
Kingdom, primarily in the Middle East and Asia-Pacific performing electrical
construction, mechanical construction and facilities services ("Other
International Business Units"). Inter-segment sales are not material for any of
the periods presented. The Extraordinary items--loss on early extinguishment of
debt, net of income taxes, of $4.8 million and $1.0 million for the years ended
December 31, 1998 and 1997, respectively, are related to Corporate
Administration of the Company.
The following presents information about industry segments and geographic
areas for the years ended December 31, 1998, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
United States Electrical Business Units............................... $ 888,594 $ 744,996 $ 731,853
United States Mechanical Business Units............................... 599,616 577,590 399,196
United States Other Business Units.................................... 14,392 3,019 833
---------- ---------- ----------
Total United States Operations........................................ 1,502,602 1,325,605 1,131,882
Canada Business Units................................................. 201,918 179,046 139,554
United Kingdom Business Units......................................... 493,278 407,449 358,334
Other International Business Units.................................... 12,576 38,768 39,504
---------- ---------- ----------
Total Worldwide Operations............................................ $2,210,374 $1,950,868 $1,669,274
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
44
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE N--SEGMENT INFORMATION--(CONTINUED)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Operating income:
United States Electrical Business Units..................................... $ 36,315 $ 28,696 $ 28,649
United States Mechanical Business Units..................................... 20,955 18,627 1,990
United States Other Business Units.......................................... (4,783) (2,103) 59
-------- -------- --------
Total United States Operations.............................................. 52,487 45,220 30,698
Canada Operations Business Units............................................ 5,000 4,174 1,517
United Kingdom Operations Business Units.................................... (876) (4,859) 902
Other International Operations Business Units............................... (1,260) (1,129) (1,814)
Corporate Administration.................................................... (18,127) (15,992) (14,189)
-------- -------- --------
Total Worldwide Operations.................................................. 37,224 27,414 17,114
Other Corporate Items:
Interest expense............................................................ (11,041) (13,029) (14,890)
Interest income............................................................. 3,558 1,077 2,244
Other income................................................................ -- -- 12,500
-------- -------- --------
Income before taxes and extraordinary items................................. $ 29,741 $ 15,462 $ 16,968
-------- -------- --------
-------- -------- --------
Capital expenditures:
United States Electrical Business Units..................................... $ 2,928 $ 2,378 $ 1,791
United States Mechanical Business Units..................................... 2,473 3,507 1,725
United States Other Business Units.......................................... 116 95 --
-------- -------- --------
Total United States Operations.............................................. 5,517 5,980 3,516
Canada Operations Business Units............................................ 990 575 270
United Kingdom Operations Business Units.................................... 3,928 2,594 2,896
Other International Operations Business Units............................... 48 379 604
Corporate Administration.................................................... 463 225 142
-------- -------- --------
Total Worldwide Operations.................................................. $ 10,946 $ 9,753 $ 7,428
-------- -------- --------
-------- -------- --------
Depreciation and amortization:
United States Electrical Business Units..................................... $ 3,315 $ 2,009 $ 2,133
United States Mechanical Business Units..................................... 2,664 2,143 1,963
United States Other Business Units.......................................... 526 36 --
-------- -------- --------
Total United States Operations.............................................. 6,505 4,188 4,096
Canada Operations Business Units............................................ 651 1,364 1,305
United Kingdom Operations Business Units.................................... 3,072 2,203 1,468
Other International Operations Business Units............................... 207 277 692
Corporate Administration.................................................... 145 160 303
-------- -------- --------
Total Worldwide Operations.................................................. $ 10,580 $ 8,192 $ 7,864
-------- -------- --------
-------- -------- --------
</TABLE>
45
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE N--SEGMENT INFORMATION--(CONTINUED)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Costs and estimated earnings in excess of billings on uncompleted contracts:
United States Electrical Business Units................................................. $ 33,346 $ 30,416
United States Mechanical Business Units................................................. 34,830 27,096
United States Other Business Units...................................................... 1,942 421
-------- --------
Total United States Operations.......................................................... 70,118 57,933
Canada Operations Business Units........................................................ 4,346 5,253
United Kingdom Operations Business Units................................................ 17,095 9,491
Other International Operations Business Units........................................... 10 1,297
-------- --------
Total Worldwide Operations.............................................................. $ 91,569 $ 73,974
-------- --------
-------- --------
Billings in excess of costs and estimated earnings on uncompleted contracts:
United States Electrical Business Units................................................. $ 74,193 $ 56,401
United States Mechanical Business Units................................................. 34,977 22,663
United States Other Business Units...................................................... 1,341 95
-------- --------
Total United States Operations.......................................................... 110,511 79,159
Canada Operations Business Units........................................................ 6,568 8,337
United Kingdom Operations Business Units................................................ 16,896 12,048
Other International Operations Business Units........................................... 1,119 13,289
-------- --------
Total Worldwide Operations.............................................................. $135,094 $112,833
-------- --------
-------- --------
Total assets:
United States Electrical Business Units................................................. $282,580 $263,207
United States Mechanical Business Units................................................. 204,469 164,786
United States Other Business Units...................................................... 25,725 3,870
-------- --------
Total United States Operations.......................................................... 512,774 431,863
Canada Operations Business Units........................................................ 49,463 43,546
United Kingdom Operations Business Units................................................ 156,693 137,585
Other International Operations Business Units........................................... 14,605 40,313
Corporate Administration................................................................ 67,467 7,347
-------- --------
Total Worldwide Operations.............................................................. $801,002 $660,654
-------- --------
-------- --------
</TABLE>
46
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE O--SELECTED UNAUDITED QUARTERLY INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1998 QUARTERLY RESULTS
Revenues......................................................... $493,923 $545,547 $565,964 $604,940
Gross profit..................................................... $ 44,240 $ 52,275 $ 57,954 $ 68,818
Income before extraordinary item................................. $ 802 $ 3,674 $ 5,760 $ 6,856
Net (loss) income................................................ $ (3,975) $ 3,674 $ 5,760 $ 6,856
Basic EPS before extraordinary item.............................. $0.08 $0.34 $0.55 $0.69
----- ----- ----- -----
----- ----- ----- -----
Basic EPS (loss)................................................. $(0.41) $0.34 $0.55 $0.69
------ ----- ----- -----
------ ----- ----- -----
1997 QUARTERLY RESULTS
Revenues......................................................... $433,770 $475,617 $521,975 $519,506
Gross profit..................................................... $ 39,065 $ 43,499 $ 48,530 $ 51,089
Income before extraordinary item................................. $ 256 $ 1,897 $ 3,236 $ 3,192
Net income....................................................... $ 256 $ 893 $ 3,236 $ 3,192
Basic EPS before extraordinary item.............................. $0.03 $0.20 $0.34 $0.33
----- ----- ----- -----
----- ----- ----- -----
Basic EPS........................................................ $0.03 $0.09 $0.34 $0.33
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
NOTE P--LEGAL PROCEEDINGS
The Company's subsidiary Dynalectric Company ("Dynalectric") is a party to
an arbitration proceeding arising out of Dynalectric's participation in a joint
venture with Computran Systems Corp. ("Computran"). The proceeding which was
instituted in 1988 in the Superior Court of New Jersey, Bergen County ("Superior
Court"), by Computran, a participant in, and a subcontractor to, the joint
venture alleges that Dynalectric wrongfully terminated its subcontract,
fraudulently diverted funds due to it, misappropriated its trade secrets and
proprietary information, fraudulently induced it to enter into the joint venture
and conspired with others to commit certain acts in violation of the New Jersey
Racketeering Influence and Corrupt Organization Act. Dynalectric believes that
Computran's claims are without merit and has defended this matter vigorously.
Dynalectric has filed counterclaims against Computran. As a result of a motion
made by Dynalectric, the Superior Court has ordered that the matters in dispute
between Dynalectric and Computran be resolved by binding arbitration in
accordance with an original agreement between the parties. The parties are
awaiting the decision of the arbitrator.
In February 1995 as part of an investigation by the New York County
District Attorney's office into the business affairs of Herbert Construction
Company ("Herbert"), a general contractor that did business with the Company's
subsidiary, Forest Electric Corporation ("Forest"), a search warrant was
executed at Forest's executive offices. At that time, the Company was informed
that Forest and certain of its officers are targets of the continuing
investigation. Neither the Company nor Forest has been advised of the precise
nature of any suspected violation of law by Forest or its officers. On April 7,
1997, Ted Kohl, a principal of Herbert, pled guilty to one count of money
laundering, one count of offering a false instrument for filing and one count of
filing a false New York State Resident Income Tax Return. DPL Interiors, Inc., a
Company allegedly owned by Mr. Kohl, also pled guilty to one count of failing to
file New York City General Income Tax Returns. Mr. Kohl and DPL Interiors, Inc.
have not yet been sentenced.
On July 31, 1998 a former employee of a subsidiary of EMCOR filed a
class-action complaint on behalf of the participants in two employee benefit
plans sponsored by EMCOR against EMCOR and other defendants for breach of
fiduciary duty under the Employee Retirement Income Security Act. All of the
claims relate to alleged
47
<PAGE>
EMCOR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE P--LEGAL PROCEEDINGS--(CONTINUED)
acts or omissions which occurred during the period May 1, 1991 to December 1994.
The principal allegations of the complaint are that the defendants breached
their fiduciary duties by causing the plans to purchase and hold stock of EMCOR
when it was then known as JWP INC. and when the defendants knew or should have
known it was imprudent to do so. The plaintiff has not made claim for a specific
dollar amount of damages but generally seeks to recover for the benefit plans
the loss in value of JWP stock held by the plans. EMCOR and the other defendants
intend to vigorously defend the case. Insurance coverage may be applicable under
an EMCOR pension trust liability insurance policy for EMCOR and those present
and former employees of EMCOR who are defendants in the action.
Substantial settlements or damage judgements against the Company arising
out of these matters could have a material adverse effect on the Company's
business, operating results and financial condition.
In addition to the above, the Company is involved in other legal
proceedings and claims, asserted by and against the Company, which have arisen
in the ordinary course of business.
The Company believes it has a number of valid defenses to these actions and
the Company intends to vigorously defend or assert these claims and does not
believe that a significant liability will result. However, the Company cannot
predict the outcome thereof or the impact that an adverse result of the matters
discussed above will have upon the Company's financial position or results of
operations.
48
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of EMCOR Group, Inc.:
We have audited the accompanying consolidated balance sheets of EMCOR Group,
Inc. (a Delaware corporation) and subsidiaries (the "Company") as of
December 31, 1998 and 1997, and the related consolidated statements of
operations, stockholders' equity and comprehensive income and cash flows for
each of the three years in the period ended December 31, 1998. These
consolidated financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
1998 and 1997, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule of Valuation and Qualifying
Accounts is presented for purposes of complying with the Securities and Exchange
Commission rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
February 12, 1999
49
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 with respect to identification of
directors is incorporated herein by reference to the material to be included
under the caption "Election of Directors" in the Company's definitive proxy
statement for its Annual Meeting of Stockholders, at which Directors are to be
elected, which definitive proxy statement is to be filed not later than
120 days after the end of the Company's fiscal year ended December 31, 1998.
The information called for by Item 10 with respect to "Executive Officers
of the Registrant" is included in Part I under the caption "Executive Officers
of the Registrant".
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 with respect to executive compensation
is incorporated herein by reference to the material to be included in the
Company's definitive proxy statement for its Annual Meeting of Stockholders, at
which Directors are to be elected, which definitive proxy statement is to be
filed not later than 120 days after the end of the Company's fiscal year ended
December 31, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 with respect to certain beneficial
owners and management is incorporated herein by reference to the material under
the captions "Security Ownership of Certain Beneficial Owners" and "Security
Ownership of Management" in the Company's definitive proxy statement for its
Annual Meeting of Stockholders, at which Directors are to be elected, which
definitive proxy statement is to be filed not later than 120 days after the end
of the Company's fiscal year ended December 31, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 with respect to certain transactions
with management and directors is incorporated herein by reference to the
material under the caption "Certain Relationships and Related Transactions" in
the Company's definitive proxy statement for its Annual Meeting of Stockholders,
at which Directors are to be elected, which definitive proxy statement is to be
filed not later than 120 days after the end of the Company's fiscal year ended
December 31, 1998.
50
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following consolidated financial statements of EMCOR
Group, Inc. and Subsidiaries are included in Part II,
Item 8:
Financial Statements:
Consolidated Balance Sheets--December 31, 1998 and 1997
Consolidated Statements of Operations--Years Ended December
31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows--Years Ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity and
Comprehensive Income--Years Ended December 31, 1998, 1997 and
1996
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
(a)(2) The following financial statement schedules are included in
this Form 10-K report:
Schedule II--Valuation And Qualifying Accounts
All other schedules are omitted because they are not
required, are inapplicable, or the information is otherwise
shown in the consolidated financial statements or notes
thereto.
(a)(3) The exhibits listed on the Exhibit Index following the
consolidated financial statements hereof are filed herewith
in response to this Item.
51
<PAGE>
SCHEDULE II
EMCOR GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGE TO
BEGINNING OF COSTS AND OTHER BALANCE AT END
DESCRIPTION YEAR EXPENSES ACCOUNTS DEDUCTIONS(1) OF YEAR
- -------------------------------------------- ------------ --------- ---------- ------------- --------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1998................ $ 20,456 3,508 475 (433) $ 24,006
Year Ended December 31, 1997................ $ 18,812 4,300 2,615 (5,271) 20,456
Year Ended December 31, 1996................ $ 14,892 1,258 2,736 (74) 18,812
</TABLE>
- ------------------
(1) Deductions represent uncollectible balances of accounts receivable written
of, net off recoveries.
52
<PAGE>
EMCOR GROUP, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT INCORPORATED BY REFERENCE TO, OR
NO DESCRIPTION PAGE NUMBER
- -------- -------------------------------------------------- --------------------------------------------------
<S> <C> <C>
2(a) -- Disclosure Statement and Third Amended Joint Exhibit 2(a) to the Company's Registration
Plan of Reorganization (the "Plan of Statement on Form 10 as originally filed
Reorganization") proposed by EMCOR Group, Inc. March 17, 1995 (the "Form 10")
(formerly JWP INC.) (the "Company" or
"EMCOR")and its subsidiary SellCo
Corporation("SellCo"), as approved for
dissemination by the United States Bankruptcy
Court, Southern District of New York (the
"Bankruptcy Court"), on August 22, 1994.
2(b) -- Modification to the Plan of Reorganization Exhibit 2(b) to Form 10
dated September 29, 1994
2(c) -- Second Modification to the Plan of Exhibit 2(c) to Form 10
Reorganization dated September 30, 1994
2(d) -- Confirmation Order of the Bankruptcy Court Exhibit 2(d) to Form 10
dated September 30, 1994 (the "Confirmation
Order") confirming the Plan of Reorganization,
as amended
2(e) -- Amendment to the Confirmation Order dated Exhibit 2(e) to Form 10
December 8, 1994
2(f) -- Post-confirmation modification to the Plan of Exhibit 2(f) to Form 10
Reorganization entered on December 13, 1994
3(a-1) -- Restated Certificate of Incorporation of EMCOR Exhibit 3(a-5) to Form 10
filed December 15, 1994
3(a-2) -- Amendment dated November 28, 1995 to the Exhibit 3(a-2) to the Company's Annual Report on
Restated Certificate of Incorporation of EMCOR Form 10-K for the year ended December 31, 1995
(the "1995 Form 10-K")
3(a-3) -- Amendment dated February 12, 1998 to the Exhibit 3(a-3) to the Company's Annual Report on
Restated Certificate of Incorporation Form 10-K for the year ended December 31, 1997
(the "1997 Form 10-K")
3(b) -- Amended and Restated By-Laws* page
3(c) -- Rights Agreement dated March 3, 1997 between Exhibit 1 to the Company's Report on Form 8-K
the Company and the Bank of New York dated March 3, 1997
4.1 -- Amendment and Restatement of Credit Agreement page
(the "Credit Agreement") dated as of
December 22, 1998 among EMCOR, certain of its
subsidiaries and Harris Trust and Savings Bank,
individually and as agent, and the Lenders
which are or become parties thereto*
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INCORPORATED BY REFERENCE TO, OR
NO DESCRIPTION PAGE NUMBER
- -------- -------------------------------------------------- --------------------------------------------------
<S> <C> <C>
4.2 -- Subordinated Indenture dated as of March 18, Exhibit 4(b) to the Company's Quarterly Report on
1998 ("Indenture") between EMCOR and State Form 10-Q for the quarter ended March 31, 1998
Street Bank and Trust Company, as Trustee ("March 1998 Form 10-Q")
("State Street Bank")
4.3 -- First Supplemental Indenture dated as of Exhibit 4(c) to March 1998 Form 10-Q
March 18, 1998 to Indenture between EMCOR and
State Street Bank
4.4 -- Indenture dated as of December 15, 1994, Exhibit 4.4 Form 10
between SellCo and Fleet National Bank of
Connecticut, as trustee, in respect of SellCo's
12% Subordinated Contingent Payment Notes, Due
2004
10(a-1) -- Employment Agreement dated as of September 14, Exhibit 10(e) to the Company's Annual Report on
1997 between the Company and Sheldon I. 10-K for the year ended December 31, 1987 (the
Cammaker "1987 Form 10-K")
10(a-2) -- Amendment dated March 15, 1998 to Employment Exhibit 10(f) to 1987 Form 10-K
Agreement dated as of September 14, 1987
between the Company and Sheldon I. Cammaker
10(b) -- Employment Agreement made as of January 1, 1998 Exhibit 10(a) to March 1998 Form 10-Q
between the Company and Frank T. MacInnis
10(c) -- Employment Agreement made as of January 1, 1998 Exhibit 10(b) to March 1998 Form 10-Q
between the Company and Jeffrey M. Levy
10(d) -- Employment Agreement made as of January 1, 1998 Exhibit 10(c) to March 1998 Form 10-Q
between the Company and Leicle E. Chesser
10(e) -- Employment Agreement made as of January 1, 1998 Exhibit 10(d) to March 1998 Form 10-Q
between the Company and Thomas D. Cunningham
10(f) -- Employment Agreement made as of January 1, 1998 Exhibit 10(e) to March 1998 Form 10-Q
between the Company and R. Kevin Matz
10(g) -- Employment Agreement made as of January 1, 1998 Exhibit 10(f) to March 1998 Form 10-Q
between the Company and Mark A. Pompa
10(h) -- Letter Agreement made as of January 1, 1998 Exhibit 10(g) to March 1998 Form 10-Q
between the Company and Sheldon I. Cammaker
10(i) -- 1994 Management Stock Option Plan Exhibit 10(o) to Form 10
10(j) -- 1995 Non-Employee Directors' Non-Qualified Exhibit 10(p) to Form 10
Stock Option Plan
10(k) -- 1997 Non-Employee Directors' Non-Qualified page
Stock Option Plan*
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INCORPORATED BY REFERENCE TO, OR
NO DESCRIPTION PAGE NUMBER
- -------- -------------------------------------------------- --------------------------------------------------
<S> <C> <C>
10(l) -- 1997 Stock Plan for Directors* page
10(m) -- Continuity Agreement dated as of June 22, 1998 Exhibit 10(a) to the Company's Quarterly Report on
between Frank T. MacInnis and the Company Form 10-Q for the quarter ended June 30, 1998
("June 1998 Form 10-Q")
10(n) -- Continuity Agreement dated as of June 22, 1998 Exhibit 10(b) to the June 1998 Form 10-Q
between Jeffrey M. Levy and the Company
10(o) -- Continuity Agreement dated as of June 22, 1998 Exhibit 10(c) to the June 1998 Form 10-Q
between the Company and Sheldon I. Cammaker
10(p) -- Continuity Agreement dated as of June 22, 1998 Exhibit 10(d) to the June 1998 Form 10-Q
between the Company and Leicle E. Chesser
10(q) -- Continuity Agreement dated as of June 22, 1998 Exhibit 10(e) to the June 1998 Form 10-Q
between the Company and Thomas D. Cunningham
10(r) -- Continuity Agreement dated as of June 22, 1998 Exhibit 10(f) to the June 1998 Form 10-Q
between the Company and R. Kevin Matz
10(s) -- Continuity Agreement dated as of Junen22, 1998 Exhibit 10(g) to the June 1998 Form 10-Q
between the Company and Mark A. Pompa
11 -- Computation of Basic EPS and Diluted EPS for page
the years ended December 31, 1998 and 1997*
21 -- List of Significant Subsidiaries* page
23 -- Consent of Arthur Andersen LLP* page
27 -- Financial Data Schedule* page
</TABLE>
- ------------------
* Filed Herewith
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, upon request of the
Securities and Exchange Commission, the Registrant hereby undertakes to furnish
a copy of any unfiled instrument which defines the rights of holders of
long-term debt of the Registrant's subsidiaries.
55
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
EMCOR GROUP, INC.
(Registrant)
Date: February 24, 1999 By /s/ FRANK T. MACINNIS
-----------------------------------
Frank T. MacInnis
Chairman of the Board of Directors
and
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON FEBRUARY 24, 1999.
<TABLE>
<S> <C> <C>
/s/ FRANK T. MACINNIS Chairman of the Board of Directors and
- ------------------------------------------ Chief Executive Officer
Frank T. MacInnis
/s/ STEPHEN W. BERSHAD Director
- ------------------------------------------
Stephen W. Bershad
/s/ DAVID A.B. BROWN Director
- ------------------------------------------
David A.B. Brown
/s/ GEORGES L. DE BUFFEVENT Director
- ------------------------------------------
Georges L. de Buffevent
/s/ ALBERT FRIED, JR. Director
- ------------------------------------------
Albert Fried, Jr.
/s/ RICHARD F. HAMM, JR. Director
- ------------------------------------------
Richard F. Hamm, Jr.
/s/ KEVIN C. TONER Director
- ------------------------------------------
Kevin C. Toner
/s/ LEICLE E. CHESSER Executive Vice President and
- ------------------------------------------ Chief Financial Officer
Leicle E. Chesser
/s/ MARK A. POMPA Vice President and Controller
- ------------------------------------------
Mark A. Pompa
</TABLE>
56
<PAGE>
Exhibit 3(b)
AMENDED AND RESTATED
BY-LAWS
OF
EMCOR GROUP, INC.
-----------------
(A Delaware Corporation)
ARTICLE I
---------
STOCKHOLDERS
------------
1. CERTIFICATES REPRESENTING STOCK.
(a) Every holder of stock in the Corporation shall be entitled to have
a certificate signed by, or in the name of, the Corporation by the Chairman or
Vice-Chairman of the Board of Directors, if any, or by the President or a Vice
President and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary of the Corporation representing the number of shares owned
by such person in the Corporation. If such certificate is countersigned by a
transfer agent other than the Corporation or its employee or by a registrar
other than the Corporation or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if such person were such officer, transfer agent or registrar at
the date of issue.
(b) Whenever the Corporation shall be authorized to issue more than one
class of stock or more than one series of any class of stock, and whenever the
Corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or
1
<PAGE>
series or of any such partly paid stock shall set forth thereon the statements
prescribed by the General Corporation Law. Any restrictions on the transfer or
registration of transfer of any shares of stock of any class or series shall be
noted conspicuously on the certificate representing such shares.
(c) The Corporation may issue a new certificate of stock in place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the Board of Directors may require the owner of any lost, stolen
or destroyed certificate, or such person's legal representative, to give the
Corporation a bond sufficient to indemnify the Corporation against any claim
that may be made against it on account of the alleged loss, theft or destruction
of any such certificate or the issuance of any such new certificate.
2. FRACTIONAL SHARE INTEREST.
The Corporation may, but shall not be required to, issue fractions of a
share.
3. STOCK TRANSFERS.
Upon compliance with provisions restricting the transfer or
registration of transfer of shares of stock, if any, transfers or registration
of transfer of shares of stock of the Corporation shall be made only on the
stock ledger of the Corporation by the registered holder thereof, or by such
person's attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the Corporation or with a transfer agent or a
registrar, if any, and on surrender of the certificate or certificates for such
shares of stock properly endorsed and the payment of all taxes due thereon.
4. RECORD DATE FOR STOCKHOLDERS.
(a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may
2
<PAGE>
fix a record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which record date shall not be more than sixty nor less than ten days before the
date of such meeting. If no record date has been fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date has been fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
5. MEANING OF CERTAIN TERMS.
As used herein in respect of the right to notice of a meeting of
stockholders or a waiver thereof or to participate or vote thereat or to consent
or dissent in writing in lieu of a meeting, as the case may be, the term "share"
or "shares" or "share of stock" or "shares of stock" or "stockholder" or
"stockholders" refers to an outstanding share or shares of stock and to a holder
or holders of record of outstanding shares of stock when the Corporation is
authorized to issue
3
<PAGE>
only one class of shares of stock, and said reference is also intended to
include any outstanding share or shares of stock and any holder or holders of
record of outstanding shares of stock of any class upon which or upon whom the
Amended and Restated Certificate of Incorporation confers such rights where
there are two or more classes or series of shares of stock or upon which or upon
whom the General Corporation Law confers such rights notwithstanding that the
Amended and Restated Certificate of Incorporation may provide for more than one
class or series of shares of stock, one or more of which are limited or denied
such rights thereunder; provided, however, that no such right shall vest in the
event of an increase or a decrease in the authorized number of shares of stock
of any class or series which is otherwise denied voting rights under the
provisions of the Amended and Restated Certificate of Incorporation, including
any preferred stock which is denied voting rights under the provisions of the
resolution or resolutions adopted by the Board of Directors with respect to the
issuance thereof.
6. STOCKHOLDER MEETINGS.
(a) TIME. The annual meeting shall be held on the date and at the time
fixed, from time to time, by the Board of Directors. A special meeting shall be
held on the date and at the time fixed by the Board of Directors.
(b) PLACE. Annual meetings and special meetings shall be held at such
place, within or without the State of Delaware, as the Board of Directors may,
from time to time, fix. Whenever the Board of Directors shall fail to fix such
place, the meeting shall be held at the registered office of the Corporation in
the State of Delaware.
(c) CALL. Annual meetings and special meetings may be called by the
Board of Directors or by any officer instructed by the Board of Directors to
call the meeting.
(d) NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall be
given, stating the place, date and hour of the meeting. The notice of an annual
meeting shall state that the meeting is called for the election of Directors and
for the transaction of other business which
4
<PAGE>
may properly come before the meeting, and shall (if any other action which could
be taken at a special meeting is to be taken at such annual meeting) state such
other action or actions as are known at the time of such notice. The notice of a
special meeting shall in all instances state the purpose or purposes for which
the meeting is called. If any action is proposed to be taken which would, if
taken, entitle stockholders to receive payment for their shares of stock, the
notice shall include a statement of that purpose and to that effect. Except as
otherwise provided by the General Corporation Law, a copy of the notice of any
meeting shall be given, personally or by mail, not less than ten days nor more
than sixty days before the date of the meeting, unless the lapse of the
prescribed period of time shall have been waived, and directed to each
stockholder at such person's address as it appears on the records of the
Corporation. Notice by mail shall be deemed to be given when deposited, with
postage thereon prepaid, in the United States mail. If a meeting is adjourned to
another time, not more than thirty days hence, and/or to another place, and if
an announcement of the adjourned time and place is made at the meeting, it shall
not be necessary to give notice of the adjourned meeting unless the Board of
Directors, after adjournment, fixes a new record date for the adjourned meeting.
Notice need not be given to any stockholder who submits a written waiver of
notice before or after the time stated therein. Attendance of a person at a
meeting of stockholders shall constitute a waiver of notice of such meeting,
except when the stockholder attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
stockholders need be specified in any written waiver of notice.
(e) STOCKHOLDER LIST. There shall be prepared and made, at least ten
days before every meeting of stockholders, a complete list of the stockholders,
arranged in alphabetical order, and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for
5
<PAGE>
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the Corporation, or to vote at any meeting of
stockholders.
(f) CONDUCT OF MEETING. Meetings of the stockholders shall be presided
over by one of the following officers in the order of seniority and if present
and acting: the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, the President, a Vice President, a chairman for the meeting chosen by
the Board of Directors or, if none of the foregoing is in office and present and
acting, by a chairman to be chosen by the stockholders. The Secretary of the
Corporation or, in such person's absence, an Assistant Secretary, shall act as
secretary of every meeting, but if neither the Secretary nor an Assistant
Secretary is present the chairman for the meeting shall appoint a secretary of
the meeting.
(g) PROXY REPRESENTATION. Every stockholder may authorize another
person or persons to act for such stockholder by proxy in all matters in which a
stockholder is entitled to participate, whether by waiving notice of any
meeting, voting or participating at a meeting, or expressing consent or dissent
without a meeting. Every proxy must be signed by the stockholder or by such
person's attorney-in-fact. No proxy shall be voted or acted upon after three
years from its date unless such proxy provides for a longer period. A duly
executed proxy shall be irrevocable if it states that it is irrevocable and, if,
and only as long as, it is coupled with an interest sufficient in law to support
an irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the Corporation generally.
6
<PAGE>
(h) INSPECTORS AND JUDGES. The Board of Directors, in advance of any
meeting, may, but need not, appoint one or more inspectors of election or judges
of the vote, as the case may be, to act at the meeting or any adjournment
thereof. If an inspector or inspectors or judge or judges are not appointed by
the Board of Directors, the person presiding at the meeting may, but need not,
appoint one or more inspectors or judges. In case any person who may be
appointed as an inspector or judge fails to appear or act, the vacancy may be
filled by appointment made by the person presiding thereat. Each inspector or
judge, if any, before entering upon the discharge of such person's duties, shall
take and sign an oath faithfully to execute the duties of inspector or judge at
such meeting with strict impartiality and according to the best of his ability.
The inspectors or judges, if any, shall determine the number of shares of stock
outstanding and the voting power of each, the shares of stock represented at the
meeting, the existence of a quorum and the validity and effect of proxies,
receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result, and do such other acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the person presiding at the meeting, the inspector or inspectors or
judge or judges, if any, shall make a report in writing of any challenge,
question or matter determined by such person or persons and execute a
certificate of any fact so found.
(i) QUORUM. Except as the General Corporation Law or these Amended and
Restated By-Laws may otherwise provide, the holders of a majority of the
outstanding shares of stock entitled to vote shall constitute a quorum at a
meeting of stockholders for the transaction of any business. The stockholders
present may adjourn the meeting despite the absence of a quorum. When a quorum
is once present to organize a meeting, it is not broken by the subsequent
withdrawal of any stockholders.
(j) VOTING. Each stockholder entitled to vote in accordance with the
terms of the Amended and Restated Certificate of Incorporation and of these
Amended and Restated By-
7
<PAGE>
Laws, or, with respect to the issuance of preferred stock, in accordance with
the terms of a resolution or resolutions of the Board of Directors, shall be
entitled to one vote, in person or by proxy, for each share of stock entitled to
vote held by such stockholder. In the election of Directors, a plurality of the
votes present at the meeting shall elect. Any other action shall be authorized
by a majority of the votes cast except where the Amended and Restated
Certificate of Incorporation or the General Corporation Law prescribes a
different percentage of votes and/or a different exercise of voting power.
Voting by ballot shall not be required for corporate action except as
otherwise provided by the General Corporation Law.
(k) ADVANCE NOTICE. At any annual meeting of stockholders, only such
business shall be conducted as shall have been brought before the meeting (a) by
or at the direction of the Board of Directors or (b) by any stockholder entitled
to vote at such meeting who complies with the procedures set forth in this
Section 6(k).
Any stockholder entitled to vote at such annual meeting may propose
business (other than nominations for the election of Directors) to be included
in the agenda of such meeting only if written notice of such stockholder's
intent is given to the Secretary of the Corporation, either personally or by
mail, postage prepaid, not earlier than 90 days nor later than 60 days in
advance of the anniversary of the date of the immediately preceding annual
meeting or if the date of the annual meeting occurs more than 30 days before or
60 days after the anniversary of such immediately preceding annual meeting, not
later than the close of business on the later of (a) the sixtieth day prior to
such annual meeting and (b) the tenth day following the date on which public
announcement of the date of such meeting is first made. A stockholder's notice
to the Secretary shall set forth in writing as to each business matter such
stockholder proposes to bring before the annual meeting (a) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (b) the name and address, as
they appear on the Corporation's books, of the stockholder
8
<PAGE>
proposing such business, (c) the class and number of shares of the Corporation
which are beneficially owned by the stockholder and (d) any material interest of
the stockholder in such business. Notwithstanding anything in these By-Laws to
the contrary, no business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this section. The officer of the
Corporation or other person presiding at the annual meeting shall, if the facts
so warrant, determine and declare to the meeting that business was not properly
brought before the meeting in accordance with the provisions of this section,
and, if he should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
Nominations for the election of Directors may be made by the Board of
Directors or any stockholder entitled to vote for the election of Directors. Any
stockholder entitled to vote for the election of Directors at the annual meeting
of the stockholders of the Corporation may nominate a person or persons for
election as a Director only if written notice of such stockholder's intent to
make such nomination is given to the Secretary of the Corporation, either
personally or by mail, postage prepaid, not earlier than 90 days nor later than
60 days in advance of the anniversary of the date of the immediately preceding
annual meeting or if the date of the annual meeting occurs more than 30 days
before or 60 days after the anniversary of such immediately preceding annual
meeting, not later than the close of business on the later of (a) the sixtieth
day prior to such annual meeting and (b) the tenth day following the date on
which public announcement of the date of such meeting is first made. Each such
notice shall set forth the name and address of the stockholder who intends to
make the nomination and of the person or persons to be nominated for election as
a Director; a representation that the stockholder is a holder of record of stock
of the Corporation entitled to vote at such meeting and intends to appear in
person or by proxy at the meeting to nominate the person or persons specified in
the notice; a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which
9
<PAGE>
the nomination or nominations for election as a Director are to be made by the
stockholder; such other information regarding each nominee proposed by such
stockholder as would have been required to be included in a proxy statement
filed pursuant to the proxy rules of the Securities and Exchange Commission if
such nominee had been nominated, or was intended to be nominated, for election
as a Director by the Board of Directors; and the consent of each nominee to
serve as a Director of the Corporation if so elected. The Board of Directors may
refuse to acknowledge the nomination of any person not made in compliance with
the foregoing procedures.
For purposes hereof, "public announcement" shall mean disclosure in a
press release reported by the Dow Jones News Service, Associated Press or a
comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act").
For purposes of this By-Law, no adjournment nor notice of adjournment
of any meeting shall be deemed to constitute a new notice of such meeting for
purposes of this Section 6(k), and in order for any notification required to be
delivered by a stockholder pursuant to this Section 6(k) to be timely, such
notification must be delivered within the periods set forth above with respect
to the originally scheduled meeting.
Notwithstanding the foregoing provisions of this By-Law, a stockholder
shall also comply with all applicable requirements of the Exchange Act and the
rules and regulations thereunder with respect to the matters set forth in this
By-Law. Nothing in this By-Law shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
Corporation's notice of meeting pursuant to Section 6(d).
10
<PAGE>
ARTICLE II
----------
DIRECTORS
---------
1. FUNCTIONS AND DEFINITION.
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors of the Corporation. The use of the
phrase "whole Board" herein refers to the total number of Directors which the
Corporation would have if there were no vacancies.
2. QUALIFICATIONS AND NUMBER.
A Director need not be a stockholder, a citizen of the United States,
or a resident of the State of Delaware. The Board of Directors at the time of
the adoption of these Amended and Restated By-Laws and at all times thereafter
shall be the number of Directors fixed in the Amended and Restated Certificate
of Incorporation as amended from time to time. If at any time the number of
Directors is not so fixed in the Amended and Restated Certificate of
Incorporation, the number of Directors constituting the whole board shall be at
least one and, subject to the foregoing limitation, such number may be fixed
from time to time and thereafter may be increased or decreased by action of the
stockholders or of the Board of Directors, or, if the number is not so fixed,
the number shall be three.
3. ELECTION AND TERM.
The Board of Directors at the time of the adoption of these Amended and
Restated By-Laws shall hold office until the first annual meeting of
stockholders following the adoption of these Amended and Restated By-Laws and
until their successors have been elected and qualified or until their earlier
resignation or removal. Any Director may resign at any time upon written notice
to the Corporation. Thereafter, Directors who are elected at an annual meeting
of
11
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stockholders, and Directors who are elected in the interim to fill vacancies
and newly created Directorships, shall hold office until the next annual meeting
of stockholders and until their successors have been elected and qualified or
until their earlier resignation or removal. In the interim between annual
meetings of stockholders or of special meetings of stockholders called for the
election of Directors and/or for the removal of one or more Directors and for
the filling of any vacancies in the Board of Directors, including vacancies
resulting from the removal of Directors for cause or without cause, any vacancy
in the Board of Directors may be filled by the vote of a majority of the
remaining Directors then in office, although less than a quorum, or by the sole
remaining Director.
4. MEETINGS.
(a) TIME. Regular meetings shall be held at such time as the Board
shall fix. Special meetings may be called upon notice.
(b) FIRST MEETING. The first meeting of each newly elected Board may be
held immediately after each annual meeting of the stockholders at the same place
at which the meeting is held, and no notice of such meeting shall be necessary
to call the meeting, provided a quorum shall be present. In the event such first
meeting is not so held immediately after the annual meeting of the stockholders,
it may be held at such time and place as shall be specified in the notice given
as provided for special meetings of the Board of Directors, or at such time and
place as shall be fixed by the consent in writing of all of the Directors.
(c) PLACE. Meetings, both regular and special, shall be held at such
place within or without the State of Delaware as shall be fixed by the Board.
(d) CALL. No call shall be required for regular meetings for which the
time and place have been fixed. Special meetings may be called by or at the
direction of the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, or the President, or of a majority of the Directors.
12
<PAGE>
(e) NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be
required for regular meetings for which the time and place have been fixed.
Written, oral or any other mode of notice of the time and place shall be given
for special meetings at least twenty-four hours prior to the meeting; notice may
be given by telephone of telefax (in which case it is effective when given) or
by mail (in which case it is effective seventy-two hours after mailing by
prepaid first class mail). The notice of any meeting need not specify the
purpose of the meeting. Any requirement of furnishing a notice shall be waived
by any Director who signs a written waiver of such notice before or after the
time stated therein. Attendance of a Director at a meeting of the Board shall
constitute a waiver of notice of such meeting, except when the Director attends
a meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened.
(f) QUORUM AND ACTION. A majority of the whole Board shall constitute a
quorum except when a vacancy or vacancies prevents such majority, whereupon a
majority of the Directors in office shall constitute a quorum, provided that
such majority shall constitute at least one-third (1/3) of the whole Board. Any
Director may participate in a meeting of the Board by means of a conference
telephone or similar communications equipment by means of which all Directors
participating in the meeting can hear each other, and such participation in a
meeting of the Board shall constitute presence in person at such meeting. A
majority of the Directors present, whether or not a quorum is present, may
adjourn a meeting to another time and place. Except as herein otherwise
provided, and except as otherwise provided by the General Corporation Law, the
act of the Board shall be the act by vote of a majority of the Directors present
at a meeting, a quorum being present. The quorum and voting provisions herein
stated shall not be construed as conflicting with any provisions of the General
Corporation Law and these Amended and Restated By-Laws which govern a meeting of
Directors held to fill vacancies and newly created Directorships in the Board.
13
<PAGE>
(g) CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if
present and acting, shall preside at all meetings. Otherwise, the Vice-Chairman
of the Board, if any and if present and acting, or the President, if present and
acting, or any other Director chosen by the Board, shall preside.
5. REMOVAL OF DIRECTORS.
Any or all of the Directors may be removed for cause or without cause
by the stockholders.
6. COMMITTEES.
The Board of Directors may, by resolution passed by a majority of the
whole Board, designate one or more committees, each committee to consist of one
or more of the Directors of the Corporation. The Board may designate one or more
Directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. Any such committee, to the
extent provided in the resolution of the Board, shall have and may exercise the
powers of the Board of Directors in the management of the business and affairs
of the Corporation, and may authorize the seal of the Corporation to be affixed
to all papers which may require it. In the absence or disqualification of any
member of any such committee or committees, the members thereof present at any
meeting and not disqualified from voting, whether or not they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member.
7. ACTION IN WRITING.
Any action required or permitted to be taken at any meeting of the
Board of Directors or any committee thereof may be taken without a meeting if
all members of the Board or
14
<PAGE>
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
ARTICLE III
-----------
OFFICERS
--------
1. EXECUTIVE OFFICERS.
The Board of Directors may elect or appoint a Chairman of the Board of
Directors, a President, one or more Vice Presidents (which may be denominated
with additional descriptive titles), a Secretary, one or more Assistant
Secretaries, a Treasurer, one or more Assistant Treasurers and such other
officers as it may determine. Any number of offices may be held by the same
person.
2. TERM OF OFFICE: REMOVAL.
Unless otherwise provided in the resolution of election or appointment,
each officer shall hold office until the meeting of the Board of Directors
following the next annual meeting of stockholders and until such officer's
successor has been elected and qualified or until the earlier resignation or
removal of such officer. The Board of Directors may remove any officer for cause
or without cause.
3. AUTHORITY AND DUTIES.
All officers, as between themselves and the Corporation, shall have
such authority and perform such duties in the management of the Corporation as
may be provided in these Amended and Restated By-Laws, or, to the extent not so
provided, by the Board of Directors.
15
<PAGE>
4. THE CHAIRMAN OF THE BOARD OF DIRECTORS.
The Chairman of the Board of Directors, if present and acting, shall
preside at all meetings of the Board of Directors, otherwise, the President, if
present, shall preside, or if the President does not so preside, any other
Director chosen by the Board shall preside.
5. THE PRESIDENT.
The President shall be the chief executive officer of the Corporation
unless otherwise determined by a resolution adopted by the Board of Directors
6. VICE PRESIDENTS.
Any Vice President that may have been appointed, in the absence or
disability of the President, shall perform the duties and exercise the powers of
the President, in the order of their seniority, and shall perform such other
duties as the Board of Directors shall prescribe.
16
<PAGE>
7. THE SECRETARY.
The Secretary shall keep in safe custody the seal of the Corporation
and affix it to any instrument when authorized by the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors.
The Secretary (or in such officer's absence, an Assistant Secretary, but if
neither is present another person selected by the Chairman for the meeting)
shall have the duty to record the proceedings of the meetings of the
stockholders and Directors in a book to be kept for that purpose.
8. THE TREASURER.
The Treasurer shall have the care and custody of the corporate funds,
and other valuable effects, including securities, and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Corporation, and shall deposit all moneys and other valuable effects in the name
and to the credit of the Corporation in such depositories as may be designated
by the Board of Directors and shall perform such other functions as might be
given to him by the President of the Corporation.
ARTICLE IV
----------
CORPORATE SEAL
AND
CORPORATE BOOKS
The corporate seal shall be in such form as the Board of Directors
shall prescribe. The books of the Corporation may be kept within or without the
State of Delaware, at such place or places as the Board of Directors may, from
time to time, determine.
ARTICLE V
17
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FISCAL YEAR
The fiscal year of the Corporation shall be fixed, and shall be subject
to change, by the Board of Directors.
ARTICLE VI
----------
INDEMNITY
---------
(a) Any person who was or is a party or threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Corporation) by reason of the fact that he or she is or was a
Director, officer, employee or agent of the Corporation or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
(including employee benefit plans) (hereinafter an "indemnitee"), shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the General Corporation Law, as the same exists or may hereafter
be amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification than
permitted prior thereto), against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such indemnitee in connection with such action, suit or proceeding, if the
indemnitee acted in good faith and in a manner he or she reasonably believed to
be in or not opposed to the best interests of the Corporation, and with respect
to any criminal action or proceeding, had no reasonable cause to believe such
conduct was unlawful. The termination of the proceeding, whether by judgment,
order,
18
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settlement, conviction or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the Corporation and, with respect to any
criminal action or proceeding, had reasonable cause to believe such conduct was
unlawful.
(b) Any indemnitee shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the General Corporation Law, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification than permitted prior thereto), against expenses
(including attorneys' fees) actually and reasonably incurred by such indemnitee
in connection with the defense or settlement of such action, suit or proceeding
if such indemnitee acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the Corporation and
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court in which such suit,
action or proceeding was brought, shall determine, upon application, that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which such court shall deem proper.
(c) All reasonable expenses incurred by or on behalf of the indemnitee
in connection with any suit, action or proceeding, may be advanced to the
indemnitee by the Corporation.
(d) The rights to indemnification and to advancement of expenses
conferred in this article shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, the Amended and Restated
Certificate of Incorporation, a By-Law of the Corporation, agreement, vote of
stockholders or disinterested Directors or otherwise.
19
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(e) The indemnification and advancement of expenses provided by this
article shall continue as to a person who has ceased to be a Director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such person.
ARTICLE VII
-----------
AMENDMENTS
----------
The Amended and Restated By-Laws may be amended, added to, rescinded or
repealed at any meeting of the Board of Directors or of the stockholders,
provided that notice of the proposed change was given in the notice of the
meeting.
20
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Exhibit 4.1
================================================================================
AMENDMENT AND RESTATEMENT OF
CREDIT AGREEMENT
by and among
EMCOR GROUP, INC.
and
CERTAIN OF ITS SUBSIDIARIES
and
HARRIS TRUST AND SAVINGS BANK
individually and as Agent
and
the Lenders
which are or become parties hereto
Dated as of December 22, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1. THE REVOLVING CREDIT...................................................................1
Section 1.1. Revolving Credit.......................................................................1
Section 1.2. Revolving Loans........................................................................2
Section 1.3. Letters of Credit......................................................................3
(a) General Terms..........................................................................3
(b) Applications...........................................................................3
(c) The Reimbursement Obligation...........................................................4
(d) The Participating Interests............................................................4
(e) Indemnification........................................................................5
Section 1.4. Manner of Borrowing Revolving Loans....................................................5
(a) Generally...................................................................................5
(b) Agent Reliance on Bank Funding.........................................................6
Section 1.5. Minimum Borrowing Amounts..............................................................6
Section 1.6. Maturity of Loans......................................................................6
Section 1.7. Appointment of Company as Agent for Borrowers; Reliance by Agent.......................7
(a) Appointment.................................................................................7
(b) Reliance...............................................................................7
SECTION 2. INTEREST...............................................................................7
Section 2.1. Domestic Rate Loans....................................................................7
Section 2.2. Eurodollar Loans.......................................................................7
Section 2.3. Rate Determinations....................................................................8
Section 2.4. Computation of Interest................................................................8
Section 2.5. Funding Indemnity......................................................................8
Section 2.6. Change of Law..........................................................................9
Section 2.7. Unavailability.........................................................................9
Section 2.8. Increased Cost and Reduced Return......................................................9
Section 2.9. Lending Offices.......................................................................10
Section 2.10. Discretion of Lender as to Manner of Funding..........................................11
Section 2.11. Capital Adequacy......................................................................11
SECTION 3. FEES, PAYMENTS, REDUCTIONS, APPLICATIONS AND NOTATIONS................................11
Section 3.1. Facility Fee..........................................................................11
Section 3.2. Other Fees............................................................................11
Section 3.3. Letter of Credit Fees.................................................................11
Section 3.4. Voluntary Prepayments.................................................................12
Section 3.5. Mandatory Prepayment..................................................................12
Section 3.6. Voluntary Terminations................................................................12
Section 3.7. Place and Application.................................................................12
</TABLE>
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<TABLE>
<S> <C>
Section 3.8. Notations and Requests................................................................14
SECTION 4. THE COLLATERAL AND THE GUARANTEES.....................................................14
Section 4.1. The Collateral........................................................................14
Section 4.2. The Guarantees........................................................................15
SECTION 5. REPRESENTATIONS AND WARRANTIES........................................................15
Section 5.1. Organization and Qualification........................................................15
Section 5.2. Subsidiaries..........................................................................16
Section 5.3. Corporate Authority and Validity of Obligations.......................................16
Section 5.4. Use of Proceeds; Margin Stock.........................................................17
Section 5.5. Financial Reports.....................................................................17
Section 5.6. No Material Adverse Change............................................................17
Section 5.7. Full Disclosure.......................................................................17
Section 5.8. Good Title............................................................................18
Section 5.9. Litigation and Other Controversies....................................................18
Section 5.10. Taxes.................................................................................18
Section 5.11. Approvals.............................................................................18
Section 5.12. Affiliate Transactions................................................................18
Section 5.13. Investment Company; Public Utility Holding Company....................................18
Section 5.14. ERISA.................................................................................18
Section 5.15. Compliance with Laws..................................................................19
Section 5.16. Other Agreements......................................................................19
Section 5.17. No Default............................................................................19
Section 5.18. Year 2000 Compliance..................................................................19
SECTION 6. CONDITIONS PRECEDENT..................................................................19
Section 6.1. Representations True..................................................................20
Section 6.2. Compliance............................................................................20
Section 6.3. Credit Limits.........................................................................20
Section 6.4. Regulatory Compliance.................................................................20
Section 6.5. Letters of Credit.....................................................................20
SECTION 7. COVENANTS.............................................................................20
Section 7.1. Maintenance of Business...............................................................20
Section 7.2. Maintenance of Property...............................................................21
Section 7.3. Taxes and Assessments.................................................................21
Section 7.4. Insurance.............................................................................21
Section 7.5. Financial Reports and Rights of Inspection............................................21
Section 7.6. Adjusted Tangible Net Worth...........................................................23
Section 7.7. Leverage Ratio........................................................................24
Section 7.8. Fixed Charge Coverage Ratio...........................................................24
Section 7.9. Current Ratio.........................................................................24
Section 7.10. Indebtedness for Borrowed Money.......................................................24
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Section 7.11. Liens.................................................................................25
Section 7.12. Investments, Acquisitions, Loans, Advances and Guarantees.............................27
Section 7.13. Capital and Certain other Restricted Expenditures.....................................30
Section 7.14. Mergers, Consolidations and Sales.....................................................31
Section 7.15. Maintenance of Restricted Subsidiaries................................................32
Section 7.16. Dividends and Certain Other Restricted Payments.......................................32
Section 7.17. ERISA.................................................................................33
Section 7.18. Compliance with Laws..................................................................33
Section 7.19. Burdensome Contracts With Affiliates..................................................33
Section 7.20. Amendments to Subordinated Debt.......................................................34
Section 7.21. No Changes in Fiscal Year.............................................................34
Section 7.22. Formation of Subsidiaries.............................................................34
Section 7.23. Change in the Nature of Business......................................................34
Section 7.24. Year 2000 Assessment..................................................................34
SECTION 8. EVENTS OF DEFAULT AND REMEDIES........................................................34
Section 8.1. Events of Default.....................................................................34
Section 8.2. Non-Bankruptcy Defaults...............................................................36
Section 8.3. Bankruptcy Defaults...................................................................36
Section 8.4. Collateral for Undrawn Letters of Credit..............................................36
SECTION 9. DEFINITIONS INTERPRETATIONS...........................................................37
Section 9.1. Definitions...........................................................................37
Section 9.2. Interpretation........................................................................50
SECTION 10. THE AGENT AND THE ISSUERS.............................................................50
Section 10.1. Appointment and Authorization.........................................................50
Section 10.2. Rights as a Lender....................................................................51
Section 10.3. Standard of Care......................................................................51
Section 10.4. Costs and Expenses....................................................................52
Section 10.5. Indemnity.............................................................................52
Section 10.6. Conflict..............................................................................52
SECTION 11. MISCELLANEOUS.........................................................................52
Section 11.1. Withholding Taxes.....................................................................52
Section 11.2. Holidays..............................................................................54
Section 11.3. No Waiver, Cumulative Remedies........................................................54
Section 11.4. Waivers, Modifications and Amendments.................................................54
Section 11.5. Costs and Expenses....................................................................55
Section 11.6. Stamp Taxes...........................................................................55
Section 11.7. Survival of Representations and Indemnities...........................................55
Section 11.8. Construction..........................................................................55
Section 11.9. Addresses for Notices.................................................................55
Section 11.10. Obligations Several...................................................................56
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Section 11.11. Headings..............................................................................56
Section 11.12. Severability of Provisions............................................................56
Section 11.13. Counterparts..........................................................................56
Section 11.14. Binding Nature and Governing Law......................................................56
Section 11.15. Entire Understanding..................................................................56
Section 11.16. Extensions of the Commitments.........................................................56
Section 11.17. Participations........................................................................57
Section 11.18. Assignment Agreements.................................................................57
Section 11.19. Terms of Collateral Documents not Superseded..........................................58
Section 11.20. PERSONAL JURISDICTION.................................................................58
(a) EXCLUSIVE JURISDICTION................................................................58
(b) OTHER JURISDICTIONS...................................................................58
Section 11.21. Currency..............................................................................59
Section 11.22. Currency Equivalence..................................................................59
Signature Page....................................................................................................1
</TABLE>
EXHIBIT A - Revolving Credit Note
EXHIBIT B - Form of Opinion of Counsel
EXHIBIT C - Borrowing Base Certificate
EXHIBIT D - Compliance Certificate
EXHIBIT E - Assignment and Acceptance
EXHIBIT F - Acknowledgement of Pledge
SCHEDULE I - Compliance Calculations
SCHEDULE 1.1 - Commitments
SCHEDULE 4.2 - The Guarantors
SCHEDULE 5.2 - Subsidiaries
SCHEDULE 5.9 - Litigation
SCHEDULE 7.10 - Indebtedness
SCHEDULE 7.11 - Liens
SCHEDULE 7.12 - Investments, Loans, Advances and Guarantees
-iv-
<PAGE>
EMCOR GROUP, INC.
AMENDMENT AND RESTATEMENT OF CREDIT AGREEMENT
Harris Trust and Savings Bank
Chicago, Illinois
and the other Lenders from time to time party hereto
Gentlemen:
The undersigned, EMCOR Group Inc., a Delaware corporation, DYN
Specialty Contracting Inc. a Virginia corporation, Comstock Canada Ltd., a
Canadian corporation, and Drake & Scull Engineering Ltd., a United Kingdom
corporation, refer to the Credit Agreement dated as of June 19, 1996 as
currently in effect between them and you, all as heretofore amended (the "Credit
Agreement"), capitalized terms used herein without definition to have the
meaning ascribed to them in the Credit Agreement as amended and restated hereby.
Upon your acceptance hereof in the space provided for that purpose below this
shall constitute a contract between us for the following uses and purposes:
ARTICLE I. AMENDMENT AND RESTATEMENT OF CREDIT AGREEMENT.
The Credit Agreement shall be amended and, for the sake of convenience
and clarity, shall be restated in its entirety to read as follows:
"The undersigned, EMCOR Group, Inc., a Delaware corporation
(the "Company"), Comstock Canada, Ltd., a Canadian corporation
("Comstock Canada"), and Drake & Scull Engineering Ltd., a
United Kingdom corporation ("Drake & Scull"), apply to you for
your several commitments, subject to all of the terms and
conditions hereof and on the basis of the representations and
warranties hereinafter set forth, to make a revolving credit
(the "Revolving Credit") available to the Borrowers, all as
more fully hereinafter set forth.
SECTION 1. THE REVOLVING CREDIT
Section 1.1. Revolving Credit. Subject to all of the terms and
conditions hereof, each Lender, by its acceptance hereof, severally agrees to
extend a Revolving Credit to the Borrowers in the amount of its commitment to
extend the Revolving Credit set forth opposite its name on Schedule 1.1 hereto
or on the Assignment Agreement to which it is a party (its "Commitment" and
cumulatively for all the Lenders, the "Commitments") (subject to any reductions
thereof pursuant to the terms hereof) prior to the Termination Date. Subject to
the terms and conditions
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hereof, such Revolving Credit may be availed of by each Borrower in its
discretion from time to time, be repaid and used again, during the period from
the date hereof to and including the Termination Date. The Revolving Credit,
subject to all of the terms and conditions hereof, may be utilized by any one or
more of the Borrowers in the form of Revolving Loans and Letters of Credit, all
as more fully hereinafter set forth; provided, however, that the aggregate
amount of the Revolving Loans and L/C Obligations outstanding at any one time
from all the Borrowers taken together when taken together with the amount of
outstanding borrowings and letters of credit under the Canadian Facility shall
not at any time exceed the lesser of the Commitments then in effect or the
Borrowing Base as shown on the most recent Borrowing Base Certificate, provided,
further, that in addition to, and not in substitution for, the foregoing
requirement: (i) the aggregate outstanding amount of L/C Obligations shall in no
event exceed $100,000,000 at any one time outstanding, (ii) the aggregate amount
of Revolving Loans made to Drake & Scull when taken together with the aggregate
amount of L/C Obligations with respect to Letters of Credit issued for the
account of Drake & Scull and its Subsidiaries shall in no event exceed
$50,000,000 at any one time outstanding, and (iii) the aggregate amount of
Revolving Loans made to Comstock Canada and of L/C Obligations with respect to
Letters of Credit issued for the account of Comstock Canada and its Subsidiaries
when taken together with the aggregate outstanding amount of loans made under
the Canadian Facility and letters of credit issued thereunder shall in no event
exceed $25,000,000 at any one time outstanding (the "Sublimits"). The
obligations of the Lenders hereunder are several and not joint and no Lender
shall under any circumstances be obligated to extend credit hereunder in excess
of its Commitment.
For all purposes of this Agreement, where a determination of the used, unused or
available amount of the Commitments or of the outstanding amount of Credit
Utilizations is necessary, Credit Utilizations payable in an Alternative
Currency shall be converted into their U.S. Dollar Equivalent. Such conversions
shall be made on the date of each Credit Utilization in an Alternative Currency
as to that Credit Utilization and all Credit Utilizations shall be converted
into their U.S. Dollar Equivalent as of the last day of each month or at the
time of each Credit Utilization should the Agent so elect; such conversions to
be based on the applicable spot currency conversion ratio as reported in the
Wall Street Journal as of the applicable date or time. If the last day of a
month is not a Business Day, such conversion shall be made as of the next
Business Day. The Agent shall promptly notify the Company of such determination
of a U.S. Dollar Equivalent and of the basis therefor. All Credit Utilizations
and interest thereon shall be repaid in the currency in which they were
effected.
Section 1.2. Revolving Loans. Subject to all of the terms and conditions
hereof, the Revolving Credit may be availed of in the form of loans
(individually a "Revolving Loan" and collectively the "Revolving Loans"). Each
Borrowing of Revolving Loans shall, except to the extent otherwise agreed in
writing by all Lenders, be made ratably by the Lenders in accordance with their
Percentages. Each Borrowing of Revolving Loans shall be in a minimum amount of
$1,000,000 or such greater amount which is an integral multiple of $100,000. All
Revolving Loans made by a Lender to a particular Borrower shall be evidenced by
a single Revolving Credit Note of such Borrower (individually a "Revolving
Credit Note" and collectively the "Revolving Credit Notes") payable to the order
of such Lender, each Revolving Credit Note to be in the form (with appropriate
insertions) attached hereto as Exhibit A. Without regard to the face principal
amount of each Lender's Revolving Credit Note, the actual principal amount at
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any time outstanding and owing by each Borrower on account of Revolving Loans
shall be the sum of all Revolving Loans then or theretofore made thereon by such
Lender to such Borrower less all payments actually received thereon.
Section 1.3. Letters of Credit.
(a) General Terms. Subject to the terms, conditions and limitations
hereof (including those set forth in Section 1.1 hereof), as part of the
Revolving Credit, the Applicable Issuer shall issue Financial Letters of Credit
or Performance Letters of Credit (each a "Letter of Credit") for the account of
any one or more of the Borrowers in, as requested by the Company acting on
behalf of the applicable Borrower, U.S. Dollars or an Alternative Currency. Each
Letter of Credit shall be issued by the Applicable Issuer, but each Lender shall
be obligated to reimburse the Applicable Issuer for its Percentage of the amount
of each drawing thereunder and, accordingly, the undrawn face amount of each
Letter of Credit shall constitute usage of the Commitment of each Lender pro
rata in accordance with each Lender's Percentage. Each Letter of Credit shall
conform to the Applicable Issuer's policies as to form and shall be a Letter of
Credit which the Applicable Issuer may lawfully issue. Each Letter of Credit
shall support payment of an obligation of the Borrower who applies for same or
an obligation of a Subsidiary of same which is a Restricted Subsidiary or of a
venture described in subsections (j), (n) or (o) of Section 7.12 of which the
applicant or one of its Restricted Subsidiaries is a member.
(b) Applications. At any time before the Termination Date, the
Applicable Issuer shall, subject to all of the terms and conditions hereof, at
the request of the Company (which is acting on behalf of the Borrowers pursuant
to Section 1.7 hereof), issue one or more Letters of Credit, in a form
satisfactory to the Applicable Issuer, in an aggregate face amount as set forth
above, upon the receipt of an application for the relevant Letter of Credit in
the form customarily prescribed by the Applicable Issuer for the type of Letter
of Credit in question, duly executed by the Borrower for whose account such
Letter of Credit was issued (each an "Application"). Each Letter of Credit
issued hereunder shall (a) be payable, as determined by the Company acting on
behalf of the applicable Borrower, in U.S. Dollars or an Alternative Currency
and (b) expire not later than (i) the Termination Date for Letters of Credit
issued by Harris Trust and Savings Bank and (ii) the date which is five days
prior to the Termination Date for Letters of Credit issued by an Applicable
Issuer other than Harris Trust and Savings Bank. Notwithstanding anything
contained in any Application to the contrary, (i) the applicable Borrower's
obligation to pay fees in connection with each Letter of Credit shall be as
exclusively set forth in Section 3.3 hereof, (ii) except as otherwise provided
in Section 3.5 hereof, prior to the existence of an Event of Default, the
Applicable Issuer will not call for the funding by the Borrower of any amount
under a Letter of Credit, or any other form of collateral security for the
Borrower's obligations in connection with such Letter of Credit, before being
presented with a drawing thereunder, and (iii) if the Applicable Issuer is not
timely reimbursed for the amount of any drawing under a Letter of Credit on the
date such drawing is paid, the Borrower's obligation to reimburse the Applicable
Issuer for the amount of such drawing shall bear interest (which the relevant
Borrower hereby promises to pay) from and after the date such drawing is paid at
a rate per annum equal to the sum of 2% plus the Applicable Margin for
Eurodollar Loans from time to time in effect. The Issuers will promptly notify
the Agent of each request for a Letter of Credit and of issuance of a Letter of
Credit. If an Issuer issues any Letters of Credit with expiration
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dates that are automatically extended unless such Issuer gives notice that the
expiration date will not so extend beyond its then scheduled expiration date,
such Issuer will give such notice of non-renewal before the time necessary to
prevent such automatic extension if before such required notice date (i) the
expiration date of such Letter of Credit if so extended would be after the
Termination Date, (ii) the Commitments have been terminated, or (iii) an Event
of Default exists and the Required Lenders have given the Issuer instructions
not to so permit the extension of the expiration date of such Letter of Credit.
Without limiting the generality of the foregoing, each Issuer's obligation to
issue, amend or extend the expiration date of a Letter of Credit is subject to
the conditions of Section 6, the other terms of this Section 1.3 and the other
provisions of this Agreement and such Issuer will not issue, amend or extend the
expiration date of any Letter of Credit if any Lender notifies such Issuer of
any failure to satisfy or otherwise comply with such conditions, terms and other
provisions and directs the Issuer not to take such action.
(c) The Reimbursement Obligation. Subject to Section 1.3(b) hereof, the
obligation of a Borrower to reimburse the Applicable Issuer for all drawings
under a Letter of Credit issued for such Borrower's account (a "Reimbursement
Obligation") shall be governed by the Application related to such Letter of
Credit, except that reimbursement of each drawing shall be made in immediately
available funds at the designated office of such Issuer by no later than 12:00
Noon (local time at the issuing office of the Issuer) on the date when such
drawing is paid. If the relevant Borrower does not make any such reimbursement
payment on the date due and the Participating Lenders (as hereinafter defined)
fund their participations therein in the manner set forth in Section 1.3(d)
below, then all payments thereafter received by the Applicable Issuer in
discharge of any of the relevant Reimbursement Obligations shall be distributed
in accordance with Section 1.3(d) below.
(d) The Participating Interests. Each Lender, by its acceptance hereof,
severally agrees to purchase from the Applicable Issuer, and the Applicable
Issuer hereby agrees to sell to each such Lender (a "Participating Lender"), an
undivided percentage participating interest (a "Participating Interest"), to the
extent of its Percentage, in each Letter of Credit issued by, and each
Reimbursement Obligation owed to, the Applicable Issuer. Upon any failure by a
Borrower to pay any Reimbursement Obligation in respect of a Letter of Credit
issued for such Borrower's account at the time required on the date the related
drawing is paid, as set forth in Section 1.3(c) above, or if the Applicable
Issuer is required at any time to return to a Borrower or to a trustee,
receiver, liquidator, custodian or other Person any portion of any payment of
any Reimbursement Obligation, each Participating Lender shall, not later than
the Business Day it receives a certificate from the Applicable Issuer to such
effect, if such certificate is received before 1:00 p.m. (local time at the
office of the Issuer), or not later than the following Business Day, if such
certificate is received after such time, pay to the Applicable Issuer an amount
equal to its Percentage of such unpaid or recaptured Reimbursement Obligation
together with interest on such amount accrued from the date the related payment
was made by the Applicable Issuer to the date of such payment by such
Participating Lender at a rate per annum equal to (i) from the date the related
payment was made by the Applicable Issuer to the date two (2) Business Days
after payment by such Participating Lender is due hereunder, the Federal Funds
Rate for each such day and (ii) from the date two (2) Business Days after the
date such payment is due from such Participating Lender to the date such payment
is made by such Participating Lender, the rate per annum determined by adding
the Applicable Margin to the Domestic Rate in effect for each such
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day. Each such Participating Lender shall thereafter be entitled to receive its
Percentage of each payment received in respect of the relevant Reimbursement
Obligation and of interest paid thereon, with the Applicable Issuer retaining
its Percentage as a Lender hereunder.
The several obligations of the Participating Lenders to the Issuers
under this Section 1.3 shall be absolute, irrevocable and unconditional under
any and all circumstances whatsoever (except, to the extent such Borrower is
relieved from its obligation to reimburse the Applicable Issuer for a drawing
under a Letter of Credit because of the Applicable Issuer's gross negligence or
willful misconduct in determining that documents received under the Letter of
Credit comply with the terms thereof) and shall not be subject to any set-off,
counterclaim or defense to payment which any Participating Lender may have or
have had against any one or more of the Borrowers, the Agent, any other Lender
or any other Person whatsoever. Without limiting the generality of the
foregoing, such obligations shall not be affected by any Default or Event of
Default or by any reduction or termination of any Commitment of any Lender, and
each payment by a Participating Lender under this Section 1.3 shall be made
without any offset, abatement, withholding or reduction whatsoever. The Agent
shall be entitled to offset amounts received for the account of a Lender under
this Agreement against unpaid amounts due from such Lender hereunder (whether as
fundings of participations, indemnities or otherwise).
(e) Indemnification. Each of the Participating Lenders shall, to the
extent of their respective Percentages, indemnify the Issuers (to the extent not
reimbursed by the Borrowers) against any cost, expense (including reasonable
counsel fees and disbursements), claim, demand, action, loss or liability
(except such as result from the applicable Issuer's gross negligence or willful
misconduct) that the Issuers may suffer or incur in connection with any Letter
of Credit. The obligations of the Participating Lenders under this Section
1.3(e) and all other parts of this Section 1.3 shall survive termination of this
Agreement and of all other L/C Documents.
Section 1.4. Manner of Borrowing Revolving Loans. (a) Generally. The
Company (which is acting on behalf of the Borrowers pursuant to Section 1.7
hereof) shall give the Agent notice (which shall be irrevocable and may be
written or oral, but if oral, promptly confirmed in writing) by 10:00 a.m.
(Central Time) on any Business Day of each request for a Borrowing of Revolving
Loans, in each case specifying the Borrower to which the proceeds of such
Borrowing are to be disbursed, the amount of each such Borrowing, the currency
of such Borrowing (which must be U.S. Dollars or an Alternative Currency, except
that Domestic Rate Loans shall only be available in U.S. Dollars), the date such
Borrowing is to be made, which shall be not less than three Business Days hence
in the case of a Borrowing in an Alternative Currency or a Borrowing of
Eurodollar Loans, but which may be the same day in the case of a Borrowing of
Domestic Rate Loans, whether the Borrowing is to be of Domestic Rate Loans or
Eurodollar Loans and, in all cases other than a Borrowing of Domestic Rate
Loans, of the Interest Period selected therefor. The Agent shall promptly notify
each Lender of its receipt of each such notice. Not later than 1:00 p.m. on the
date specified for any Borrowing, each Lender shall make the proceeds of its
Revolving Loan comprising part of such Borrowing available in immediately
available funds to the Agent in Chicago except (i) in the case of Revolving
Loans denominated in an Alternative Currency, which shall be made available at
such office as the Agent has previously specified in a notice to each Lender in
such funds which are then customary for the settlement of international
transactions in such currency and no later than such local time as is necessary
for such funds to
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be received and transferred to the relevant Borrower for same day value on the
date of the relevant Borrowing and (ii) to the extent such Borrowing is a
reborrowing, in whole or in part, of the principal amount of a maturing
Borrowing of Loans to the same Borrower and in the same currency (a "Refunding
Borrowing"), in which case each Bank shall record the Revolving Loan made by it
as a part of such Refunding Borrowing on its books or records or on a schedule
to the Note held by it, and shall effect the repayment, in whole or in part, as
appropriate, of its maturing Revolving Loan through the proceeds of such new
Revolving Loan. Subject to all of the terms and conditions hereof, the proceeds
of each Lender's Revolving Loan denominated in U.S. Dollars shall be made
available to the relevant Borrower on the date requested at the office of the
Agent in Chicago and the proceeds of each Lender's Revolving Loans denominated
in an Alternative Currency at such office as the Agent has previously agreed to
with the relevant Borrower, in each case in the type of funds received by the
Agent from the Lenders. The Lenders' obligations to make Revolving Loans in an
Alternative Currency or to provide or participate in Letters of Credit payable
in an Alternative Currency shall always be subject to such Alternative Currency
being freely available to each of them in the relevant market. If any Lender
reasonably determines that such currency requested is unavailable to it in the
amount and for the term requested it shall so notify the Agent within two hours
of its receipt of the aforesaid notice and the Agent shall promptly notify the
Company and each other Lender of its receipt of such notice and the request of
the Company for the Borrowing in the Alternative Currency in question shall be
deemed withdrawn. Borrowing notices shall be irrevocable.
(b) Agent Reliance on Bank Funding. Unless the Agent shall have been
notified by a Lender before the time when such Lender is scheduled to make
payment to the Agent of the proceeds of a Revolving Loan that such Lender does
not intend to make such payment, the Agent may assume that such Lender has made
such payment when due and the Agent may in reliance upon such assumption (but
shall not be required to) make available to the relevant Borrower the proceeds
of the Revolving Loan to be made by such Lender and, if any Lender has not in
fact made such payment to the Agent, such Lender shall, on demand, pay to the
Agent the amount made available to such Borrower attributable to such Lender
together with interest thereon in respect of each day during the period
commencing on the date such amount was made available to such Borrower and
ending on (but excluding) the date such Lender pays such amount to the Agent at
a rate per annum equal to the Federal Funds Rate or, in the case of a Revolving
Loan denominated in an Alternative Currency, the cost to the Agent of funding
the amount it advanced to fund such Lender's Revolving Loan, as determined by
the Agent. If such amount is not received from such Lender by the Agent
immediately upon demand, the applicable Borrower will, on demand, repay to the
Agent the proceeds of the Revolving Loan attributable to such Lender with
interest thereon at a rate per annum equal to the interest rate applicable to
the relevant Revolving Loan.
Section 1.5. Minimum Borrowing Amounts. Each Borrowing of Domestic Rate
Loans shall be in an amount not less than $1,000,000, and each Borrowing of
Eurodollar Loans shall be in an amount not less than $2,500,000.
Section 1.6. Maturity of Loans. Each Eurodollar Loan shall mature and
become due and payable on the last day of the Interest Period applicable
thereto, provided that, subject to the terms and conditions of this Agreement,
such Eurodollar Loan may be refunded through a
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Refunding Borrowing. Each Domestic Rate Loan shall mature and become due and
payable on the Termination Date.
Section 1.7. Appointment of Company as Agent for Borrowers; Reliance by
Agent. (a) Appointment. Each Borrower irrevocably appoints the Company as its
agent hereunder to make requests on such Borrower's behalf under Section 1
hereof for Borrowings to be made by such Borrower and for Letters of Credit to
be issued for such Borrower's account and to take any other action contemplated
by the Loan Documents with respect to credit extended hereunder to such
Borrower. The Agent and the Lenders shall be entitled to conclusively presume
that any action by the Company under the Loan Documents is taken on behalf of
any one or more of the Borrowers whether or not the Company so indicates.
(b) Reliance. All requests for Borrowings and selection of interest
rates, currencies and Interest Periods to be applicable thereto may be written
or oral, including by telephone or telecopy. The Borrowers agree that the Agent
may rely on any such notice given by any person the Agent in good faith believes
is an Authorized Representative without the necessity of independent
investigation (the Borrowers hereby indemnifying the Agent and Lenders from any
liability or loss ensuing from such reliance), and in the event any such
telephonic or other oral notice conflicts with any written confirmation, such
oral or telephonic notice shall govern if the Agent has acted in reliance
thereon.
SECTION 2. INTEREST.
Section 2.1. Domestic Rate Loans. Each Domestic Rate Loan shall bear
interest (which the relevant Borrower promises to pay at the times herein
provided) at the rate per annum determined by adding the Applicable Margin to
the Domestic Rate as in effect from time to time, provided that if a Domestic
Rate Loan is not paid when due (whether by lapse of time, acceleration or
otherwise), such Revolving Loan shall bear interest (which the relevant Borrower
promises to pay at the times hereinafter provided), whether before or after
judgment, and until payment in full thereof, at the rate per annum determined by
adding 2% to the sum of the Applicable Margin as in effect from time to time.
Interest on the Revolving Loans shall be payable in arrears on the last day of
each calendar month (beginning on the first of such dates after the date hereof)
and at maturity of the Revolving Credit Notes and interest after maturity shall
be due and payable upon demand.
Section 2.2. Eurodollar Loans. Each Eurodollar Loan shall bear interest
(which the relevant Borrower promises to pay at the times herein provided) on
the unpaid principal amount thereof from time to time outstanding from the date
of the Borrowing of such Eurodollar Loan until maturity (whether by acceleration
or otherwise) at a rate per annum equal to the sum of the Applicable Margin plus
Adjusted LIBOR, payable on the last day of the applicable Interest Period and at
maturity (whether by acceleration or otherwise), and, if the applicable Interest
Period is longer than three months, on the date occurring three months after the
date of the Borrowing of such Loan; provided that if a Eurodollar Loan is not
paid when due (whether by acceleration or otherwise), such Loan shall bear
interest (which the relevant Borrower promises to pay at the times herein
provided) from the date such payment was due until paid in full, payable on
demand, at a rate per annum equal to the sum of two percent (2%) plus the rate
of
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interest in effect thereon at the time of such default until the end of the
Interest Period applicable thereto and thereafter (i) in the case of Eurodollar
Loans payable in U.S. Dollars at the interest rate per annum from time to time
applicable to Domestic Rate Loans which are overdue and (ii) in the case of
Eurodollar Loans payable in an Alternative Currency at a rate per annum equal to
the sum of the Applicable Margin, plus a rate of two percent (2.0%) plus the
rate of interest per annum as determined by the Agent (rounded upwards, if
necessary, to the nearest whole multiple of one-sixteenth of one percent
(1/16%)) at which overnight or weekend deposits of the appropriate currency (or,
if such amount due remains unpaid more than three Business Days, then for such
other period of time not longer than six months as the Agent may elect in its
absolute discretion) for delivery in immediately available and freely
transferable funds would be offered by the Agent to major banks in the interbank
market upon request of such major banks of the applicable period as determined
above and in an amount comparable to the unpaid principal amount of any such
Loan (or, if the Agent is not placing deposits in such currency in the interbank
market, then the Agent's cost of funds in such currency for such period).
Section 2.3. Rate Determinations. The Agent shall determine each
interest rate applicable to the Loans hereunder in accordance herewith, and its
determination thereof shall be deemed prima facie correct.
Section 2.4. Computation of Interest. All interest on the Revolving
Credit Notes (and unless otherwise stated herein, all fees, charges and
commissions due hereunder), shall be computed on the basis of a year of 360 days
for the actual number of days elapsed.
Section 2.5. Funding Indemnity. If any Lender shall incur any loss, cost
or expense (including, without limitation, any loss of profit, and any loss,
cost or expense incurred by reason of the liquidation or re-employment of
deposits or other funds acquired by such Lender to fund or maintain any
Eurodollar Loan or the relending or reinvesting of such deposits or amounts paid
or prepaid to such Lender) as a result of:
(i) any payment or prepayment of a Eurodollar Loan on a date other than
the last day of its Interest Period for any reason,
(ii) any failure (because of a failure to meet the conditions of
Borrowing or otherwise) by a Borrower to borrow or refund a Eurodollar Loan on
the date specified in a notice given pursuant to this Agreement,
(iii) any failure by a Borrower to make any payment of principal on any
Eurodollar Loan when due (whether by acceleration or otherwise), or
(iv) any acceleration of the maturity of a Eurodollar Loan as a result
of the occurrence of any Event of Default hereunder,
then, upon the demand of such Lender, the applicable Borrower shall pay to such
Lender such amount as will reimburse such Lender for such loss, cost or expense.
If any Lender makes such a claim for compensation, it shall provide to the
Company, with a copy to the Agent, a certificate executed by an officer of such
Lender setting forth the amount of such loss, cost or expense in
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reasonable detail (including an explanation of the basis for and the computation
of such loss, cost or expense) and the amounts shown on such certificate shall
be deemed prima facie correct.
Section 2.6. Change of Law. Notwithstanding any other provisions of this
Agreement or any Note, if at any time any change in applicable law or regulation
or in the interpretation thereof makes it unlawful for any Lender to make or
continue to maintain Loans in an Alternative Currency or Eurodollar Loans or to
perform its obligations as contemplated hereby, such Lender shall promptly give
notice thereof to the Borrower and such Lender's obligations to make or maintain
Eurodollar Loans or Loans in an Alternative Currency (as applicable) under this
Agreement shall terminate until it is no longer unlawful for such Bank to make
or maintain such Loans. The applicable Borrower shall prepay on demand the
outstanding principal amount of any such affected Loans, together with all
interest accrued thereon and all other amounts then due and payable to such
Lender under this Agreement; provided, however, subject to all of the terms and
conditions of this Agreement, the applicable Borrower may then elect to borrow
the principal amount of the affected Loans from such Lender by means of Domestic
Rate Loans which Loans shall not be made ratably by the Lenders but only from
such affected Lender.
Section 2.7. Unavailability. If prior to the commencement of any
Interest Period for any Borrowing of Eurodollar Loans:
(a) the Agent determines that deposits in the applicable currency
(in the applicable amounts) are not being offered to it in the
eurocurrency interbank market for such Interest Period, or that by
reason of circumstances affecting the interbank eurocurrency market
adequate and reasonable means do not exist for ascertaining the
applicable LIBOR, or
(b) the Required Lenders notify the Agent that (i) LIBOR as
determined by the Agent will not adequately and fairly reflect the cost
to such Lender of funding their Loans in the currency in question for
such Interest Period or (ii) that the making or funding of Loans in the
relevant currency has become impracticable, in either case as a result
of an event occurring after the date hereof which in the opinion of such
Lender materially affects such Loans,
then and in any such event the Agent shall not less than two days prior to the
commencement of such Interest Period, give notice thereof to the Company and the
Lenders, whereupon until the Agent notifies the Company that the circumstances
giving rise to such suspension no longer exist, the obligations of the Lenders
to make Loans in the currency so affected or to make Eurodollar Loans (as
applicable) shall be suspended.
Section 2.8. Increased Cost and Reduced Return. If, on or after the date
hereof, the adoption of any applicable law, rule or regulation, or any change
therein, or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender (or its
lending office) with any request or directive (whether or not having the force
of law) of any such authority, central bank or comparable agency:
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(i) shall subject any Lender (or its applicable lending office)
to any tax, duty or other charge with respect to any of its Eurodollar
Loans, its Revolving Credit Notes, its Letter(s) of Credit, or its
participation in any thereof, or its obligation to make Loans, issue a
Letter of Credit, or to participate therein, or shall change the basis
of taxation of payments to any Lender (or its applicable lending office)
of the principal of or interest on any of its Eurodollar Loans,
Letter(s) of Credit, or participations therein or any other amounts due
under this Agreement in respect of its Eurodollar Loans, Letter(s) of
Credit, or participations therein or its obligation to make Eurodollar
Loans, issue a Letter of Credit, or acquire participations therein
(except for changes in the rate of tax on the overall net income of such
Lender or its lending office imposed by the jurisdiction in which such
Lender's principal executive office or applicable lending office is
located); or
(ii) shall impose, modify or deem applicable any reserve, special
deposit or similar requirement (including, without limitation, any such
requirement imposed by the Board of Governors of the Federal Reserve
System, but excluding with respect to any such requirement included in
an applicable Eurocurrency Reserve Percentage) against assets of,
deposits with or for the account of, or credit extended by, any Lender
(or its applicable lending office) or shall impose on any Lender (or its
lending office) or on the interbank market any other condition affecting
its Revolving Loans, its Revolving Credit Notes, its Letter(s) of
Credit, or its participation in any thereof, any of its obligation to
make Revolving Loans, to issue a Letter of Credit, or to participate
therein;
and the result of any of the foregoing is to increase the cost to such Lender
(or its lending office) of making or maintaining any Revolving Loan in the
currency requested or issuing or maintaining a Letter of Credit, or
participating therein, or to reduce the amount of any sum received or receivable
by such Lender (or its applicable lending office) under this Agreement or under
its Notes with respect thereto, by an amount deemed by such Lender, in its
reasonable judgment, to be material, then, within fifteen (15) days after demand
by such Lender (with a copy to the Agent), the Company shall be obligated to pay
to such Lender such additional amount or amounts as will compensate such Lender
for such increased cost or reduction.
Each Lender that determines to seek compensation under this Section 2.8 shall
notify the Company and the Agent of the circumstances that entitle the Lender to
such compensation pursuant to this Section 2.8 and will designate a different
lending office if such designation will avoid the need for, or reduce the amount
of, such compensation and will not, in the reasonable judgment of such Lender,
be otherwise disadvantageous to such Lender. A certificate of any Lender
claiming compensation under this Section 2.8 and setting forth the additional
amount or amounts to be paid to it hereunder shall be conclusive in the absence
of manifest error. In determining such amount, such Lender may use any
reasonable averaging and attribution methods.
Section 2.9. Lending Offices. Each Lender may, at its option, elect to
make its Loans hereunder at the branch, office or affiliate specified on the
appropriate signature page hereof (each a "Lending Office") for each type of
Revolving Loan available hereunder or at such other of its branches, offices or
affiliates as it may from time to time elect and designate in a notice to the
Company and the Agent (but such funds shall in any event be made available to
the
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Company at the office of the Agent as herein provided for), provided that the
Company shall not be required to reimburse any Lender under any of the
provisions of this Section 2 for any cost which such Lender would not have
incurred but for changing its lending or funding branch unless the Company
consented to such change.
Section 2.10. Discretion of Lender as to Manner of Funding.
Notwithstanding any other provision of this Agreement, each Lender shall be
entitled to fund and maintain its funding of all or any part of its Loans in any
manner it sees fit, it being understood, however, that for the purposes of this
Agreement all determinations under this Agreement shall be made as if each
Lender had actually funded and maintained each Eurodollar Loan through the
purchase of deposits in the relevant market and in the relevant currency having
a maturity corresponding to such Eurodollar Loan's Interest Period and bearing
an interest rate equal to Adjusted LIBOR for the currency in question for such
Interest Period.
Section 2.11. Capital Adequacy. If any Lender shall determine that any
applicable law, rule or regulation regarding capital adequacy instituted after
the date hereof, or any change in the interpretation or administration of any
applicable law, rule or regulation regarding capital adequacy by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof or compliance by such Lender (or its
lending office) with any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on such Lender's capital as a consequence of its obligations hereunder or the
Letters of Credit or credit extended by it hereunder to a level below that which
such Lender could have achieved but for such law, rule, regulation, change or
compliance (taking into consideration such Lender's policies with respect to
capital adequacy) by an amount reasonably deemed by such Lender to be material,
then from time to time as specified by such Lender the Company shall pay on
demand such additional amount or amounts as will compensate such Lender for such
reduction. A certificate of any Lender claiming compensation under this Section
2.11 and setting forth the additional amount or amounts to be paid to it
hereunder in reasonable detail shall be prima facie evidence thereof. In
determining such amount, such Lender may use any reasonable averaging and
attribution methods.
SECTION 3. FEES, PAYMENTS, REDUCTIONS, APPLICATIONS AND NOTATIONS.
Section 3.1. Facility Fee. For the period from the date hereof to and
including the Termination Date, the Borrowers shall pay to the Agent for the
account of the Lenders a facility fee at the rate per annum equal to the
Applicable Margin on the average daily amount of the Commitments hereunder
whether or not in use. Such fee is due and payable in arrears on the last day of
each calendar quarter (commencing with the first of such dates after the date
hereof) and on the Termination Date.
Section 3.2. Other Fees. The Company shall pay to the Agent such other
and additional fees as may from time to time be agreed to between the Company
and the Agent.
Section 3.3. Letter of Credit Fees. The applicable Borrowers shall pay
to the Agent, for the ratable account of the Lenders, a fee on the amount of the
L/C Obligations from time to time
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outstanding computed at the Applicable Margin in the case of Financial Letters
of Credit and the Applicable Margin less the rate of 3/4 of 1% per annum in the
case of Performance Letters of Credit, such fee to be due and payable quarterly
in arrears on the last day of each calendar quarter and on the Termination Date.
In addition, on the date of issuance of each Letter of Credit the applicable
Borrower shall pay the Applicable Issuer for its own account a fee of 1/4 of 1%
of the face amount of such Letter of Credit, such fee to be retained by the
Applicable Issuer for its own account. In addition, the applicable Borrower
shall pay to the Applicable Issuer such issuing, processing, drawing, amendment
and other fees and charges as the Applicable Issuer customarily imposes in
connection with the issuance of letters of credit of the type in question, the
payment of drafts thereunder or amendments thereto.
Section 3.4. Voluntary Prepayments. The Borrowers shall have the
privilege of prepaying without premium or penalty and in whole or in part (but
if in part, then in an amount not less than $500,000 (or such lesser amount as
may then be outstanding) and thereafter in integral multiples of $100,000) the
Revolving Credit Notes at any time upon notice from the Company (which need not
be joined in by any Borrower) to the Agent prior to 11:00 a.m. on the date fixed
for prepayment, each such prepayment to be made by the payment of the principal
amount to be prepaid and, if such prepayment prepays the Borrowings from a
particular Borrower in full, accrued interest thereon to the date of prepayment.
Any amounts so prepaid may, subject to all of the terms and conditions hereof,
be borrowed, repaid and borrowed again.
Section 3.5. Mandatory Prepayment. In the event that the aggregate
amount of the Revolving Loans and the L/C Obligations shall at any time and for
any reason exceed the Borrowing Base or the Commitments or the aggregate amount
of Revolving Loans and L/C Obligations owing from any Borrower shall exceed any
applicable Sublimit, in each case for any reason (including changes in currency
rates), the Borrowers shall immediately and without notice or demand pay the
amount of the excess to the Agent as and for a mandatory prepayment on the
Revolving Credit Notes or, if the Revolving Loans have been paid in full but L/C
Obligations are outstanding, then and in any such event, such excess shall be
paid over to the Agent to be applied against, or held as collateral security
for, as applicable, such L/C Obligations.
Section 3.6. Voluntary Terminations. The Borrowers shall have the
privilege upon five Business Days' prior notice from the Company (which need not
be joined in by any Borrower) to the Agent (which shall promptly notify the
Lenders) to ratably terminate the Commitments in whole or in part (but if in
part then in the amount of $2,000,000 or such greater amount which is an
integral multiple of $100,000); provided that the Commitments may not be reduced
to an amount less than the sum of all Revolving Loans and all L/C Obligations
then outstanding unless there is deposited with the Agent as cash collateral for
such Revolving Loans and L/C Obligations cash in the amount by which the same
exceed the amount of the Commitments.
Section 3.7. Place and Application. All payments of principal, interest
and fees shall be made to the Agent at its office at 111 West Monroe Street,
Chicago, Illinois (or at such other place as the Agent may specify) in
immediately available and freely transferable funds at the place of payment by
no later than 12:00 Noon Central Time on the due date thereof or, if such
payment is to be made in an Alternative Currency, by no later than 12:00 Noon
local time at the place of payment to such office as the Agent has previously
specified; provided however that
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reimbursements of drawings under Letters of Credit shall be made to the
Applicable Issuer. Any payments received by the Agent or such Applicable Issuer
after such time shall be deemed received as of the opening of business on the
next Business Day. All such payments shall be made (i) in U.S. Dollars, in
immediately available funds at the place of payment, or (ii) in the case of
Revolving Loans or reimbursement of drawings under a Letter of Credit in an
Alternative Currency, in such Alternative Currency in such funds then customary
for settlement of international transactions in such currency. All such payments
shall be made without set-off or counterclaim and without reduction for, and
free from, any and all present or future taxes, levies, imposts, duties, fees,
charges, deductions, withholdings, restrictions or conditions of any nature
imposed by any government or political subdivision or taxing authority thereof.
Except as herein provided, all payments shall be received for the ratable
account of the Lenders and shall be distributed by the Agent to the Lenders in
accordance with their Percentages on the date the Agent receives payment, or if
the Agent receives payment later than 12:00 Noon Central Time, then no later
than the next Business Day. Any amount prepaid on the Revolving Credit Notes
may, subject to all of the terms and conditions hereof, be borrowed, repaid and
borrowed again. Unless the applicable Borrower otherwise requests, each
prepayment shall be first applied to such Borrower's Domestic Rate Loans and
then to its Eurodollar Loans in the order in which their Interest Periods
expire. Any prepayment of Eurodollar Loans shall be accompanied by any amount
due the Lenders under Section 2.5 hereof but acceptance of any such prepayment
without such a payment being made shall not preclude a later demand by the
Lenders for such payment.
Anything contained herein to the contrary notwithstanding, all payments
and collections received in respect of the Obligations and all proceeds of the
Collateral received, in each instance, by the Agent or any of the Lenders after
the occurrence of an Event of Default shall, subject to the terms of the
Intercreditor Agreements, be remitted to the Agent and distributed as follows:
(a) first, to the payment of any outstanding costs and expenses
incurred by the Agent in monitoring, verifying, protecting, preserving
or enforcing the Liens on the Collateral or by the Agent in protecting,
preserving or enforcing rights under the Loan Documents, and in any
event all costs and expenses of a character which the Borrowers have
agreed to pay under Section 11.5 hereof (such funds to be retained by
the Agent for its own account unless the Agent has previously been
reimbursed for such costs and expenses by the Lenders, in which event
such amounts shall be remitted to the Lenders to reimburse them for
payments theretofore made to the Agent);
(b) second, to the payment of any outstanding interest or other
fees or amounts due under the Revolving Credit Notes and the other Loan
Documents, in each case other than for principal or in reimbursement or
collateralization of L/C Obligations, ratably as among the Agent and the
Lenders in accord with the amount of such interest and other fees or
amounts owing each;
(c) third, to the payment of the principal of the Revolving
Credit Notes and any unpaid Reimbursement Obligations and to the Agent
to be held as collateral security for any other L/C Obligations (until
the Agent is holding an amount of cash equal to the
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then outstanding amount of all such L/C Obligations), the aggregate
amount paid to or held as collateral security for the Lenders to be
allocated pro rata as among the Lenders in accordance with the then
respective aggregate unpaid principal balances of their Revolving Loans
and their interests in the Letters of Credit;
(d) fourth, to the Agent and the Lenders ratably in accordance
with the amounts of any other indebtedness, obligations or liabilities
of the Borrowers owing to each of them and secured by the Collateral
Documents unless and until all such indebtedness, obligations and
liabilities have been fully paid and satisfied; and
(e) fifth, to the Company on behalf of the Borrowers (each
Borrower hereby agreeing that its recourse for its share of such payment
shall be to the Company and not the Agent or any Lender) or whoever else
may be lawfully entitled thereto.
Section 3.8. Notations and Requests. All Borrowings made against the
Revolving Credit Notes, the Borrower which made such Borrowings, the rates of
interest applicable thereto, the maturity thereof and the currency in which each
such Borrowing is denominated, shall be recorded by the Lenders on their books
or, at their option in any instance, endorsed on the reverse side of the
Revolving Credit Notes and the unpaid principal balances and status, rates and
currencies so recorded or endorsed by the Lenders shall be prima facie evidence
in any court or other proceeding brought to enforce the Revolving Credit Notes
of the principal amount remaining unpaid thereon, the Borrower which made the
Borrowings evidenced thereby, the currencies in which such Borrowings are
payable, the interest rates applicable thereto and the maturity thereof. Prior
to any negotiation of any Revolving Credit Note, the Lender holding such
Revolving Credit Note shall endorse thereon the outstanding amount of Borrowings
evidenced thereby, the currencies in which the same are payable, the rates of
interest applicable thereto and the maturities thereof.
SECTION 4. THE COLLATERAL AND THE GUARANTEES.
Section 4.1. The Collateral. The Obligations shall be secured by valid
and perfected first Liens on all inventory, accounts receivable, equipment and
other goods of the Borrowers and the Guarantors (including, subject to the
provisions of this Section 4.1, all capital stock of the Guarantors), together
with all instruments, securities, chattel paper and intangibles of the Borrowers
and the Guarantors and all proceeds of the foregoing, provided however that
unless and until the Required Lenders otherwise elect (i) the Borrowers and the
Guarantors shall not be required to note the Agent's Lien on any certificate of
title issued for a vehicle or to perfect a Lien on fixtures or on inventory or
equipment temporarily located at job sites outside of the jurisdiction where its
chief executive office is located and (ii) no Guarantor, the fair market value
of whose assets aggregate less than $250,000 shall be required to grant Liens on
its assets to the Agent, further provided that (i) Liens on those accounts
receivable arising under contracts of the Guarantors for which Seaboard Surety
Company and/or its Affiliates or London Guarantee Insurance Company and/or its
Affiliates or Reliance Insurance Company and/or its Affiliates have provided
payment and/or performance bonds and on inventory and materials and equipment
purchased for, installed in, or allocated to any such contracts, may be subject
to prior Liens in favor of Seaboard Surety Company and/or its Affiliates, London
Guarantee Insurance Company
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and/or its Affiliates and Reliance Insurance Company and/or its Affiliates to
secure obligations in connection with such payment and performance bonds, (ii)
no Lien need be granted on any asset subject to a lien permitted by Section
7.11(e), (i), (j), (k), (l) (as to Liens on fixed assets only), (m) or (n)
(insofar as (n) relates to the extension, renewal or replacement of a Lien
permitted by the subsections of Section 7.11 identified in this clause (ii)), or
(o), (iii) no Lien need be granted on the capital stock of an Unrestricted
Subsidiary or on the capital stock or assets of Designated Foreign Restricted
Subsidiaries, (iv) Liens need not be granted on the stock of the Canadian
Subsidiaries or Drake & Scull Engineering (North) Ltd. or Drake & Scull
Engineering (South) Ltd., and the Canadian Subsidiaries and Drake & Scull
Engineering (North) Ltd. and Drake & Scull Engineering (South) Ltd. need not
grant a Lien on their assets prior to February 28, 1999 and the Liens so granted
on the assets of the Canadian Subsidiaries may be subject to Liens permitted by
Section 7.11(f) hereof, (vi) no Liens need be granted on real property unless
and until the Required Lenders so require, (vii) Liens granted may be subject to
Liens permitted by clauses (a), (b), (c) and (h) of Section 7.11 hereof, (viii)
Liens need not be perfected on notes receivable having a fair value of less than
$1,000,000 in any instance and $5,000,000 in the aggregate or on bonds or notes
of the City of New York pledged to the City of New York in lieu of retainage and
(ix) Liens need not be perfected on equity securities (other than capital stock
of Restricted Subsidiaries required to be pledged by the other provisions of
this Section 4.1) having a fair value of less than $1,000,000 in any instance
and $5,000,000 in the aggregate. The Borrowers agree that they will, and will
cause the Guarantors to, from time to time at the request of the Agent or the
Required Lenders execute and deliver such documents and do such acts and things
as the Agent or the Required Lenders may reasonably request in order to provide
for or perfect such Liens on the Collateral.
Section 4.2. The Guarantees. The Obligations shall be fully guaranteed
by the Guarantors. The Required Lenders may from time to time require any
Restricted Subsidiary (other than a captive insurance company or a captive
surety company which is a Restricted Subsidiary) to provide a Guarantee and
Liens on its assets in which event the Company shall within 30 days of request
cause such Restricted Subsidiary to execute and deliver a Guarantee to the Agent
together with such supporting resolutions, opinions and other showings as the
Agent may reasonably require. On or prior to February 28, 1999 the Company shall
cause the Canadian Subsidiaries, Drake & Scull Engineering (North) Ltd. and
Drake & Scull Engineering (South) Ltd. to become Guarantors by providing
Guarantees together with such supporting resolutions, opinions and other
showings as the Agent may reasonably require.
SECTION 5. REPRESENTATIONS AND WARRANTIES.
Each Borrower represents and warrants to the Agent and the Lenders as
follows:
Section 5.1. Organization and Qualification. Each Borrower is duly
organized, validly existing and in good standing (or their equivalents under
applicable local law) as a corporation under the laws of the jurisdiction in
which it is incorporated or organized, as the case may be, has full and adequate
corporate power to own its Property and conduct its business as now conducted,
and is duly licensed or qualified and in good standing in each jurisdiction in
which the failure to be so qualified would have a Material Adverse Effect.
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Section 5.2. Subsidiaries. Each Restricted Subsidiary is duly organized,
validly existing and in good standing (or their equivalents under applicable
local law) under the laws of the jurisdiction in which it is incorporated or
organized, as the case may be, has full and adequate power to own its Property
and conduct its business as now conducted, and is duly licensed or qualified and
in good standing in each jurisdiction in which the failure to be so qualified
would have a Material Adverse Effect. As of the Effective Date, Schedule 5.2
hereto identifies each Subsidiary, the jurisdiction of its incorporation or
organization, as the case may be, the percentage of issued and outstanding
shares of each class of its capital stock or other equity interests owned by the
Company and the Subsidiaries and, if such percentage is not 100% (excluding
directors' qualifying shares as required by law), a description of each class of
its authorized capital stock and other equity interests and the number of shares
of each class issued and outstanding and the Company will notify the Agent of
any material changes in such information. All of the outstanding shares of
capital stock and other equity interests of each Subsidiary are validly issued
and outstanding and fully paid and nonassessable (except for the provisions of
Section 630 of the Business Corporation Law of the State of New York, as to New
York Corporations) and all such shares and other equity interests indicated on
Schedule 5.2 as owned by the Company or a Subsidiary are as of the Effective
Date hereof owned, beneficially and of record, by the Company or such Subsidiary
free and clear of all Liens not permitted hereby. There are no outstanding
commitments or other obligations of any Restricted Subsidiary to issue, and no
options, warrants or other rights of any Person to acquire, any shares of any
class of capital stock or other equity interests of any Restricted Subsidiary
except in favor of the Company or a Restricted Subsidiary.
Section 5.3. Corporate Authority and Validity of Obligations. Each
Borrower has full right and authority to enter into this Agreement and the other
Loan Documents to which it is a party, to make the borrowings herein provided
for, to issue the Revolving Credit Notes in evidence thereof, to grant to the
Agent the Liens provided for in the Collateral Documents being executed by it,
and to perform all of its obligations hereunder and under the other Loan
Documents to which it is a party. Each Guarantor has full right and authority to
enter into the Loan Documents to which it is a party, to grant to the Agent the
Liens provided for in the Collateral Documents executed by it and to perform all
of its obligations under such Loan Documents. The Loan Documents have been duly
authorized, executed and delivered by the Borrowers and Guarantors and
constitute valid and binding obligations of the Borrowers and Guarantors
enforceable in accordance with their terms except as enforceability may be
limited by bankruptcy, insolvency or 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); and this Agreement and the other Loan Documents do not, nor does the
performance or observance by any Borrower or Guarantor of any of the matters and
things herein or therein provided for, contravene or constitute a default under
any provision of law or any judgment, injunction, order or decree binding upon
any Borrower or Guarantor or any provision of the charter, articles of
incorporation or organization or by-laws of any Borrower or Guarantor or any
covenant, indenture or agreement of the Borrowers or Guarantors or affecting any
of their Properties, or result in the creation or imposition of any Lien on any
Property of the Borrowers or Guarantors.
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Section 5.4. Use of Proceeds; Margin Stock. The Borrowers shall use the
proceeds of the Revolving Loans and other extensions of credit made available
hereunder solely for their general corporate purposes (including ordinary course
of business refunding of indebtedness and acquisitions and investments permitted
hereunder). Neither the Borrowers nor any Subsidiary is engaged in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System), and no part of the proceeds of any Revolving Loan or any other
extension of credit made hereunder will be used to purchase or carry any such
margin stock or to extend credit to others for the purpose of purchasing or
carrying any such margin stock.
Section 5.5. Financial Reports. The consolidated balance sheet of the
Company and its Subsidiaries as at December 31, 1997 and the related
consolidated statements of operations, cash flows and shareholder's equity of
the Company and its GAAP Subsidiaries for the fiscal year then ended, and
accompanying notes thereto, which consolidated financial statements are
accompanied by the audit report of Arthur Andersen LLP, independent public
accountants, and the unaudited interim condensed consolidated balance sheet of
the Company and its GAAP Subsidiaries as at September 30, 1998 and the related
interim condensed consolidated statements of operations, cash flows and
shareholder's equity of the Company and its GAAP Subsidiaries for the nine (9)
months then ended heretofore furnished to the Lenders, fairly present the
consolidated financial condition of the Company and its GAAP Subsidiaries as at
said dates and the results of their operations and cash flows for the periods
then ended in conformity with generally accepted accounting principles applied
on a consistent basis, but subject, in the case of such interim condensed
financial statements on the related notes thereto (the "Notes"), to year end
audit adjustments which are not expected to be material. Neither the Company nor
any Restricted Subsidiary has, to the best of its knowledge, contingent
liabilities which could reasonably be expected to have a Material Adverse Effect
other than as indicated on such financial statements or, as to each
reaffirmation of this sentence's representation and warranty in the future, on
the most recent financial statements or the related notes thereto which are to
be provided to the Lenders pursuant to Section 7.5 hereof.
Section 5.6. No Material Adverse Change. Since December 31, 1997, there
has been no change in the condition (financial or otherwise) or business
prospects of the Company and its Restricted GAAP Subsidiaries which could
reasonably be expected to have a Material Adverse Effect.
Section 5.7. Full Disclosure. The statements and information furnished
by or on behalf of the Borrowers to the Agent and the Lenders through the date
hereof in connection with the negotiation of this Agreement and the other Loan
Documents and the commitments by the Lenders to provide all or part of the
financing contemplated hereby do not, taken as a whole, contain any untrue
statements of a material fact or omit a material fact necessary to make the
material statements contained herein or therein not misleading, the Lenders
acknowledging that as to any projections furnished to the Lenders by or on
behalf of the Borrowers, the Borrowers only represent that the same were
prepared on the basis of information and estimates the Borrowers believed to be
reasonable.
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Section 5.8. Good Title. Except to the extent heretofore disclosed in
writing to the Lenders, the Company and the Restricted Subsidiaries have good
and marketable title to their real property and good and merchantable title to
the balance of their assets as reflected on the most recent balance sheets of
the Company and its Restricted Subsidiaries furnished to the Lenders (except for
sales of assets by the Borrowers and their Restricted Subsidiaries in the
ordinary course of business), subject to no Liens other than such thereof as are
permitted by Section 7.11 hereof.
Section 5.9. Litigation and Other Controversies. Except as disclosed on
Schedule 5.9 hereof, there is no litigation or governmental proceeding or labor
controversy pending, nor to the knowledge of any Borrower threatened, against
the Borrower or any Restricted Subsidiary which if adversely determined would
(a) impair the validity or enforceability of, or impair the ability of any
Borrower or Guarantor to perform its obligations under, this Agreement or any
other Loan Document or (b) have a Material Adverse Effect.
Section 5.10. Taxes. All tax returns which, to the best knowledge of the
Company, are required to be filed by the Company or any Restricted Subsidiary in
any jurisdiction have, in fact, been filed, and all taxes, assessments, fees and
other governmental charges upon the Company or any Restricted Subsidiary or upon
any of their respective Properties, income or franchises, which are shown to be
due and payable in such returns, have been paid to the extent due. The Borrowers
do not know of any material proposed additional tax assessment against them or
the Restricted Subsidiaries for which adequate provision in accordance with GAAP
has not been made in their respective financial statements. Adequate provisions
in accordance with GAAP for taxes on the books of the Company, each other
Borrower and each Restricted Subsidiary have been made for all open years, and
for its current fiscal period.
Section 5.11. Approvals. No authorization, consent, license, or
exemption from, or filing or registration with, any court or governmental
department, agency or instrumentality, nor any approval or consent of the
stockholders of the Borrowers or any other Person, is or will be necessary to
the valid execution, delivery or performance by the Borrowers or Guarantors of
this Agreement or any other Loan Document, other than the stockholders of
Guarantors.
Section 5.12. Affiliate Transactions. No Borrower nor any Restricted
Subsidiary is a party to any contract or agreement with any of its Affiliates
(other than contracts and agreements between and among the Borrowers and
Restricted Subsidiaries) on terms and conditions which are less favorable to
such Borrower or such Restricted Subsidiary than would be usual and customary in
similar contracts or agreements between Persons not affiliated with each other.
Section 5.13. Investment Company; Public Utility Holding Company. No
Borrower nor any Subsidiary is an "investment company" or a company "controlled"
by an "investment company" within the meaning of the Investment Company Act of
1940, as amended, or a "public utility holding company" within the meaning of
the Public Utility Holding Company Act of 1935, as amended.
Section 5.14. ERISA. Except to the extent heretofore disclosed in
writing to the Lenders, each Borrower and each other member of its Controlled
Group has fulfilled its obligations under
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the minimum funding standards of and is in compliance in all material respects
with ERISA and the Code to the extent applicable to it and has not incurred any
liability to the PBGC or a Plan (other than liabilities arising in the future
under a multiemployer plan as defined in Section 4001(c)(3) of ERISA which could
not reasonably be expected to have a Material Adverse Effect) under Title IV of
ERISA other than a liability to the PBGC for premiums under Section 4007 of
ERISA. As of the date hereof no Borrower nor any Restricted Subsidiary has any
contingent liabilities with respect to any post-retirement benefits under a
Welfare Plan, other than liability for continuation coverage described in
Article 6 of Title I of ERISA.
Section 5.15. Compliance with Laws. Each Borrower and each Restricted
Subsidiary is in compliance with the requirements of all federal, governmental
(whether national, supra-national or otherwise), state and local laws, rules and
regulations applicable to or pertaining to their Properties or business
operations (including, without limitation, the Occupational Safety and Health
Act of 1970, the Americans with Disabilities Act of 1990, and laws and
regulations establishing quality criteria and standards for air, water, land and
toxic or hazardous wastes and substances), except for such non-compliance with
the same which could not reasonably be expected to have any Material Adverse
Effect. No Borrower nor any Restricted Subsidiary has received notice to the
effect that its operations are not in compliance with any of the requirements of
applicable federal, governmental (whether national, supra-national or
otherwise), state or local environmental, health and safety statutes and
regulations or are the subject of any governmental investigation evaluating
whether any remedial action is needed to respond to a release of any toxic or
hazardous waste or substance into the environment, which non-compliance or
remedial action could reasonably be expected to have a Material Adverse Effect.
Section 5.16. Other Agreements. No Borrower nor any Restricted
Subsidiary is in default under the terms of any covenant, indenture or agreement
of or affecting the Borrowers, any Restricted Subsidiary or any of their
Properties, which default if uncured could reasonably be expected to have a
Material Adverse Effect. The Company has delivered a true copy of the Indenture
to the Lenders.
Section 5.17. No Default. No Default or Event of Default has occurred
and is continuing.
Section 5.18. Year 2000 Compliance. The Company and its Subsidiaries are
conducting a review and assessment of the computer applications of the Company
and its Subsidiaries and is making an inquiry of their material suppliers,
vendors (including data processors), with respect to any defect in computer
software, data bases, hardware, controls and peripherals related to the
occurrence of the year 2000 or the use at any time of any date which is before,
on or after December 31, 1999, in connection therewith. Based on the foregoing
review, assessment and inquiry, the Company believes that no such defect is
likely to have a Material Adverse Effect.
SECTION 6. CONDITIONS PRECEDENT.
The obligation of the Lenders to provide any Borrower with any Credit
Utilization (including the first such Credit Utilization) shall be subject to
the conditions precedent that as of the time of each such Credit Utilization:
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Section 6.1. Representations True. Each of the representations and
warranties set forth herein and in the other Loan Documents shall be and remain
true and correct as of said time, except to the extent the same expressly relate
to an earlier date.
Section 6.2. Compliance. The Borrowers and Guarantors shall be in
compliance with all of the terms and conditions hereof and of the other Loan
Documents, and no Default or Event of Default shall have occurred and be
continuing or would occur as a result of such Credit Utilization.
Section 6.3. Credit Limits. After giving effect to such Credit
Utilization, (a) the aggregate principal amount of all Revolving Loans and L/C
Obligations (when taken together with the aggregate amount of loans and letters
of credit outstanding under the Canadian Facility) shall not exceed the lesser
of (i) the Commitments then in effect and (ii) the Borrowing Base as then
determined and computed, (b) the aggregate principal amount of the Revolving
Loans made to any Borrower and of L/C Obligations in respect of Letters of
Credit issued for such Borrower's account shall not exceed any applicable
Sublimit and (c) the aggregate outstanding amount of L/C Obligations shall not
exceed the lesser of the Commitments or $100,000,000.
Section 6.4. Regulatory Compliance. Such Credit Utilization shall not
violate any order, judgment or decree of any court or other authority or any
provision of law or regulation applicable to the Agent or any Lender (including,
without limitation, Regulation U of the Board of Governors of the Federal
Reserve System) as then in effect (the Lenders acknowledging that as of the date
hereof they know of none of such other than the restrictions of Regulation U).
Section 6.5. Letters of Credit. In the case of the issuance of any
Letter of Credit, the Applicable Issuer shall have received a properly completed
Application therefor and, in the case of an extension or increase in the amount
of the Letter of Credit, the Applicable Issuer shall have received a written
request therefor, in a form acceptable to the Applicable Issuer, with such
Application or written request, in each case to be accompanied by the fees
required by this Agreement.
Any request made by or on behalf of the Borrowers to the Agent or an
Issuer for a Credit Utilization hereunder shall be deemed to constitute a
representation and warranty that the foregoing statements are true and correct.
SECTION 7. COVENANTS.
The Borrowers agree that, so long as any credit is available to or in
use by or any amount is owing by the Borrowers hereunder, except to the extent
compliance in any case or cases is waived in writing by the Required Lenders:
Section 7.1. Maintenance of Business. The Borrowers will, and will cause
each Restricted Subsidiary to, preserve and keep in force and effect its
corporate existence and all leases, licenses and permits necessary to the proper
conduct of its and their respective businesses, provided that the foregoing
shall not preclude the termination or discontinuance of any of such in
connection with a sale or other disposition of substantially all of the assets
of the Restricted
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Subsidiary in question or the merger or dissolution of same in each instance to
the extent permitted by Section 7.14 hereof.
Section 7.2. Maintenance of Property. The Borrowers will maintain,
preserve and keep their material plant, Properties and equipment used in the
conduct of their respective businesses in good repair, working order and
condition (ordinary wear and tear excepted), will from time to time make all
needful and proper repairs, renewals, replacements, additions and betterments
thereto so that at all times the overall efficiency thereof shall be preserved
and maintained, and will cause each Restricted Subsidiary so to do in respect of
its plant, Properties and equipment.
Section 7.3. Taxes and Assessments. The Borrowers will duly pay and
discharge, and will cause each Restricted Subsidiary to duly pay and discharge,
all taxes, rates, assessments, fees and governmental charges upon or against the
Borrowers or any Restricted Subsidiary or against their respective Properties,
in each case before the same become delinquent and before penalties accrue
thereon, unless and to the extent that the same are being contested in good
faith and by appropriate proceedings which prevent enforcement of the matter
under contest and adequate reserves are provided therefor.
Section 7.4. Insurance. The Borrowers will insure and keep insured, and
will cause each Restricted Subsidiary to insure and keep insured, with insurance
companies reasonably believed by them to be good and responsible, all insurable
Property owned by them which is of a character usually insured by Persons
similarly situated and operating like Properties against loss or damage from
such hazards and risks, and in such amounts, as are insured by Persons similarly
situated and operating like Properties, and the Borrowers will insure, and cause
each Restricted Subsidiary to insure, such other hazards and risks (including
employers' and public liability risks) with insurance companies reasonably
believed by them to be good and responsible as and to the extent usually insured
by Persons similarly situated and conducting similar businesses, it being agreed
that the foregoing shall not preclude the Borrowers and the Restricted
Subsidiaries from directly or indirectly self insuring risks as and to the
extent prudent and customary for companies similarly situated. The Borrowers
shall in any event maintain insurance on the Collateral to the extent required
by the Collateral Documents. The Borrowers will upon request of the Agent
furnish a certificate setting forth in summary form the nature and extent of the
insurance maintained pursuant to this Section 7.4.
Section 7.5. Financial Reports and Rights of Inspection. The Borrowers
shall, and shall cause each Restricted Subsidiary to, maintain a system of
accounting in accordance with GAAP and shall furnish to the Agent, each Lender
and each of their duly authorized representatives such information respecting
the business and financial condition of the Borrowers and their Restricted
Subsidiaries as the Agent or such Lender may reasonably request; and without any
request, shall furnish to the Lenders:
(a) as soon as available, and in any event within sixty (60) days
after the last day of each monthly accounting period, a Borrowing Base
certificate in the form attached hereto as Exhibit C showing the
computation of the Borrowing Base in reasonable detail as of the close
of business on the last day of such period, prepared by the Company and
certified to by an Authorized Representative of the Company and
accompanied by (or
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submitted separately, in the case of the last such period in each fiscal
year) reports for the Borrowers and the Restricted Subsidiaries as of
the close of such month of work in process, accounts receivable,
accounts payable and shall be accompanied by a report in reasonable
detail of all litigation, arbitrations and mediations being prosecuted
by the Company and its Restricted Subsidiaries against customers where
the amount claimed is $1,000,000 or more and is carried as an asset at
$500,000 or more on the financial statements of the Company or a
Restricted Subsidiary all in forms acceptable to the Agent;
(b) as soon as available, and in any event within sixty (60) days
after the close of each quarterly accounting period of the Company a
copy of the condensed consolidated and consolidating balance sheet of
the Borrowers and the Restricted Subsidiaries as of the last day of such
period and the condensed consolidated (and consolidating in the case of
the statement of operations only) statements of operations for such
period and for the fiscal year to date and statements of cash flows and
shareholder's equity of the Borrowers and the Restricted Subsidiaries
for the fiscal year to date, each in reasonable detail and showing in
comparative form the figures for the corresponding date and period in
the previous fiscal year in the case of the condensed consolidated
financial statements only, prepared by the Company in accordance with
GAAP (subject to year end audit adjustments which are not expected to be
material and to the absence of footnotes); provided, however, that (i)
consolidated financial statements need not be submitted for the last
quarterly accounting period in each fiscal year and (ii) the
consolidating financial statements called for by this Section 7.5(b) for
the last quarterly accounting period in each fiscal year may be
submitted concurrently with the submittal of the audited financial
statements for such fiscal year called for by Section 7.5(c) hereof;
(c) as soon as available, and in any event within one hundred
five (105) days after the close of each annual accounting period of the
Company, a copy of the consolidated balance sheet of the Borrowers and
their GAAP Subsidiaries as of the last day of the period then ended and
the consolidated statements of operations, cash flows and shareholder's
equity of the Borrowers and their GAAP Subsidiaries for the period then
ended, and accompanying notes thereto, each in reasonable detail showing
in comparative form the figures for the previous fiscal year,
accompanied by an unqualified opinion thereon of Arthur Andersen LLP or
another firm of independent public accountants of recognized national
standing, selected by the Company and reasonably satisfactory to the
Required Lenders, to the effect that the consolidated financial
statements have been prepared in accordance with GAAP and present fairly
in accordance with GAAP the consolidated financial condition of the
Borrowers and their GAAP Subsidiaries as of the close of such fiscal
year and the consolidated results of their operations and cash flows for
the fiscal year then ended and that an examination of such accounts in
connection with such financial statements has been made in accordance
with generally accepted auditing standards and, accordingly, such
examination included such tests of the accounting records and such other
auditing procedures as were considered necessary in the circumstances;
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(d) within the period provided in subsection (c) above, the
written statement of the accountants who certified the audit report
thereby required that in the course of their audit they have obtained no
knowledge of any Default or Event of Default, or, if such accountants
have obtained knowledge of any such Default or Event of Default, they
shall disclose in such statement the nature and period of existence
thereof;
(e) promptly after receipt of final copies thereof, any
additional written reports, management letters or other detailed
information contained in writing concerning significant aspects of any
Borrower's or any Restricted Subsidiary's operations and financial
affairs given to it by its independent public accountants; and
(f) promptly after knowledge thereof shall have come to the
attention of the chief executive or chief financial officer of any
Borrower, written notice of (i) any pending litigation or governmental
proceeding or labor controversy against any Borrower or Restricted
Subsidiary which, if adversely determined, could reasonably be expected
to have a Material Adverse Effect or (ii) any threatened litigation,
governmental proceeding or labor controversy against any Borrower or
Restricted Subsidiary which the Company or such Borrower or Restricted
Subsidiary in good faith believes could reasonably be expected to have a
Material Adverse Effect or (iii) the occurrence of any Default or Event
of Default hereunder.
Each of the financial statements furnished to the Lenders pursuant to
subsections (b) and (c) of this Section 7.5 shall be accompanied by a written
certificate in the form attached hereto as Exhibit D signed by an Authorized
Representative of the Company to the effect that to the best of such officer's
knowledge and belief no Default or Event of Default has occurred during the
period covered by such statements or, if any such Default or Event of Default
has occurred during such period, setting forth a description of such Default or
Event of Default and specifying the action, if any, taken by the Company to
remedy the same. Such certificate submitted as of the last day of a calendar
quarter shall also set forth the calculations supporting such statements in
respect of Sections 7.6, 7.7, 7.8, 7.9 and 7.13 of this Agreement as well as the
calculation of the Applicable Margins.
The Borrowers will, and will cause each Restricted Subsidiary to, permit
the Agent, the Lenders and their duly authorized representatives to visit and
inspect any of the Properties of the Borrowers and Restricted Subsidiaries, to
examine all of their 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, employees and independent
public accountants (and by this provision the Borrowers authorize such
accountants to discuss with the Lenders (and such Persons as any Lender may
designate, subject to reasonable arrangements for confidentiality) the finances
and affairs of the Borrowers and the Restricted Subsidiaries) all at such
reasonable times and as often as may be reasonably requested.
Section 7.6. Adjusted Tangible Net Worth. The Company will at all times
maintain Adjusted Tangible Net Worth of not less than $190,000,000 plus (but not
minus if a negative) 50% of Net Income for the period from January 1, 1999 to
the date of computation.
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Section 7.7. Leverage Ratio. The Company will as of the last day of each
calendar quarter have a Leverage Ratio of not more than 3.5 to 1.
Section 7.8. Fixed Charge Coverage Ratio. The Company will as of the
last day of each calendar quarter have a Fixed Charge Coverage Ratio of not less
than 1.5 to 1.
Section 7.9. Current Ratio. The Company will at all times maintain a
ratio, computed on a consolidated basis for the Company and the Restricted
Subsidiaries, of current assets to current liabilities (each determined in
accordance with GAAP) of not less than 1 to 1.
Section 7.10. Indebtedness for Borrowed Money. The Borrowers shall not,
nor shall they permit any of the Restricted Subsidiaries to, issue, incur,
assume, create or have outstanding any Indebtedness for Borrowed Money;
provided, however, that the foregoing shall not restrict nor operate to prevent:
(a) the Obligations;
(b) Subordinated Debt;
(c) the obligations listed and described on Schedule 7.10
attached hereto and guarantees specifically permitted by Section 7.12
hereof;
(d) (i) indebtedness of the Canadian Subsidiaries arising under
the Canadian Facility and guaranties thereof by the Company and other
Restricted Subsidiaries and (ii) unless and until the initial credit
utilization under the Canadian Facility, indebtedness of the Canadian
Subsidiaries aggregating not more than $10,000,000 at any one time
outstanding and guarantees of up to $5,000,000 thereof by the Company
and Restricted Subsidiaries;
(e) Indebtedness of the Company to Restricted Subsidiaries, of
Restricted Subsidiaries to the Company and of Restricted Subsidiaries to
Restricted Subsidiaries provided that (i) indebtedness of EMCOR U.K.
Limited and its Restricted Subsidiaries shall be limited to $50,000,000
at any one time outstanding, (ii) indebtedness of the Canadian
Subsidiaries and its Restricted Subsidiaries shall be limited to
$25,000,000 at any one time outstanding and (iii) the aggregate amount
of such indebtedness of Restricted Subsidiaries which Indebtedness for
Borrowed Money is permitted solely by Section 7.10(k) hereof shall not
exceed $10,000,000 at any one time outstanding;
(f) obligations consisting of deferred payment obligations of the
Company and any of the Restricted Subsidiaries for insurance premiums or
incurred by Company or any of its Restricted Subsidiaries in respect of
funds borrowed for the payment of such premiums in either case in the
ordinary course of business and consistent with past practices;
(g) Indebtedness for Borrowed Money of Designated Foreign
Restricted Subsidiaries and Nesma EMCOR Company Ltd. (and guarantees
thereof by the
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Company, EMCOR International, Inc. and Restricted Subsidiaries of EMCOR
International, Inc.) and guarantees of or incurrence of liability for
letters of credit supporting, Indebtedness for Borrowed Money of Persons
in which the Company and the Restricted Subsidiaries are permitted to
invest pursuant to subsections (n) and (o) of Section 7.12; provided
that the aggregate amount of Indebtedness for Borrowed Money so
permitted to be incurred, guaranteed or supported pursuant to the
provisions of this subsection (g) shall not exceed $15,000,000 at any
one time outstanding;
(h) Indebtedness for Borrowed Money in addition to that otherwise
permitted hereunder; provided that at the time of incurrence of such
indebtedness and after giving effect thereto the aggregate principal
amount of Indebtedness for Borrowed Money of the Company and its
Restricted Subsidiaries incurred during the twelve-month period ended on
the date of the incurrence in question and permitted solely by this
Section 7.10(h) does not exceed 1.5% of the arithmetic average of the
unrealized revenue from contracts in progress of the Company and its
Restricted Subsidiaries (computed in accord with the past practice of
the Company) as of the last day of each of the four calendar quarters
most recently ended prior to the date of the computation in question;
(i) liabilities in respect of letters of credit not otherwise
permitted by this Section 7.10 if payment of such letters of credit is
fully supported by a Letter of Credit;
(j) indebtedness under Interest Rate Protection and Other Hedging
Agreements entered into to hedge a risk of the Company and/or its
Restricted Subsidiaries and not for speculation;
(k) indebtedness of any Person existing at the time such Person
becomes a Restricted Subsidiary or assumed in connection with the
acquisition of assets of such Person and not incurred in contemplation
of such Person being acquired or becoming a Restricted Subsidiary or
such assets being acquired provided the aggregate amount of such
indebtedness permitted to this Section 7.10(k) shall not exceed
$10,000,000 at any one time outstanding; and
(l) any renewals, extensions or replacements of Indebtedness for
Borrowed Money permitted under this Section 7.10 in an aggregate amount
not in excess of the Indebtedness for Borrowed Money being renewed,
extended or replaced.
Section 7.11. Liens. The Borrowers shall not, nor shall they permit the
Restricted Subsidiaries to, create, incur or permit to exist any Lien of any
kind on any Property owned by the Borrowers or any Restricted Subsidiary;
provided, however, that the foregoing shall not apply to nor operate to prevent:
(a) Liens arising by statute in connection with worker's
compensation, unemployment insurance, old age benefits, social security
obligations, taxes, assessments, statutory obligations or other similar
charges, good faith cash deposits in connection with the foregoing or in
connection with tenders, contracts or leases to which the Borrowers or
any of their Restricted Subsidiaries are a party or other cash deposits
required to be made
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in the ordinary course of business, provided in each case that the
obligation is not for borrowed money and that the obligation secured is
not overdue or, if overdue, is being contested in good faith by
appropriate proceedings which prevent enforcement of the matter under
contest and adequate reserves have been established therefor;
(b) mechanics', workmen's, materialmen's, landlords', carriers',
or other similar Liens arising in the ordinary course of business with
respect to obligations which are not due or which are being contested in
good faith by appropriate proceedings which prevent enforcement of the
matter under contest;
(c) the pledge of assets for the purpose of securing an appeal,
stay or discharge in the course of any legal proceeding, provided that
the aggregate amount of liabilities of the Borrowers and their
Restricted Subsidiaries secured by a pledge of assets permitted under
this subsection, including interest and penalties thereon, if any, shall
not be in excess of $500,000 at any one time outstanding;
(d) the Liens granted in favor of the Agent for the benefit of
the Lenders pursuant to the Collateral Documents;
(e) Liens on Property of the Borrowers or of any Restricted
Subsidiaries created solely for the purpose of securing indebtedness
permitted by Section 7.10(h) hereof representing or incurred to finance,
refinance or refund the purchase price of such Property or representing
the interest of the lessor under a Capital Lease, provided that no such
Lien shall extend to or cover other Property of the Borrowers or any
Restricted Subsidiary other than the respective Property so acquired,
and the principal amount of indebtedness secured by any such Lien shall
at no time exceed the original purchase price of such Property;
(f) Liens on the stock and assets of the Canadian Subsidiaries
securing the indebtedness permitted by Section 7.10(d) hereof and liens
on assets of the Company and other Restricted Subsidiaries securing the
Canadian Facility;
(g) Liens in favor of Seaboard Surety Company and its Affiliates,
London Guarantee Insurance Company and its Affiliates and Reliance
Insurance Company and its Affiliates described in clause (i) of the
second proviso to Section 4.1 hereof;
(h) rights of subrogation and similar rights of issuers of surety
bonds and unperfected lien rights of such issuers to assets associated
with projects which they have bonded;
(i) restrictions on the disbursement or withdrawal of funds
deposited by Restricted Subsidiaries in bank accounts maintained by them
in the ordinary course of business consistent with past practice which
are maintained in connection with specific construction projects or
contracts from which payments and disbursements with respect to such
contracts or projects are to be made;
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(j) Liens on insurance policies arising in connection with the
deferred payment of premiums or the financing thereof in the ordinary
course of business;
(k) Liens consisting of cash collateral deposits made in
connection with the insurance program of the Company and its Restricted
Subsidiaries and liens on up to oe135,000 of cash collateral securing
reimbursement obligations owing Barclays Bank in connection, with demand
performance bond which it has issued and rights of a depository bank to
offset balances in any account maintained with it by a Subsidiary
incorporated under the laws of United Kingdom against debit balances in
any other account maintained with it by any such Subsidiary (it being
acknowledged by the Lenders that such rights of offset shall be superior
to any rights they may have in and to such accounts or the balances as
are from time to time standing on deposit therein);
(l) Liens existing on any property of a corporation at the time
such corporation becomes a Restricted Subsidiary which Liens were not
created, incurred or assumed in contemplation thereof, provided that no
such Liens shall extend to or cover any other property of the Company or
any Restricted Subsidiary;
(m) the Liens listed and described on Schedule 7.11 attached
hereto;
(n) any extension, renewal or replacement (or successive
extensions, renewals or replacements) of Liens permitted by this Section
7.11 without any increase in the amount of indebtedness secured thereby
or in the assets subject to such Liens; and
(o) Liens on assets of Designated Foreign Restricted Subsidiaries
securing indebtedness thereof permitted by Section 7.10 hereof or
securing Performance Guarantees.
Section 7.12. Investments, Acquisitions, Loans, Advances and Guarantees.
The Borrowers shall not, nor shall they permit any of the Restricted
Subsidiaries to, directly or indirectly, make, retain or have outstanding any
investments (whether through purchase of stock or obligations or otherwise) in,
or loans or advances (other than for relocation and travel advances and other
loans made to employees in the ordinary course of business) to, any other
Person, or acquire all or any substantial part of the assets or business of any
other Person or division thereof, or be or become liable as endorser, guarantor,
surety or otherwise for any debt, obligation or undertaking of any other Person
(other than of the Company or any Restricted Subsidiary), or otherwise agree to
provide funds for payment of the obligations of another, or supply funds thereto
or invest therein or otherwise assure a creditor of another against loss, or
apply for or become liable to the issuer of a letter of credit which supports an
obligation of another, or subordinate any claim or demand it may have to the
claim or demand of any other Person; provided, however, that the foregoing shall
not apply to nor operate to prevent:
(a) investments in direct obligations of the United States of
America or of any agency or instrumentality thereof whose obligations
constitute full faith and credit obligations of the United States of
America, provided that any such obligations shall mature within one year
of the date of issuance thereof;
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(b) investments in commercial paper maturing within 270 days of
the date of issuance thereof which has been accorded one of the two
highest ratings available from the Standard & Poor's Ratings Group of
McGraw Hill Companies, Moody's Investors Service, Inc. or any other
nationally recognized credit rating agency of similar standing providing
similar ratings;
(c) investments in money market funds which in turn invest
primarily in investments of the types described in clauses (a), b and
(d) of this Section 7.12;
(d) investments in certificates of deposit issued by any
commercial bank organized under the laws of Canada or the United States
or (as to investments of EMCOR U.K. Limited and its Subsidiaries) the
United Kingdom in each case having capital, surplus and undivided
profits of not less than $500,000,000 or by any Lender in each case
maturing within one year from the date of issuance thereof or in
Eurodollar time deposits maturing not more than one year from the date
of acquisition thereof placed with any Lender or other such commercial
bank (to the extent investments in certificates of deposit issued by
such other bank are permitted by this subsection) or in banker's
acceptances endorsed by any Lender or other such commercial bank (to the
extent investments in certificates of deposit issued by such other bank
are permitted by this subsection) and maturing within nine months of the
date of acceptance;
(e) endorsement of items for deposit or collection of commercial
paper received in the ordinary course of business;
(f) the investments, loans, advances and guarantees listed and
described on Schedule 7.12 attached hereto;
(g) the Guarantees and guarantees referred to in and permitted by
Section 7.10 hereof;
(h) (i) an amount equal to all investments of the Company and
Restricted Subsidiaries as of June 19, 1996 in, and present loans and
advances by the Company and Restricted Subsidiaries to, Unrestricted
Subsidiaries and (ii) future investments in, and loans and advances,
(including subordinated loans) to, Unrestricted Subsidiaries for asset
preservation and to preserve existing operations aggregating not more
than $1,500,000 at any one time outstanding;
(i) Loans and advances (including subordinated loans and
advances) between the Company and its Restricted Subsidiaries if and to
the extent that the corresponding indebtedness is permitted by Section
7.10 hereof;
(j) acquisitions by the Company or any Restricted Subsidiary of all or
substantially all of the assets or business of any other Person or division
thereof, or of all or substantially all of the Voting Stock of a Person and
investments in Strategic Ventures organized within and conducting more than
fifty percent of their business in the United States of America ("Domestic
Strategic Ventures"), so long as (i) no Default or Event of Default exists or
would
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exist after giving effect to the acquisition or investment in question, (ii) the
Board of Directors or other governing body of such Person whose Property or
Voting Stock is being so acquired has approved the terms of such acquisition,
and (iii) the total amount expended by the Company and its Restricted
Subsidiaries on account of all such acquisitions and investments made during
each fiscal year of the Company shall not exceed $15,000,000 unless the Required
Lenders otherwise agree in writing; provided that (i) such $15,000,000 per annum
limitation shall be inapplicable unless and until the Company and its Restricted
Subsidiaries have expended, subsequent to July 1, 1998 $50,000,000 on account of
all such acquisitions (domestic and foreign) and investments but not more than
$20,000,000 of such $50,000,000 amount may be expended to fund an acquisition of
a Person or business conducting more than 50% of its business outside of the
United States (ii) the portion of the consideration for any acquisition which is
payable in capital stock of the Company shall be excluded from the foregoing
calculations, (iii) indebtedness of the Persons acquired and indebtedness
assumed of the business acquired which indebtedness exist at the time of
acquisition shall not be treated as an amount expended by the Company or a
Restricted Subsidiary in connection with the acquisition unless such
indebtedness was incurred in contemplation of the acquisition and (iv) payments
made by the Company or a Restricted Subsidiary on account of an acquisition paid
subsequent to the consummation of the acquisition in question and where the
payment in question is contingent upon the earnings, profits, net cash flow or
other measure of profitability or success of the Person acquired shall be
treated as amounts expended by the Company or a Restricted Subsidiary on account
of such acquisition only when paid or when the amount to be paid has become
fixed and determined, whichever first occurs, and such amounts shall count
against the limitations on the amount which may the Company and its Restricted
Subsidiaries may subsequently expend on account of acquisitions and investments
in Domestic Strategic Ventures for purposes of this Section 7.12(j) but shall
not otherwise be deemed to constitute a breach of this Section 7.12(j) in the
event that such amounts, together with amounts theretofore expended on account
of acquisitions and investments, would exceed the dollar limits set forth
herein;
(k) acquisitions of assets (including notes and other evidences
of indebtedness) and subordinations of claims as a part of good faith
collection efforts on doubtful accounts;
(l) Performance Guarantees;
(m) notes and other deferred payment obligations (other than
general partnership and similar interests) acquired by the Company or
any Restricted Subsidiary in connection with the sale or other
disposition of assets permitted hereby;
(n) investments of the Company or any Restricted Subsidiary made
in the ordinary course of business in connection with joint ventures,
corporations or other similar pooling of efforts in respect to a
specific project or series of related specific projects for a limited or
fixed duration and formed to conduct business of the type in which the
Company or such Restricted Subsidiary is presently engaged and
guarantees of obligations of, and incurrence of liabilities in respect
of letters of credit for, such joint ventures or corporations;
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(o) investments in Strategic Ventures organized outside of the
United States of America and conducting more than 50% of their business
outside of the United States ("Foreign Strategic Ventures"), provided
that the aggregate amount so invested or expended subsequent to July 1,
1998 in connection with any given Foreign Strategic Venture shall not
exceed $10,000,000 unless the Required Lenders otherwise agree in
writing, provided further that such $10,000,000 limitation shall be
inapplicable unless and until the Company and its Restricted
Subsidiaries have expended subsequent to July 1, 1998, $10,000,000 on
account of such Foreign Strategic Ventures;
(p) the present investment of the Company and Restricted
Subsidiaries in Restricted Subsidiaries and future investments by them
in Restricted Subsidiaries which are Guarantors or in a Restricted
Subsidiary formed as a captive insurer or surety company;
(q) investments by Designated Foreign Restricted Subsidiaries in
short term high quality investments which are regarded in their
countries of domicile as being similar in type and used for similar
purposes to those described in clauses (a), (b), (c) or (d) of this
Section 7.12;
(r) guarantees by any Person outstanding at the time such Person
becomes a Restricted Subsidiary or in connection with the acquisition of
assets of such Person and outstanding at the time such Person becomes a
Restricted Subsidiary and not in either case incurred in contemplation
of such Person being acquired or becoming a Restricted Subsidiary or
such assets being acquired; provided that the aggregate amount of
indebtedness guaranteed by such Person pursuant to guarantees permitted
solely by this Section 7.12(r) when aggregated with the amount of
indebtedness permitted solely by Section 7.10(k) hereof shall not exceed
$10,000,000 at any one time outstanding; and
(s) contingent obligations arising from the issuance of
performance guarantees, assurances, indemnities, bonds, letters of
credit, or similar agreements in the ordinary course of business in
respect of the contracts (other than contracts for Indebtedness for
Borrowed Money) of Nesma EMCOR Company Ltd. for the benefit of surety
companies or for the benefit of others to induce such others to forgo
the issuance of a surety bond in their favor.
In determining the amount of investments, acquisitions, loans, advances and
guarantees permitted under this Section 7.12, investments and acquisitions shall
always be taken at the original cost thereof (regardless of any subsequent
appreciation or depreciation therein), loans and advances shall be taken at the
principal amount thereof then remaining unpaid, and guarantees shall be taken at
the amount of obligations guaranteed thereby.
Section 7.13. Capital and Certain other Restricted Expenditures. The
Borrowers will not, nor will they permit any Restricted Subsidiary to, make, or
(without duplication) become obligated to make, any Capital Expenditure or apply
for a letter of credit (whether hereunder or otherwise) supporting an obligation
of any Strategic Venture described in Section 7.12(o) or guarantee any
Indebtedness for Borrowed Money of any such Person, if after giving effect
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thereto the aggregate amount expended (other than in the form of capital stock
of the Company) for such purposes during the twelve-month period ending on the
date of the expenditure in question when taken together with the face amount of
such letters of credit issued during such period and such indebtedness so
guaranteed incurred during such period, would exceed the sum of (i) 1.50% of the
arithmetic average of the unrealized revenue from contracts in progress of the
Company and its Restricted Subsidiaries (computed in accord with the past
practice of the Company) as of the last day of each of the four calendar
quarters most recently completed prior to the computation in question (ii) the
net cash proceeds received by the Company and the Restricted Subsidiaries during
the same period from sales of assets (including stock of Restricted Subsidiaries
permitted by Sections 7.14 and/or 7.15 hereof and (iii) the maximum amount of
dividends which the Company could pay under Section 7.16 as of the date of the
expenditure or application in question.
Section 7.14. Mergers, Consolidations and Sales. The Company shall not,
nor shall it permit any of its Restricted Subsidiaries to, be a party to any
merger, consolidation or dissolution, or sell, transfer, lease or otherwise
dispose of all or any substantial part of its Property, including any
disposition of Property as part of a sale and leaseback transaction (unless such
transaction would be permitted had it been structured as a purchase money
mortgage or Capital Lease and is treated as such for purposes of this
Agreement), or in any event sell or discount (with or without recourse) any of
its notes or accounts receivable (other than sales or discounts of doubtful
accounts or notes taken in satisfaction of same); provided, however, that this
Section 7.14 shall not apply to nor operate to prevent the Borrowers or any of
the Restricted Subsidiaries from selling their inventory in the ordinary course
of its business or from selling equipment which is obsolete, worn out, or no
longer needed for the operation of the business of the Company and the
Restricted Subsidiaries or which is promptly replaced with equipment of at least
equal utility nor shall the foregoing prohibit (i) mergers of Restricted
Subsidiaries with and into the Company and sales by Restricted Subsidiaries of
all or substantially all of their assets to the Company, (ii) mergers of
Restricted Subsidiaries with each other and sales of all or substantially all of
the assets of a Restricted Subsidiary to another Restricted Subsidiary provided
in each case that if either of the two Restricted Subsidiaries in question is a
Guarantor, the survivor of the transaction in question remains a Guarantor and
all such actions are taken as the Agent requires to preserve its Liens on the
Collateral, (iii) the dissolution of any Restricted Subsidiary whose activities
are no longer, in the opinion of the Board of Directors of the Company,
necessary for the operation of the business of the Company and its Restricted
Subsidiaries taken as a whole, provided always that no Default or Event of
Default has occurred and is continuing or will result therefrom and if the
Restricted Subsidiary to be dissolved is a Guarantor, all of its assets
remaining after the dissolution in question are transferred to another Guarantor
and all such actions, if any, are taken as the Agent may reasonably require in
order to insure that it has a Lien on the assets so transferred of the priority
required by Section 4.1 hereof. The term "substantial" as used herein shall mean
the sale, transfer, lease or other disposition of five percent (5%) or more of
the total consolidated assets of the Company and the Restricted Subsidiaries in
any calendar year, whether in one or a series of transactions. The Agent shall
release its Lien on any Property sold pursuant to the foregoing provisions if no
Default or Event of Default has occurred and is continuing or would result
therefrom.
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Section 7.15. Maintenance of Restricted Subsidiaries. The Borrowers
shall not assign, sell or transfer, or permit any Restricted Subsidiary to
issue, assign, sell or transfer, any shares of capital stock of a Restricted
Subsidiary; provided that the foregoing shall not operate to prevent (i) the
issuance, sale and transfer to any person of any shares of capital stock of a
Restricted Subsidiary (a) for the purpose of qualifying, and to the extent
legally necessary to qualify, such person as a director of such Subsidiary or
(b) solely for the purpose of permitting such Subsidiary to carry on a licensed
business or (ii) the sale of all or a minority interest in the capital stock of
a Restricted Subsidiary if but only if (a) no Default or Event of Default has
occurred and is continuing or will result from the sale of same, (b) the sale of
such capital stock is not a sale of a substantial part of the assets of the
Company and the Restricted Subsidiaries (as the term "substantial" is defined in
Section 7.14 hereof), (c) the Board of Directors of the Company has determined
that the continued ownership of the Restricted Subsidiary (or the minority
interest therein to be disposed of) in question is no longer appropriate in
light of the then needs and strategic objectives of the Company and its
Restricted Subsidiaries taken as a whole, (d) in the case of the sale of all the
Capital Stock of a Restricted Subsidiary all indebtedness of such Restricted
Subsidiary to the Company or any other Restricted Subsidiary is paid in full,
and all guarantees or other support undertakings provided by the Company or
other Restricted Subsidiaries are discharged, concurrently with the sale in
question, provided that then existing Performance Guarantees need not be so
discharged as to jobs in progress at the time the sale is completed and (e) the
sales of such number of shares that EMCOR (Cayman Islands) Ltd. owns in Nesma
EMCOR Company Ltd. as equals no more than 10% of the outstanding shares of
Nesman EMCOR Company Ltd. Concurrently with the sale of the capital stock of a
Restricted Subsidiary permitted hereby, the Agent is authorized and directed to
release any Guarantee provided by such Restricted Subsidiary and any Lien on the
stock or assets of such Restricted Subsidiary. The Borrowers shall not permit
any Restricted Subsidiary to enter into any contract or agreement after the date
hereof prohibiting or restricting such Restricted Subsidiary from paying
dividends or making loans and advances to the Company except in the case of a
Restricted Subsidiary formed or acquired to be a captive insurer or a captive
surety.
Section 7.16. Dividends and Certain Other Restricted Payments. The
Company will not during any fiscal year (a) declare or pay any dividends on or
make any other distributions in respect of any class or series of its capital
stock (except for dividends payable solely in its capital stock) or (b) directly
or indirectly purchase, redeem or otherwise acquire or retire any of its capital
stock or any options or warrants therefor except out of the net proceeds of a
substantially concurrent issuance and sale of capital stock or options or
warrants therefor or (c) directly or indirectly make any payment of principal on
or in respect of any Subordinated Debt or otherwise acquire, prepay or retire
any of such Subordinated Debt, in each case prior to the maturities thereof or
prior to any other times required for payment thereof as are in force and effect
as of the date hereof except out of the net proceeds of a substantially
concurrent issuance and sale of Subordinated Debt or options or warrants
therefor (collectively, "Restricted Payments") if after giving effect thereto
(i) the aggregate amount expended for all such purposes subsequent to June 30,
1998 would exceed the difference between (x) $20,000,000 plus (but not minus in
the case of a deficit) 50% of Net Income for the period (taken as a single
accounting period) from September 30, 1998 to the last day of the calendar
quarter most recently completed prior to the Restricted Payment in question and
(y) any portion of the amount computed pursuant to clause
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(x) hereof which was used to justify a transaction under Section 7.13 pursuant
to clause (iii) thereof and (ii) no Default or Event of Default shall have
occurred and be continuing.
Nothing herein contained shall affect, impair or limit the rights of the
Lenders or the Agent acting on their behalf to serve any notice on the Company,
the holders of Subordinated Debt or any trustee or agent therefor blocking,
limiting or otherwise precluding the making of payments on account of such
Subordinated Debt on and subject to the conditions to service of any such notice
contained in the instruments applicable to such Subordinated Debt nor shall
anything contained herein be deemed to permit the Company to make any payment on
account of Subordinated Debt precluded by any such notice properly given or by
the instruments setting forth the terms applicable to such Subordinated Debt.
Section 7.17. ERISA. The Borrowers shall, and shall cause each of the
Restricted Subsidiaries to, promptly pay and discharge all obligations and
liabilities arising under ERISA of a character which if unpaid or unperformed
might result in the imposition of a Lien against any of their Properties. The
Borrowers shall, and shall cause each of the Restricted Subsidiaries to,
promptly notify the Agent and each Lender of (i) the occurrence of any
reportable event (as defined in ERISA) with respect to any employee benefit plan
subject to Title IV of ERISA (other than a multiemployer plan) sponsored or
contributed to by either of the Borrowers or any member of the Controlled Group
(a "Plan") with respect to which the PBGC has neither waived the 30 day
reporting requirement nor issued a public announcement that the penalty
applicable to a failure to report will not apply, (ii) receipt of any notice
from the PBGC of its intention to seek termination of any Plan or appointment of
a trustee therefor, (iii) its intention to terminate any Plan or withdraw from
any multiemployer plan if such termination or withdrawal could reasonably be
expected to have a Material Adverse Effect, and (iv) the occurrence of any other
event with respect to any Plan which would result in the incurrence by the
Borrowers or any of their Restricted Subsidiaries of any material liability,
fine or penalty, or any material increase in the contingent liability of the
Borrowers or any of the Restricted Subsidiaries with respect to any
post-retirement Welfare Plan benefit which could reasonably be expected to have
a Material Adverse Effect.
Section 7.18. Compliance with Laws. The Company shall, and shall cause
each of its Restricted Subsidiaries to, comply in all respects with the
requirements of all foreign (whether national, supra-national or otherwise),
federal, state and local laws, rules, regulations, ordinances and orders
applicable to or pertaining to their Properties or business operations,
non-compliance with which could have a Material Adverse Effect or could result
in a Lien upon any of their Property material to the Company and the Restricted
Subsidiaries taken as a whole.
Section 7.19. Burdensome Contracts With Affiliates. The Company shall
not, nor shall it permit any of its Restricted Subsidiaries to, enter into any
contract, agreement or business arrangement with any of its Affiliates (other
than with or among Restricted Subsidiaries and the Company) on terms and
conditions which are less favorable to the Company or any such Restricted
Subsidiary than would be usual and customary in similar contracts, agreements or
business arrangements between Persons not affiliated with each other.
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Section 7.20. Amendments to Subordinated Debt. The Company shall not
amend or modify the subordination provisions applicable to any Subordinated Debt
or otherwise change the terms of any Subordinated Debt in a manner adverse to
the interests of the Lenders hereunder.
Section 7.21. No Changes in Fiscal Year. The Company shall not change
its fiscal year from its present basis without the prior written consent of the
Required Lenders.
Section 7.22. Formation of Subsidiaries. The Company will not, and will
not permit any Restricted Subsidiary to, form or acquire any Subsidiary except
for acquisitions permitted by Section 7.12 hereof and the formation of new
subsidiaries if in any such case and either of such instances the newly formed
or acquired Subsidiary shall, if the Required Lenders so request, execute and
deliver a Guarantee and grant Liens on its assets of the priority required by
Section 4.1 hereof (and provide the Agent with such documentation therefore and
such supporting documentation, including opinions of counsel, as it may
reasonably request). Each Subsidiary acquired or formed pursuant hereto shall
constitute a Restricted Subsidiary unless the Required Lenders otherwise agree
in writing.
Section 7.23. Change in the Nature of Business. The Company shall not,
and shall not permit any of the Restricted Subsidiaries to, engage in any
business or activity if as a result the general nature of the business of the
Company and the Restricted Subsidiaries would be changed in any material respect
from the general nature of the business engaged in by the Company and the
Restricted Subsidiaries on the date of this Agreement.
Section 7.24. Year 2000 Assessment. The Company shall and shall cause
its Subsidiaries that are GAAP Subsidiaries to take all actions reasonably
necessary and commit reasonably adequate resources to assure that its
computer-based and other systems are able to effectively process dates,
including dates before, on and after January 1, 2000, without experiencing any
Year 2000 Problem that is likely to cause a Material Adverse Effect.
SECTION 8. EVENTS OF DEFAULT AND REMEDIES.
Section 8.1. Events of Default. Any one or more of the following shall
constitute an Event of Default hereunder:
(a) default in the payment when due of all or any part of the
principal of the Revolving Credit Notes (whether at the stated maturity
thereof or at any other time provided for in this Agreement) or of any
Reimbursement Obligation and any such default continues for 1 Business
Day after notice thereof from the Agent to the Company;
(b) default in the payment when due of all or part of the
interest on any Revolving Credit Note (whether the stated maturity
thereof or at any other time provided for in this Agreement) or of any
fee or other amount payable hereunder or under any other Loan Document
and any such default continues for 5 Business Days after notice thereof
from the Agent to the Company;
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(c) default in the observance or performance of any covenant set
forth in Sections 7.6, 7.7, 7.8, 7.9, 7.13, 7.14, 7.15, 7.16, or 7.20
hereof or of any provision in any Loan Document dealing with the
maintenance of insurance on the Collateral;
(d) default in the observance or performance of any other
provision hereof or of any other Loan Document which is not remedied
within thirty days after the earlier of (i) the date on which such
failure shall first become known to any officer of the Company or (ii)
written notice thereof to the Company by the Agent;
(e) any representation or warranty made herein or in any of the
other Loan Document or in any certificate furnished to the Agent or the
Lenders pursuant hereto or thereto or in connection with any transaction
contemplated hereby or thereby proves untrue in any material respect as
of the date of the issuance or making thereof;
(f) any event occurs or condition exists (other than those
described in subsections (a) through (d) above) which is specified as an
event of default under any of the other Loan Documents and any period of
grace applicable thereto shall have elapsed, or any of the Loan
Documents shall for any reason not be or shall cease to be in full force
and effect, or any of the Loan Documents is declared to be null and
void, or any of the Collateral Documents shall for any reason fail to
create a valid and perfected Lien in favor of the Agent in any
Collateral purported to be covered thereby of the priority required by
Section 4.1 hereof;
(g) default shall occur under any evidence of Indebtedness for
Borrowed Money aggregating in excess of $5,000,000 issued, assumed or
guaranteed by any of the Borrowers or any Restricted Subsidiary or under
any indenture, agreement or other instrument under which the same may be
issued, and such default shall continue for a period of time sufficient
to permit the acceleration of the maturity of any such Indebtedness for
Borrowed Money (whether or not such maturity is in fact accelerated)
without being waived or any such Indebtedness for Borrowed Money shall
not be paid when due (whether by demand, lapse of time, acceleration or
otherwise);
(h) any judgment or judgments, writ or writs or warrant or
warrants of attachment, or any similar process or processes in an
aggregate amount in excess of $500,000 (provided, that in determining
such $500,000 amount there shall be deducted therefrom the amount which
is covered by insurance from any insurer which has acknowledged its
liability thereon) shall be entered or filed against the Borrowers or
any of the Restricted Subsidiaries or against any of the Property or
assets of any of them and remains undischarged, unvacated, unbonded or
unstayed for a period of thirty days;
(i) any party obligated on any Guarantee shall purport to
disavow, revoke, repudiate or terminate such Guarantee or such Guarantee
shall otherwise cease to have force or effect;
(j) any Change of Control occurs;
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(k) any Borrower, Guarantor or Restricted Subsidiary shall (i)
have entered involuntarily against it an order for relief under the
United States Bankruptcy Code, as amended, or any analogous action is
taken under any other applicable law relating to bankruptcy or
insolvency, (ii) not pay, admit in writing its inability to pay, or be
deemed under applicable law not to be able to pay, its debts generally
as they become due, (iii) make an assignment for the benefit of
creditors, (iv) apply for, seek, consent to, or acquiesce in, the
appointment of a receiver, administrative receiver, administrator,
custodian, trustee, examiner, liquidator or similar official for it or
any substantial part of its Property, (v) institute any proceeding
seeking to have entered against it an order for relief under the United
States Bankruptcy Code, as amended, 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 fail to file an answer or other pleading denying the material
allegations of any such proceeding filed against it, or (vi) fail to
contest in good faith any appointment or proceeding described in Section
8.1(l) hereof; or
(l) a custodian, receiver, administrative receiver,
administrator, trustee, examiner, liquidator or similar official shall
be appointed for any Borrower, Guarantor or Restricted Subsidiary or any
substantial part of any of their Property, or a proceeding described in
Section 8.1(k)(v) shall be instituted against any Borrower, Guarantor or
Restricted Subsidiary, and such appointment continues undischarged or
such proceeding continues undismissed or unstayed for a period of sixty
days.
Section 8.2. Non-Bankruptcy Defaults. When any Event of Default
described in subsections 8.1(a) to 8.1(j), both inclusive, has occurred and is
continuing, the Agent shall, upon request of the Required Lenders by notice to
the Company, take any or all of the following actions:
(a) terminate the obligation of the Lenders to extend any further
credit hereunder on the date (which may be the date thereof) stated in
such notice; and
(b) declare the principal of and the accrued interest on the
Revolving Credit Notes to be forthwith due and payable and thereupon the
Revolving Credit Notes, including both principal and interest, and all
fees, charges, commissions and other Obligations payable hereunder,
shall be and become immediately due and payable without further demand,
presentment, protest or notice of any kind.
Section 8.3. Bankruptcy Defaults. When any Event of Default described in
subsection 8.1(k) or 8.1(l) has occurred and is continuing, then the unpaid
balance of the Revolving Credit Notes, including both principal and interest,
and all fees, charges, commissions and other Obligations payable hereunder,
shall immediately become due and payable without presentment, demand, protest or
notice of any kind, and the obligation of the Lenders to extend further credit
pursuant to any of the terms hereof shall immediately terminate.
Section 8.4. Collateral for Undrawn Letters of Credit. If and when (x)
any Event of Default, other than an Event of Default described in subsections
(k) or (l) of Section 8.1, has
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occurred and is continuing, the Borrowers shall, upon demand of the Agent, and
(y) any Event of Default described in subsections (k) or (l) of Section 8.1 has
occurred or (z) any Letter of Credit is outstanding on the Termination Date
(whether or not any Event of Default has occurred), the Borrowers shall, without
notice or demand from the Agent, immediately pay to the Agent the full amount of
each Letter of Credit, the Borrowers agreeing to immediately make each such
payment and acknowledging and agreeing the Agent would not have an adequate
remedy at law for failure of the Borrowers to honor any such demand and that the
Agent shall have the right to require the Borrowers to specifically perform such
undertaking whether or not any draws had been made under the Letters of Credit.
SECTION 9. DEFINITIONS INTERPRETATIONS.
Section 9.1. Definitions. The following terms when used herein have
the following meanings:
"Adjusted LIBOR" means, for any Interest Period, a rate per annum
determined in accordance with the following formula:
Adjusted LIBOR = LIBOR
-----------------------------------
1 - Eurocurrency Reserve Percentage
"Adjusted Tangible Net Worth" shall mean, as of any time the same is to
be determined, the sum of (i) Tangible Net Worth, (ii) Subordinated Debt and
(iii) goodwill and like intangibles resulting from acquisitions by the Company
and its Restricted Subsidiaries subsequent to June 30, 1998 of equity interests
in, or a substantial part of the assets or business of, other Persons, provided
that the aggregate amount included in Adjusted Tangible Net Worth pursuant to
this clause (iii) shall not exceed $25,000,000.
"Affiliate" means any Person directly or indirectly controlling or
controlled by, or under direct or indirect common control with, another Person.
A Person shall be deemed to control another Person for the purposes of this
definition if such Person possesses, directly or indirectly, the power to
direct, or cause the direction of, the management and policies of the other
Person, whether through the ownership of voting securities, common directors,
trustees or officers, by contract or otherwise; provided that, in any event for
purposes of this definition, any Person that owns, directly or indirectly, 20%
or more of the securities having ordinary voting power for the election of
directors or governing body of a corporation or 20% or more of the partnership
or other ownership interests of any other Person (other than as a limited
partner of such other Person) will be deemed to control such corporation or
other Person.
"Agent" shall mean Harris Trust and Savings Bank and any successor
thereto appointed pursuant to Section 10.1 hereof.
"Agreement" means this Credit Agreement, as the same may be amended,
modified or restated from time to time in accordance with the terms hereof.
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"Alternative Currency" means Canadian dollars, pounds sterling and any
other currency (other than United States Dollars) approved as such in writing by
all Lenders in each case only to the extent readily available to each Lender.
"Applicable Issuer" means the Issuer of Letters of Credit for the
account of a particular Borrower or Borrowers or in a particular jurisdiction or
jurisdictions.
"Applicable Margin" shall mean the rate per annum specified below for
the Fixed Charge Coverage Ratio and type of Loan or fee for which the Applicable
Margin is being determined:
<TABLE>
<CAPTION>
LEVEL I LEVEL II LEVEL III LEVEL IV
<S> <C> <C> <C> <C>
Fixed Charge less than 2.00x 2.00x and less than 3.00x =3.00x and less than 4.00x =4.00x
Coverage Ratio
Domestic Rate .50% 0% 0% 0%
Loan Margin
Eurodollar Loan 2.00% 1.50% 1.375% 1.25%
Margin and L/C Fee*
Facility Fee .50% .50% .375% .25%
</TABLE>
provided, however, that the foregoing is subject to the following:
(i) the Fixed Charge Coverage Ratio, EBITDA and the Leverage
Ratio shall be determined as at the last day of each fiscal quarter of
the Company commencing with December 31, 1998, with any adjustment in
the Applicable Margins resulting from a change therein to be effective
five (5) Business Days after receipt by the Agent of the financial
statements for such quarter called for by Section 7.5(b) hereof
(provided that if such financial statements are not submitted within
the time limitations of Section 7.5(b) and would result in an increase
in the Applicable Margins, then such Applicable Margins shall be
increased effective five Business Days after the last date when such
financial statements could have been submitted in compliance with
Section 7.5(b) hereof further provided that any change in Applicable
Margins resulting from the December 31, 1998 determination shall in no
event become effective prior to April 1, 1999);
(ii) the Applicable Margins for the period from the Effective
Date through the first redetermination pursuant to clause (i) above
shall be those set forth above for level II;
(iii) if EBITDA as computed for the period of twelve (12)
consecutive months ending on the last day of any calendar quarter is
less than $30,000,000, than the
- ----------------------
* L/C Fee for Performance Letters of Credit is .75% per annum below these
amounts.
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Applicable Margins for the ensuing three month period shall be as set
forth for Level I without regard to the Fixed Charge Coverage Ratio;
(iv) if as of the last day of any calendar quarter, commencing
with the calendar quarter ended September 30, 1999, the Leverage Ratio
exceeds 3:1, then in that event, the Applicable Margins for the ensuing
three month period shall be those specified for Level I, but with the
rate of 1/2 of 1% per annum added to the otherwise Applicable Margin
for Domestic Rate Loans, Eurodollar Loans and the Letter of Credit fee,
irregardless of the Fixed Charge Coverage Ratio or the amount of
EBITDA; and
(v) each determination of the Applicable Margins pursuant to
the foregoing shall remain in effect until the Applicable Margins are
next redetermined pursuant to the foregoing.
"Application" is defined in Section 1.3(b).
"Assignment Agreement" means an Assignment and Acceptance entered into
by a Lender and an assignee in accordance with Section 11.18 hereof
substantially in the form of Exhibit E hereto or in such other form as may be
agreed to by all parties thereto.
"Authorized Representative" means the Chief Executive Officer, the
President, the Chief Financial Officer, the Vice President and Controller or the
Vice President and Treasurer, or any further or different persons so named by
any Authorized Representative in a written notice to the Agent.
"Borrowers" means (a) the Company, (b) Comstock Canada, (c) Drake &
Scull and (d) such other Restricted Subsidiaries as may from time to time be
designated as such in writing by the Company and approved as such in writing by
all Lenders (but subject to such conditions and limitations as either the
Company or the Lenders may impose), with (i) the term "Borrowers" to mean the
Borrowers, collectively, and, also, each individually, and (ii) all promises and
covenants (including promises to pay) and representations and warranties of and
by the Borrowers made in the Loan Documents or any instruments or documents
delivered pursuant thereto to be and constitute the joint and several promises,
covenants, representations and warranties of and by each and all of such
corporations, except to the extent explicitly otherwise provided. The term
"Borrower" appearing in such singular form shall be deemed a reference to any of
the Borrowers unless the context in which such term is used shall otherwise
require.
"Borrowing" shall mean the total of Revolving Loans made to a given
Borrower by all the Lenders on a single date, in a single currency and having
the same maturity. Borrowings are made and maintained ratably from each of the
Lenders according to their Percentages except to the extent otherwise agreed in
writing by all Lenders.
"Borrowing Base" means forty-five percent of the difference between (a)
Eligible Accounts Receivable and (b) amounts recorded for costs in excess of
billings as an asset which represents disputed items in excess of the amounts
specifically permitted by the applicable contracts, other than amounts covered
by change orders properly executed pursuant thereto.
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Eligible Accounts Receivable means all ordinary billed trade accounts receivable
of the Company and the Restricted Subsidiaries (i) in which the Agent has a
valid and perfected Lien of the priority required by Section 4.1 hereof, (ii)
which are not subject to any defense, offset or counterclaim which has been
claimed (or if they are subject to a defense, offset or counterclaim, the amount
of same has been deducted in the computation of Eligible Accounts Receivable),
(iii) which are not otherwise in dispute or anticipated to be disputed unless
the amount in question has been deducted in computing Eligible Accounts
Receivable, and (iv) which have been billed and either have been outstanding for
not more than 90 days after the due date on the relevant invoice (which due date
shall be computed in accord with the past practices of the Company and its
Restricted Subsidiaries) or payment of same has not been made within 90 days
solely because the amount unpaid represents retainage not due the Company or its
Restricted Subsidiaries until completion of the project in question or
achievement of an agreed upon completion milestone in accord with the custom and
practice in the construction industry and the Company and its Restricted
Subsidiaries have no reason to believe that the amount of such retainage will
not be paid when due, provided that there shall be excluded from Eligible
Accounts Receivable any accounts receivable otherwise included therein from
account debtors who are bankrupt or insolvent or who have otherwise suspended
payment of their obligations to the Company and its Restricted Subsidiaries in
respect to the contract or job in question or as to which any proceeding
(including litigation, arbitration or mediation) is pending seeking to collect
or enforce collection of same.
"Business Day" means any day other than a Saturday or Sunday on which
banks are not authorized or required to close in Chicago, Illinois and, if the
applicable Business Day relates to a Borrowing or payment in an Alternative
Currency or to a conversion of a Credit Utilization into U.S. Dollars, a day on
which banks and foreign exchange markets are open for business in the city where
disbursements of or payments on such Borrowings are to be made.
"Canadian Facility" shall mean a loan and letter of credit facility not
in excess of $25,000,000 extended to one or more of the Canadian Subsidiaries by
a lender doing business in Canada and reasonably acceptable to the Required
Lenders (the "Canadian Lender") and being on terms and conditions reasonably
acceptable to the Required Lenders.
"Canadian Subsidiaries" means JWP NRO Holdings, Inc., EMCOR Canada Ltd.
and Comstock Canada Ltd.
"Capital Expenditures" means, for any period, capital expenditures of
the Company and its Restricted Subsidiaries during such period as defined and
classified in accordance with GAAP consistently applied but in any event
excluding acquisitions which are described in and subject to the restrictions of
Section 7.12(i) hereof.
"Capital Lease" means any lease of Property (whether real or personal)
which in accordance with GAAP is required to be capitalized on the balance sheet
of the lessee.
"Capitalized Lease Obligation" means the amount of the liability shown
on the balance sheet of any Person in respect of a Capital Lease determined in
accordance with GAAP.
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"Change in Control" means that (i) more than 25% of the Voting Stock of
the Company shall at any time and for any reason be owned, either legally or
beneficially, by any Person or group of Persons acting in concert or (ii) Frank
MacInnis shall cease to be the chief executive officer of the Company and/or
Leicle Chesser shall cease to be the chief financial officer of the Company
and/or either such person shall cease to have the duties and responsibilities
normally associated with such positions and in any instance covered by clause
(ii) the person in question shall not be replaced within sixty days by a person
or persons of established experience and reputation, both with respect to the
duties required of the holder of such an office and in the contracting or a
related industry, who has been approved by a majority of the Board of Directors
of the Company and who has not been affiliated with any member of the Board or
any business or other enterprise with which a Board member is affiliated or
(iii) (1) another corporation merges into the Company or the Company
consolidates with or merges into any other corporation or (2) the Company
conveys, transfers or leases all or substantially all its assets to any person
or group, in one transaction or a series of transactions other than any
conveyance, transfer or lease between the Company and a wholly owned subsidiary
of the Company, in each case, in one transaction or a series of related
transactions with the effect that a Person or group becomes the beneficial owner
of more than 25% of the Voting Stock of the surviving or transferee corporation
of such transaction or series; or (iv) during any period of two consecutive
years, individuals who at the beginning of such period constituted the Company's
Board of Directors (together with any new directors whose election by the
Company's Board of Directors, or whose nomination for election was previously so
approved) cease for any reason to constitute a majority of the Directors then in
office.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral" means all Properties, rights, interests and privileges
from time to time subject to the Liens granted to the Agent by the Collateral
Documents or required so to be by the terms hereof.
"Collateral Documents" means all security agreements, pledge
agreements, assignments, financing statements, debentures and other documents as
shall from time to time secure the Revolving Credit Notes or any other
Obligations.
"Commitments" is defined in Section 1.1 hereof.
"Company" is defined in the introductory paragraph.
"Comstock Canada" is defined in the introductory paragraph.
"Controlled Group" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Company or any of its Subsidiaries, are
treated as a single employer under Section 414 of the Code.
"Convertible Subordinated Notes" means the Company's 5-3/4% Convertible
Subordinated Notes due 2005 in the amount of $115,000,000 issued pursuant to the
Indenture.
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"Credit Utilization" means any Borrowing and any issuance of a Letter of
Credit.
"Default" means any event or condition the occurrence of which would,
with the passage of time or the giving of notice, or both, constitute an Event
of Default.
"Designated Foreign Restricted Subsidiaries" means a Restricted
Subsidiary which conducts business primarily outside of the United States, the
United Kingdom and Canada.
"Domestic Rate" means a fluctuating interest rate per annum equal at
all times to the greater of:
(a) the rate of interest announced by Harris Trust and
Savings Bank from time to time as its prime commercial rate as in
effect on such day, with any change in such rate resulting from a
change in said prime commercial rate to be effective as of the date of
the relevant change in said prime commercial rate; or
(b) the sum of (x) the rate determined by the Agent to be the
average (rounded upwards, if necessary, to the next higher 1/100 of 1%
of the rates per annum quoted to the Agent at approximately 10:00 a.m.
Chicago time (or as soon thereafter as is practicable) on the day of
determination (or, if such day is not a Business Day, on the
immediately preceding Business Day) by two or more Federal funds
brokers selected by the Agent for the sale to the Agent at face value
of Federal funds in the secondary market in an amount equal or
comparable to the principal amount owed to the Lenders for which such
rate is being determined, plus (y) 1/2 of 1%.
"Domestic Rate Loan" means a Revolving Loan bearing interest as
specified in Section 2.1 hereof.
"Drake & Scull" is defined in the introductory paragraph.
"EBITDA" means, with reference to any period, as determined for the
Company and its Restricted Subsidiaries on a consolidated basis in accordance
with GAAP, Net Income for such period plus all amounts deducted in arriving at
such Net Income amount in respect of (i) Interest Expense for such period, plus
(ii) federal, state, foreign and local income taxes for such period, plus (iii)
all amounts properly charged for depreciation of fixed assets and amortization
of intangible assets during such period on the books of the Company and its
Restricted Subsidiaries.
"Effective Date" means the date this Amended and Restated Credit
Agreement became effective.
"EMU" means economic and monetary union as contemplated in the Treaty on
European Union.
"EMU Commencement" means the date of commencement of the third stage of
EMU (which at the date hereof is expected to be on January 1, 1999) or the date
on which circumstances arise which (in the opinion of the Agent) have
substantially the same effect and
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result in substantially the same consequences as commencement of the third stage
of EMU as contemplated by the Treaty on European Union.
"EMU Legislation" means legislative measures of the European Council
for the introduction of, changeover to or operation of a single or unified
European currency (whether known as the "euro" or otherwise), being in part the
implementation of the third stage of EMU.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute.
"ERISA Affiliate" means any (i) corporation which is a member of the
same controlled group of corporations (within the meaning of Section 414(b) of
the Code) as the Company, (ii) partnership or other trade or business (whether
or not incorporated) under common control (within the meaning of Section 414(c)
of the Code) with any Borrower, and (iii) member of the same affiliated service
group (within the meaning of Section 414(m) of the Code) as the Company, any
corporation described in clause (i) above or any partnership or trade or
business described in clause (ii) above.
"Euro" means the single currency of Euro Members of the European Union.
"Euro Member" means each state described as a "participating member
state" in any EMU Legislation.
"Euro Unit" means the currency unit of the Euro.
"Eurocurrency Reserve Percentage" means, for any Borrowing in a
currency, the daily average for the applicable Interest Period of the maximum
rate, expressed as a decimal, at which reserves (including, without limitation,
any supplemental, marginal and emergency reserves) are imposed during such
Interest Period by the Board of Governors of the Federal Reserve System (or any
successor) on "eurocurrency liabilities", as defined in such Board's Regulation
D (or in respect of any other category of liabilities that includes deposits by
reference to which the interest rate on Loans in the relevant currency is
determined or any category of extensions of credit or other assets that include
loans by non-United States offices of any Lender to United States residents),
subject to any amendments of such reserve requirement by such Board or its
successor, taking into account any transitional adjustments thereto. For
purposes of this definition, the Loans shall be deemed to be "eurocurrency
liabilities" as defined in Regulation D without benefit or credit for any
prorations, exemptions or offsets under Regulation D.
"Eurodollar Loan" means a Revolving Loan bearing interest as specified
in Section 2.2 hereof.
"Event of Default" means any event or condition specified as such in
Section 8.1 hereof.
"Federal Funds Rate" means the fluctuating interest rate per annum
described in part (x) of clause (b) of the definition of Domestic Rate.
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"Financial Letter of Credit" means a Letter of Credit that is not, as
reasonably determined by the Agent, a Performance Letter of Credit.
"Fixed Charge Coverage Ratio" means as at any date the same is to be
determined the ratio of (i) EBITDA less the sum of Capital Expenditures and
Restricted Payments, in each case for the period of twelve calendar months then
ending to the sum of (ii) Interest Expense less consolidated net interest income
of the Borrowers and the Restricted Subsidiaries for such period plus the sum
for the Borrowers and the Restricted Subsidiaries of Indebtedness for Borrowed
Money (excluding Borrowings and L/C Obligations) scheduled to become due within
twelve months of the date of computation.
"GAAP" means generally accepted accounting principles as in effect from
time to time, applied by the Company and its Restricted Subsidiaries on a basis
consistent with the preparation of the Company's December 31, 1997 consolidated
financial statements furnished to the Lenders.
"GAAP Subsidiaries" means those Subsidiaries of the Company (other than
Unrestricted Subsidiaries) satisfying the criteria for inclusion as a Subsidiary
set forth in clause (i) of the definition of that term.
"Guarantees" means instruments of guarantee from the Guarantors of the
Obligations satisfactory in form and substance to the Agent.
"Guarantors" means those corporations listed on Schedule 4.2 hereto and
such other Restricted Subsidiaries as the Required Lenders may from time to time
designate as Guarantors in a written notice to the Company or as the Company may
from time to time designate.
"Indebtedness for Borrowed Money" means for any Person (without
duplication) all indebtedness created, assumed or incurred in any manner by such
Person or in respect of which such Person is directly or indirectly liable,
whether by guarantee, commitment to purchase, undertaking to maintain the
solvency, liquidity or a balance sheet condition of the obligor, or otherwise
representing (i) money borrowed (including by the issuance of debt securities),
(ii) indebtedness for the deferred purchase price of property or services (other
than trade accounts payable arising in the ordinary course of business), (iii)
indebtedness secured by any Lien upon Property of such Person, whether or not
such Person has assumed or become liable for the payment of such indebtedness
but if such Person is not liable then such indebtedness shall be included at the
lesser of the amount thereof or the fair market value of the Property securing
same, (iv) Capitalized Lease Obligations of such Person and (v) all obligations
of such Person on or with respect to letters of credit (other than letters of
credit which support payment of obligations which do not constitute Indebtedness
for Borrowed Money of any Person), and bankers' acceptances. Performance
Guarantees do not constitute Indebtedness for Borrowed Money.
"Indenture" means the Subordinated Indenture dated as of March 18, 1998
by and between the Company and State Street Bank and Trust Company as Trustee as
modified by the First Supplemental Indenture between such parties dated as of
March 18, 1998, each in the form
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heretofore submitted to the Lenders and as the same may be further amended and
modified from time to time.
"Intercreditor Agreements" mean the Intercreditor Agreement executed in
July, 1998 by and among the Agent and London Guarantee Insurance Company, the
Intercreditor Agreement dated as of September 2, 1997 by and among Seaboard
Surety Company and the Agent the Intercreditor Agreement dated as of March 31,
1997 by and among the Agent and Reliance Insurance Company and certain of its
Affiliates and any other intercreditor agreements entered into from time to time
by the Agent and providers of surety bonds for the benefit of the Company and/or
any of its Restricted Subsidiaries for the purpose of establishing the
respective rights of such sureties and the Agent in and to the Collateral and
having terms not materially different than such two specified intercreditor
agreements or having terms which have been approved by the Required Lenders.
"Interest Expense" means, with reference to any period, the sum of all
interest charges (including imputed interest charges with respect to Capitalized
Lease Obligations and all amortization of debt discount and expense but
excluding fees payable under Sections 3.1 and 3.2 hereof) and letter of credit
fees and commissions of the Borrowers and the Restricted Subsidiaries for such
period determined in accordance with GAAP, but interest paid through the
issuance of securities to the holders of the indebtedness in question having a
maturity of more than one year from the date of issuance and being of no higher
ranking or priority than the indebtedness in question shall not be included in
Interest Expense.
"Interest Period" means the period commencing on the date a Borrowing
is advanced or continued through a new Interest Period and ending 1, 2, 3, or 6
months thereafter; provided, however, that:
(i) an Interest Period may not extend beyond the Termination
Date;
(ii) whenever the last day of any Interest Period would
otherwise be a day that is not a Business Day, the last day of such
Interest Period shall be extended to the next succeeding Business Day,
provided that, if such extension would cause the last day of an
Interest Period to occur in the following calendar month, the last day
of such Interest Period shall be the immediately preceding Business
Day; and
(iii) for purposes of determining an Interest Period, a month
means a period starting on one day in a calendar month and ending on
the numerically corresponding day in the next calendar month; provided,
however, that if there is no numerically corresponding day in the month
in which such an Interest Period is to end or if such an Interest
Period begins on the last Business Day of a calendar month, then such
Interest Period shall end on the last Business Day of the calendar
month in which such Interest Period is to end.
Interest Rate Protection and Other Hedging Agreements" means one or
more of the following agreements entered into by one or more financial
institutions:
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(a) interest rate protection agreements (including, without
limitation, interest rate swaps, caps, floors, collars and similar
agreements),
(b) foreign exchange contracts, currency swap agreements or
other, similar agreements or arrangements designed to protect against
fluctuations in currency values and/or
(c) other types of hedging agreements from time to time.
"Issuer" means Harris Trust and Savings Bank and any other Lender
approved by the Required Lenders and the Company as an issuer of Letters of
Credit to a particular Borrower or Borrowers hereunder or for use in a
particular jurisdiction.
"L/C Documents" means the Letters of Credit, any draft or other
document presented in connection with a drawing thereunder, the Applications and
this Agreement.
"L/C Obligations" means the aggregate undrawn face amounts of all
outstanding Letters of Credit and all unpaid Reimbursement Obligations.
"Lenders" shall mean from time to time the parties hereto other than
the Borrowers, including any assignee pursuant to Section 11.18 hereof.
"Letter of Credit" is defined in Section 1.3(a).
"Leverage Ratio" means, as of any time the same is to be determined,
the ratio of (x) Senior Debt to (y) the EBITDA for the period of twelve calendar
months then ending.
"LIBOR" means, for an Interest Period, (a) the LIBOR Index Rate for
such Interest Period, if such rate is available, and (b) if the LIBOR Index Rate
cannot be determined, the average rate of interest per annum (rounded upwards,
if necessary, to the nearest one hundred-thousandth of a percentage point) at
which deposits in the relevant currency in immediately available funds are
offered to the Agent at 11:00 a.m. (London, England time) two (2) Business Days
before the beginning of such Interest Period by major banks in the interbank
eurocurrency market for delivery on the first day of and for a period equal to
such Interest Period in an amount equal or comparable to the principal amount of
the Borrowing in such currency scheduled to be made by the Agent.
"LIBOR Index Rate" means, for any Interest Period, the rate per annum
(rounded upwards, if necessary, to the next higher one hundred-thousandth of a
percentage point) for deposits in the relevant currency for a period equal to
such Interest Period, which appears on the Telerate Page 3750 for the applicable
currency, as of 11:00 a.m. (London, England time) on the day two (2) Business
Days before the commencement of such Interest Period. The Agent will provide the
Company with evidence of such rate upon its request.
"Lien" means any mortgage, lien, pledge, charge or security interest of
any kind or nature (whether fixed or floating or of any ambulatory or
non-crystallized nature or otherwise) in
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respect of any Property, including the interest of a vendor or lessor under any
conditional sale, Capital Lease or other title retention arrangement.
"Loan Documents" means this Agreement, the Revolving Credit Notes, the
L/C Documents, the Guarantees, the Intercreditor Agreements and the Collateral
Documents and each other instrument or document to be delivered hereunder or
thereunder or otherwise in connection therewith.
"Material Adverse Effect" means, with respect to any act, omission or
occurrence, any of the following consequences in the reasonable judgment of the
Required Lenders:
(a) the material impairment of the ability of the Company or
of the Company and the Guarantors taken as a whole to pay or perform
their obligations under or pursuant to the Loan Documents;
(b) any material adverse change in the assets, liabilities,
financial condition, operations or business prospects of the Company
and its Restricted Subsidiaries taken as whole, or
(c) any material impairment in the right of the Company and
its Restricted Subsidiaries taken as whole to carry on their business
substantially as now conducted.
"Net Income" for any period means the net income of the Company and the
Restricted Subsidiaries for such period computed on a consolidated basis in
accordance with GAAP and, without limiting the foregoing, after deduction from
gross income of all expenses and provisions, including provisions for taxes on
or measured by income, but excluding any gains or losses on the sale or other
disposition of investments or fixed or capital assets, any extraordinary gains
and losses, the cumulative effect of accounting changes (as that term is defined
under GAAP) any taxes on such excluded gains, and any tax deductions or credits
on account of any such excluded losses.
"Obligations" shall mean any and all indebtedness, obligations and
liabilities of the Borrowers and any of them to the Lenders or any of them or
the Agent or Issuers now or hereafter arising hereunder or under any of the
other Loan Documents.
"Percentage" means, for each Lender, the percentage of the Commitments
represented by such Lender's Commitment or, if the Commitments have been
terminated, the percentage held by such Lender (including through participation
interests in L/C Obligations) of the aggregate principal amount of all
outstanding Obligations.
"Performance Guarantees" means, in respect of the Company or any of the
Restricted Subsidiaries, contingent obligations arising from the issuance of
performance guarantees, assurances, indemnities, bonds, letters of credit, or
similar agreements in the ordinary course of business in respect of the
contracts (other than contracts for Indebtedness for Borrowed Money) of the
Company, any Restricted Subsidiary, any joint venture of which the Company or a
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Restricted Subsidiary is a member for the benefit of surety companies or for the
benefit of others to induce such others to forego the issuance of a surety bond
in their favor.
"Performance Letters of Credit" means a Letter of Credit that, as
reasonably determined by the Agent, assures that the applicable Borrower will
fulfill a contractual non-financial obligation, that is, an obligation that does
not entail the payment of money.
"Person" shall mean any person, firm, corporation partnership, joint
venture or other entity.
"Property" shall mean, as to any Person, all types of real, personal,
tangible, intangible or mixed property owned by such Person whether or not
included in the most recent balance sheet of such Person and its subsidiaries
under GAAP.
"Refunding Borrowing" is defined in Section 1.4(a).
"Required Lenders" shall mean at any time Lenders whose Commitments
aggregate 51% or more.
"Restricted Payments" is defined in Section 7.16.
"Restricted Subsidiaries" means those Subsidiaries designated as such
on Schedule 5.2 hereof and all other Subsidiaries becoming Restricted
Subsidiaries pursuant hereto. Designated Foreign Restricted Subsidiaries are
Restricted Subsidiaries.
"Revolving Credit Notes" shall mean the Revolving Credit Notes
(including notes issued pursuant to Section 11.18 hereof) and "Revolving Credit
Note" shall mean any of the Revolving Credit Notes.
"Revolving Loans" is defined in Section 1.2 hereof.
"Senior Debt" means all Indebtedness for Borrowed Money of the Company
and/or the Restricted Subsidiaries other than Subordinated Debt.
"Strategic Ventures" means joint ventures, corporations or similar
pooling of efforts entered into for the purpose of expanding the mechanical,
electrical and/or facilities services, businesses of the Company or any
Restricted Subsidiary or entering or expanding a business related to such
businesses.
"Sublimits" is defined in Section 1.1.
"Subordinated Debt" means the Convertible Subordinated Notes and any
other Indebtedness for Borrowed Money of the Company which is (i) on terms
(including maturity and interest rate) acceptable to the Required Lenders and
(ii) subordinated to the prior payment in full of the Obligations pursuant to
written subordination provisions approved by the Required Lenders.
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"Subsidiary" means, as to any particular parent corporation, (i) any
other corporation at least 51% of the outstanding Voting Stock of which is at
the time directly or indirectly owned by such parent corporation or by any one
or more other corporations or other entities which are themselves subsidiaries
of such parent corporation, and (ii) any corporation organized under the laws of
and conducting business primarily in a jurisdiction which is not part of the
United States of America, the United Kingdom or Canada which would meet the
requirements of clause (i) if at least 51% of its Voting Stock was owned as
required by clause (i) and such ownership percentage is not less than 39%, the
Company or a Subsidiary meeting the requirements of clause (i) has effective
control over such corporation and such entity is accounted for all purposes of
this Agreement using the equity method of accounting.
"Tangible Net Worth" means, as of any time the same is to be
determined, the total shareholders' equity (including capital stock, additional
paid-in-capital, warrants, accumulated other comprehensive income (as defined
under GAAP) and retained earnings but after deducting treasury stock and,
excluding minority interests in Restricted Subsidiaries) which would appear on
the balance sheet of the Company and its Restricted Subsidiaries determined on a
consolidated basis in accordance with GAAP, less the sum of (i) the aggregate
book value of all assets which would be classified as intangible assets under
GAAP, including, without limitation, goodwill, patents, trademarks, trade names,
copyrights, franchises and deferred charges (including, without limitation,
unamortized debt discount and expense, organization costs and deferred research
and development expense) and similar assets and (ii) the write-up of assets
above cost, other than write-ups of assets to fair market value in connection
with acquisitions as permitted by GAAP.
"Telerate Page "3750" means the display designated as "Page 3750", on
the Telerate Service (or such other page as may replace Page 3750 on that
service or such other service as may be nominated by the British Bankers'
Association as the information vendor for the purpose of displaying British
Bankers' Association interest settlement rates for pounds sterling.
"Termination Date" means June 30, 2002 or such earlier date on which
the Commitments are terminated in whole pursuant to Sections 3.6, 8.2 or 8.3
hereof or such later date to which the Commitments are extended pursuant to
Section 11.16 hereof.
"Treaty on European Union" means the Treaty of Rome of March 25, 1957,
as amended by the Single European Act of 1986 and the Maastricht Treaty (which
was signed at Maastricht on February 7, 1992, and came into force on November 1,
1993, as amended from time to time).
"U.S. Dollars" or "$" means lawful currency of the United States of
America.
"U.S. Dollar Equivalent" means the amount of U.S. Dollars which would
be realized by converting an Alternative Currency into U.S. Dollars in the spot
market at the exchange rate quoted by the Agent, at approximately 11:00 a.m.
(London time) on the date on which a computation thereof is to be made, to major
banks in the interbank foreign exchange market for the purchase of U.S. Dollars
for such Alternative Currency.
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"Unrestricted Subsidiaries" means those Subsidiaries designated as such
on Schedule 5.2 hereof.
"Voting Stock" of any Person means capital stock or other equity
interests of any class or classes (however designated) having ordinary power for
the election of directors of such Person, other than stock having such power
only by reason of the happening of a contingency.
"Welfare Plan" means a "welfare plan" as defined in Section 3(l) of
ERISA.
"Wholly-Owned Subsidiary" means a Subsidiary of which all of the issued
and outstanding shares of capital stock (other than directors' qualifying shares
as required by law and other than shares held by others for licensing purposes)
or other equity interests are owned by the Company and/or one or more
wholly-owned subsidiaries within the meaning of this definition.
"Year 2000 Problem" means any significant risk that computer hardware,
software, or equipment containing embedded microchips essential to the business
or operations of the Company or any of its Subsidiaries will not, in the case of
dates or time periods occurring after December 31, 1999, function at least as
efficiently and reliably as in the case of times or time periods occurring after
January 1, 2000, including the making of accurate leap year calculations.
Section 9.2. Interpretation. The foregoing definitions are equally
applicable to both the singular and plural forms of the terms defined. The words
"hereof", "herein", and "hereunder" and words of like import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. All references to time of day herein are references
to Chicago, Illinois time unless otherwise specifically provided. Where the
character or amount of any asset or liability or item of income or expense is
required to be determined or any consolidation or other accounting computation
is required to be made for the purposes of this Agreement, it shall be done in
accordance with GAAP except where such principles are inconsistent with the
specific provisions of this Agreement.
SECTION 10. THE AGENT AND THE ISSUERS.
Section 10.1. Appointment and Authorization. Each Lender hereby appoints
and authorizes the Agent to take such action as agent on its behalf and to
exercise such powers hereunder and under the other Loan Documents as are
designated to the Agent by the terms hereof and thereof together with such
powers as are reasonably incidental thereto. The Lenders acknowledge and agree
that the Agent and the Issuers are not a trustee or other fiduciary for them.
The Agent or an Issuer may resign at any time by sending twenty (20) days prior
written notice to the Borrowers and the Lenders and may be removed by the
Required Lenders upon twenty (20) days prior written notice to the Borrowers and
the Lenders. In the event of any such resignation or removal, the Required
Lenders may appoint a new agent or issuer after consultation with the Borrowers
(which nonetheless shall be bound by the decision of the Required Lenders in
their sole discretion), which shall succeed to all the rights, powers and duties
of the Agent or applicable Issuer (but only as to Letters of Credit issued by
the new Issuer) hereunder and under the other Loan Documents. Any resigning or
removed Agent or Issuer shall be entitled to the benefit of all the protective
provisions hereof with respect to its acts as an agent
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or issuer hereunder, but no successor Agent or Issuer shall in any event be
liable or responsible for any actions of its predecessor. If the Agent resigns
or is removed and no successor is appointed, the rights and obligations of such
Agent shall be automatically assumed by the Required Lenders and (i) the
Borrowers and Guarantors shall be directed to make all payments due each Lender
hereunder directly to such Lender and (ii) the Agent's rights in the Collateral
Documents shall be assigned without representation, recourse or warranty to the
Lenders as their interests may appear.
Section 10.2. Rights as a Lender. The Agent and the Issuers have and
reserve all of the rights, powers and duties hereunder and under the other Loan
Documents as any Lender may have and may exercise the same as though they were
not the Agent or an Issuer and the terms "Lender" or "Lenders" as used herein
and in all of such documents shall, unless the context otherwise expressly
indicates, include the Agent and Issuers in their individual capacities as
Lender.
Section 10.3. Standard of Care. The Lenders acknowledge that they have
received and approved copies of the Loan Documents and such other information
and documents concerning the transactions contemplated and financed hereby as
they have requested to receive and/or review. The Agent and the Issuers make no
representations or warranties of any kind or character to the Lenders with
respect to the validity, enforceability, genuineness, perfection, value, worth
or collectibility hereof or of the Revolving Credit Notes or any of the other
Obligations or of any of the other Loan Documents or of the Liens provided for
thereby or of any other documents called for hereby or thereby or of the
Collateral. The Agent need not verify the worth or existence of the Collateral
and may rely exclusively on reports of the Company in computing the Borrowing
Base. Neither the Agent nor the Issuers nor any director, officer, employee,
agent or representative thereof (including any security trustee therefor) shall
in any event be liable for any clerical errors or errors in judgment,
inadvertence or oversight, or for action taken or omitted to be taken by it or
them hereunder or under the other Loan Documents or in connection herewith or
therewith except for its or their own gross negligence or willful misconduct.
The Agent and the Issuers shall incur no liability under or in respect of this
Agreement or the other Loan Documents by acting upon any notice, certificate,
warranty, instruction or statement (oral or written) of anyone (including anyone
in good faith believed by them to be authorized to act on behalf of any
Borrower), unless they have actual knowledge of the untruthfulness of same. The
Agent and the Issuers may execute any of their duties hereunder by or through
employees, agents, and attorneys-in-fact and shall not be answerable to the
Lenders for the default or misconduct of any such agents or attorneys-in-fact
selected with reasonable care. The Agent and the Issuers shall be entitled to
advice of counsel concerning all matters pertaining to the agencies hereby
created and their duties hereunder, and shall incur no liability to anyone and
be fully protected in acting upon the advice of such counsel. The Agent and the
Issuers shall be entitled to assume that no Default or Event of Default exists
unless notified to the contrary by a Lender. The Agent and the Issuers shall in
all events be fully protected in acting or failing to act in accord with the
instructions of the Required Lenders. Upon the occurrence of an Event of Default
hereunder, the Agent shall take such action with respect to the enforcement of
the Liens on the Collateral and the preservation and protection thereof as it
shall be directed to take by the Required Lenders but unless and until the
Required Lenders have given such direction the Agent shall take or refrain from
taking such actions as it
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deems appropriate and in the best interest of all Lenders. The Agent shall in
all cases be fully justified in failing or refusing to act hereunder and under
the other Loan Documents unless it shall be indemnified to its satisfaction by
the Lenders against any and all liability and expense which may be incurred by
the Agent by reason of taking or continuing to take any such action. The Agent
may treat the owner of any Revolving Credit Note as the holder thereof until
written notice of transfer shall have been filed with the Agent signed by such
owner in form satisfactory to the Agent. Each Lender acknowledges that it has
independently and without reliance on the Agent, the Issuers or any other Lender
and based upon such information, investigations and inquiries as it deems
appropriate made its own credit analysis and decision to extend credit to the
Borrowers. It shall be the responsibility of each Lender to keep itself informed
as to the creditworthiness of the Borrowers and the Guarantors and the Agent and
Issuers shall have no liability to any Lender with respect thereto.
Section 10.4. Costs and Expenses. Each Lender agrees to reimburse the
Agent and the Issuers for all costs and expenses suffered or incurred by them or
any security trustee in performing their duties hereunder and under the other
Loan Documents, or in the exercise of any right or power imposed or conferred
upon them hereby or thereby, to the extent that they are not promptly reimbursed
for same by the Borrowers or out of the Collateral, all such costs and expenses
to be borne by the Lenders ratably in accordance with the amounts of their
respective Commitments.
Section 10.5. Indemnity. The Lenders shall ratably indemnify and hold
the Agent, the Issuers and their directors, officers, employees, agents,
representatives or attorneys-in-fact (including as such any security trustee
therefor), harmless from and against any liabilities, losses, costs or expenses
suffered or incurred by them hereunder or under the other Loan Documents or in
connection with the transactions contemplated hereby or thereby, regardless of
when asserted or arising, except to the extent they are promptly reimbursed for
the same by the Borrowers or out of the Collateral and except to the extent that
any event giving rise to a claim was caused by the gross negligence or willful
misconduct of the party seeking to be indemnified.
Section 10.6. Conflict. In the event of a conflict between the
provisions of this Section 10 and the provisions of any Collateral Document
regarding the rights, duties and obligations of the Agent, the provisions of
this Section 10 shall govern.
SECTION 11. MISCELLANEOUS.
Section 11.1. Withholding Taxes. (a) Payments Free of Withholding.
Except as otherwise required by law and subject to Section 11.1(b) hereof, each
payment by each Borrower and each Guarantor under this Agreement or the other
Loan Documents shall be made without withholding for or on account of any
present or future taxes (other than overall net income taxes (but not
withholdings) on the recipient imposed by a jurisdiction where it is domiciled
or has an established place of business) imposed by or within the jurisdiction
in which such Borrower or such Guarantor is domiciled, any jurisdiction from
which such Borrower or such Guarantor makes any payment, or (in each case) any
political subdivision or taxing authority thereof or therein. If any such
withholding is so required, the Borrower or relevant Guarantor shall make the
withholding, pay the amount withheld to the appropriate governmental authority
before
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penalties attach thereto or interest accrues thereon and forthwith pay such
additional amount as may be necessary to ensure that the net amount actually
received by each Lender and the Agent free and clear of such taxes (including
such taxes on such additional amount) is equal to the amount which that Lender
or the Agent (as the case may be) would have received had such withholding not
been made. If the Agent or any Lender pays any amount in respect of any such
taxes, penalties or interest the Borrowers shall reimburse the Agent or that
Lender for that payment on demand in the currency in which such payment was
made. If the Borrowers or any Guarantor pay any such taxes, penalties or
interest, they shall deliver official tax receipts evidencing that payment or
certified copies thereof to the Lender or Agent on whose account such
withholding was made (with a copy to the Agent if not the recipient of the
original) on or before the thirtieth day after payment. If any Lender or the
Agent determines it has received or been granted a credit against or relief or
remission for, or repayment of, any taxes paid or payable by it because of any
taxes, penalties or interest paid by the Borrowers or any Guarantor and
evidenced by such a tax receipt, such Lender or Agent shall, to the extent it
can do so without prejudice to the retention of the amount of such credit,
relief, remission or repayment, pay to the Borrowers or such Guarantor as
applicable, such amount as such Lender or Agent reasonably determines is
attributable to such deduction or withholding and which will leave such Lender
or Agent (after such payment) in no better or worse position than it would have
been in if the Borrowers or Guarantors had not been required to make such
deduction or withholding. Nothing in this Agreement shall interfere with the
right of each Lender and the Agent to arrange its tax affairs in whatever manner
it thinks fit nor oblige any Lender or the Agent to disclose any information
relating to its tax affairs or any computations in connection with such taxes.
(b) U.S. Withholding Tax Exemptions. Each Lender that is not a United
States person (as such term is defined in Section 7701(a)(30) of the Code) shall
submit to the Borrowers and the Agent on or before the earlier of the date the
initial Borrowing is made hereunder and thirty (30) days after the date hereof,
two duly completed and signed copies of either Form 1001 (relating to such
Lender and entitling it to a complete exemption from withholding under the Code
on all amounts to be received by such Lender, including fees, pursuant to the
Loan Documents and the Revolving Loans) or Form 4224 (relating to all amounts to
be received by such Lender, including fees, pursuant to the Loan Documents and
the Revolving Loans) of the United States Internal Revenue Service. Thereafter
and from time to time, each Lender shall submit to the Borrowers and the Agent
such additional duly completed and signed copies of one or the other of such
Forms (or such successor forms as shall be adopted from time to time by the
relevant United States taxing authorities) as may be (i) requested by the
Company in a written notice, directly or through the Agent, to such Lender and
(ii) required under then-current United States law or regulations to avoid or
reduce United States withholding taxes on payments in respect of all amounts to
be received by such Lender, including fees, pursuant to the Loan Documents or
the Revolving Loans. Notwithstanding the foregoing, (i) a Lender which becomes a
Lender after the date hereof shall not be required to submit a Form 1001 or Form
4224 until the date it becomes a Lender; and (ii) a Lender shall have no
obligations to provide either such Form (or successor form) subsequent to the
date it becomes a Lender if such Lender is excused from doing so pursuant to
Section 11.1(c).
(c) Inability of Lender to Submit Forms. If any Lender determines, as a
result of any change in applicable law, regulation or treaty, or in any official
application or interpretation
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thereof, that it is unable to submit to the Borrowers or Agent any form or
certificate that such Lender is obligated to submit pursuant to subsection (b)
of this Section 11.1. or that such Lender is required to withdraw or cancel any
such form or certificate previously submitted or any such form or certificate
otherwise becomes ineffective or inaccurate, such Lender shall promptly notify
the Company and the Agent of such fact and the Lender shall to that extent not
be obligated to provide any such form or certificate and will be entitled to
withdraw or cancel any affected form or certificate, as applicable. If any
Lender can avoid the effect of any such change in law, regulation or treaty or
in the application or interpretation thereof, whether by changing its lending
office or otherwise, it undertakes to do so if the same can be accomplished
without disadvantage to it. If some, but not all, of the Lenders are affected by
a change of the type described herein, such Lender agrees that it will at the
request of the Company assign its Obligations to another Lender under and
pursuant to the conditions set forth in Section 11.18 hereof.
Section 11.2. Holidays. If any payment of principal or interest on any
of the Revolving Credit Notes or any fees shall fall due on a Saturday, Sunday
or on another day which is a legal holiday for lenders in the State of Illinois,
(i) interest at the rates such Notes bear for the period prior to maturity shall
continue to accrue on such principal from the stated due date thereof to and
including the next succeeding Business Day and (ii) such principal, interest and
fees shall be payable on such succeeding Business Day.
Section 11.3. No Waiver, Cumulative Remedies. No delay or failure on the
part of the Agent, any Issuer or any Lender or on the part of the Agent, any
Issuer or any holder of any of the Obligations in the exercise of any power or
right shall operate as a waiver thereof, nor as an acquiescence in any default
nor shall any single or partial exercise of any power or right preclude any
other or further exercise of any other power or right. The rights and remedies
hereunder of the Agent, the Issuers, Lenders and of the holders of any of the
Obligations are cumulative to, and not exclusive of, any rights or remedies
which any of them would otherwise have.
Section 11.4. Waivers, Modifications and Amendments. Any provision
hereof or of any of the other Loan Documents may be amended, modified, waived or
released and any Default or Event of Default and its consequences may be
rescinded and annulled upon the written consent of the Required Lenders;
provided, however, that without the written consent of each Lender no such
amendment, modification or waiver shall increase the amount or extend the terms
of any Lender's Commitment or reduce the interest rate applicable to or extend
the maturity of its Revolving Credit Note or reduce the amount of the principal,
interest, fees or other amounts to which it is entitled hereunder or release any
guaranty of any Obligations (except for the releases and discharges required by
the Intercreditor Agreement) or release or waive receipt of all or any
substantial (in value) part of the collateral security afforded by the
Collateral Documents (except in connection with a sale or other disposition
thereof or as otherwise provided in the Collateral Documents) or which is
required to be received pursuant to Section 4.1 hereof or change this Section or
change the definition of "Required Lenders" or change the number of Lenders
required to take any action hereunder or under any of the other Loan Documents.
No amendment, modification or waiver of the Agents' or Issuer's protective
provisions shall be effective without the prior written consent of the Agent and
the Issuers.
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Section 11.5. Costs and Expenses. The Borrowers agree to pay on demand
all reasonable costs and expenses of the Agent in connection with the
negotiation, preparation, execution, delivery, recording or filing or release of
the Loan Documents or in connection with any consents hereunder or thereunder or
waivers or amendments hereto or thereto or assignments pursuant hereto,
including the reasonable fees and expenses of counsel for the Agent with respect
to all of the foregoing, and all recording, filing, insurance or other fees,
costs and taxes incident to perfecting a Lien upon the collateral security for
the Revolving Credit Notes and the other Obligations, and all reasonable costs
and expenses (including reasonable attorneys' fees) incurred by the Agent, the
Issuers, the Lenders or any other holders of the Obligations in connection with
any Default or Event of Default or in connection with the enforcement of the
Loan Documents, and all reasonable costs, fees and taxes of the types enumerated
above incurred in supplementing (and recording or filing supplements to) the
Collateral Documents in connection with assignments contemplated by Section
11.18 hereof if counsel to the Agent believes such supplements to be appropriate
or desirable. The Borrowers agree to indemnify and save the Lenders, the
Issuers, the Agent and any security trustee for the Agent or the Lenders
harmless from any and all liabilities, losses, costs and expenses incurred by
the Lenders, the Issuers or the Agent in connection with any action, suit or
proceeding brought against the Agent or the Issuers, any security trustee or any
Lender by any Person which arises out of the transactions contemplated or
financed by any of the Loan Documents or out of any action or inaction by the
Agent, any security trustee or any Lender thereunder, except for such thereof as
is caused by the gross negligence or willful misconduct of the party seeking to
be indemnified. The provisions of this Section 11.5 and the protective
provisions of Section 2 hereof shall survive payment of the Obligations.
Section 11.6. Stamp Taxes. The Borrowers agree that they will pay any
documentary, stamp or similar taxes payable in respect to this Agreement or any
other Loan Document, including interest and penalties, in the event any such
taxes are assessed, irrespective of when such assessment is made and whether or
not any credit to it is then in use or available.
Section 11.7. Survival of Representations and Indemnities. All
representations and warranties made herein or in any of the other Loan Documents
or in certificates given pursuant hereto or thereto shall survive the execution
and delivery of this Agreement and the other Loan Documents, and shall continue
in full force and effect with respect to the date as of which they were made as
long as any credit is in use or available hereunder. All indemnities and other
provisions relative to reimbursement to the Agent, the Issuers and the Lenders
of amounts sufficient to protect the yield of the Agent, the Issuers and the
Lenders with respect to the Loans and Letters of Credit, shall survive the
termination of this Agreement and the payment of the Obligations.
Section 11.8. Construction. The parties hereto acknowledge and agree
that this Agreement shall not be construed more favorably in favor of one than
the other based upon which party drafted the same, it being acknowledged that
all parties hereto contributed substantially to the negotiation and preparation
of this Agreement.
Section 11.9. Addresses for Notices. Unless specifically provided
otherwise hereunder, all communications provided for herein shall be in writing
and shall be deemed to have been
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given or made when served personally or three days after being deposited in the
United States mail addressed, if to any Borrower, in each case to such Borrower
in care of the Company at 101 Merritt Seven Corporate Park, Norwalk, Connecticut
06851, Attention: Chairman of the Board, and if to the Lenders at their
addresses as shown on the signature pages hereof or on any Assignment Agreement,
or at such other address as shall be designated by any party hereto in a written
notice given to each party pursuant to this Section 11.9.
Section 11.10. Obligations Several. The obligations of the Lenders
hereunder are several and not joint. Nothing contained in this Agreement and no
action taken by the Lenders pursuant hereto shall be deemed to constitute the
Lenders a partnership, association, joint venture or other entity.
Section 11.11. Headings. Article and Section headings used in this
Agreement are for convenience of reference only and are not a part of this
Agreement for any other purpose.
Section 11.12. Severability of Provisions. Any provision of this
Agreement which is unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction. All rights, remedies
and powers provided in this Agreement and other Loan Documents may be exercised
only to the extent that the exercise thereof does not violate any applicable
mandatory provisions of law, and all the provisions of this Agreement and other
Loan Documents are intended to be subject to all applicable mandatory provisions
of law which may be controlling and to be limited to the extent necessary so
that they will not render this Agreement or other Loan Documents invalid or
unenforceable.
Section 11.13. Counterparts. This Agreement may be executed in any
number of counterparts, and by different parties hereto on separate
counterparts, and all such counterparts taken together shall be deemed to
constitute one and the same instrument.
Section 11.14. Binding Nature and Governing Law. This Agreement shall be
binding upon the Borrowers and their successors and assigns, and shall inure to
the benefit of the Lenders and the benefit of their successors and assigns,
including any subsequent holder of an interest of the Revolving Credit Notes.
This Agreement and the rights and duties of the parties hereto shall be
construed and determined in accordance with, and shall be governed by the
internal laws of the State of Illinois without regard to principles of conflicts
of law. No Borrower may assign its rights hereunder without the written consent
of the Lenders.
Section 11.15. Entire Understanding. This Agreement, together with the
other Loan Documents and any agreements between the Company and the Agent
concerning fees, constitute the entire understanding of the parties with respect
to the subject matter hereof and any prior agreements, whether written or oral,
with respect thereto are superseded hereby.
Section 11.16. Extensions of the Commitments. Not less than 60 days or
more than 120 days prior to the then effective Termination Date, the Company
(acting on behalf of the Borrowers pursuant to Section 1.6 hereof) may advise
the Agent in writing of its desire to extend
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the Termination Date for an additional 12 months (but not beyond June 30, 2003)
and the Agent shall promptly notify the Lenders of each such request; provided
not more than one such request for the extension of the Termination Date may be
made in any one calendar year. In the event that the Lenders are agreeable to
such extension (it being understood that any Lender may accept or decline such a
request in its sole discretion and on any terms such Lender may elect), the
Borrowers, the Lenders, the Guarantors and the Agent shall enter into such
documents as the Agent may reasonably deem necessary or appropriate to reflect
such extension and to assure that all extensions of credit pursuant to the
Commitments as so extended are secured by the Liens of the Collateral Documents
and guaranteed by the Guarantees, all costs and expenses incurred by the Agent
in connection therewith to be paid by the Borrowers.
Section 11.17. Participations. Any Lender may grant participations in
its extensions of credit hereunder to any other financial institution (a
"Participant") provided that (i) no Participant shall thereby acquire any direct
rights under this Agreement, (ii) no Lender shall agree with a Participant not
to exercise any of its rights hereunder without the consent of such Participant
except for rights which under the terms hereof may only be exercised by all
Lenders, (iii) no sale of a participation in extensions of credit shall in any
manner relieve the selling Lender of its obligations hereunder and (iv) the
Borrowers shall not be responsible for the costs incurred by any Lender in
connection with such participations.
Section 11.18. Assignment Agreements. Each Lender may, from time to time
upon at least five Business Days' notice to the Agent, assign to other financial
institutions all or part of its rights and obligations under this Agreement
(including without limitation the indebtedness evidenced by the Revolving Credit
Notes then owned by such assigning Lender, together with an equivalent
proportion of its obligation to make Revolving Loans and participate in Letters
of Credit hereunder) pursuant to an Assignment Agreement; provided, however,
that (i) unless the Company and the Agent otherwise consents each such
assignment shall be of a constant, and not a varying, percentage of the
assigning Lender's rights and obligations under this Agreement and the
assignment shall cover the same percentage of such Lender's Commitment,
Revolving Loans, Revolving Credit Note and interests in Letters of Credit; (ii)
unless the Agent otherwise consents, the assigning Lender shall assign all of
its Commitment, Revolving Loans, Revolving Credit Note and interests in the
Letters of Credit or the aggregate amount thereof being assigned pursuant to
each such assignment (determined as of the effective date of the relevant
Assignment Agreement) shall be an amount which shall in no event be less than
$10,000,000 and shall be an integral multiple of $1,000,000; (iii) the Agent and
the Company (which is acting on its own behalf and pursuant to Section 1.6
hereof on behalf of the Borrowers as well) must each consent, which consent
shall not be unreasonably withheld (provided that the Company may withhold its
consent to an assignment by the Agent in its sole discretion if after giving
effect thereto the Agent would have a Commitment, computed prior to giving
effect to any reductions or terminations of the Commitments, of less than
$25,000,000) and shall be evidenced by execution of a counterpart of the
relevant Assignment Agreement in the space provided thereon for such acceptance,
to each such assignment to a party which was not an original signatory of this
Agreement and (v) the assigning Lender must pay to the Agent a processing and
recordation fee of $3,500 except that no such fee shall be payable in the case
of an assignment to an Affiliate of such assigning Lender. Upon the execution of
each Assignment Agreement by the assigning Lender thereunder, the assignee
lender thereunder, the Company and the Agent and payment to
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such assigning Lender by such assignee lender of the purchase price for the
portion of the indebtedness of the Borrowers being acquired by it, (i) such
assignee lender shall thereupon become a "Lender" for all purposes of this
Agreement with a Commitment in the amount set forth in such Assignment Agreement
and with all the rights, powers and obligations afforded a Lender hereunder,
(ii) such assigning Lender shall have no further liability for funding the
portion of its Commitment assumed by such other Lender and (iii) the address for
notices to such assignee Lender shall be as specified in the Assignment
Agreement executed by it. Concurrently with the execution and delivery of such
Assignment Agreement, the Borrowers shall each execute and deliver Revolving
Credit Notes to the assignee Lender, (all such Revolving Credit Notes to
constitute "Revolving Credit Notes" for all purposes of the Loan Documents) and
if the assignment is of the full Commitment of the assigning Lender, the
assignor Lender shall thereupon return the Revolving Credit Notes theretofore
issued to it to the Company marked "canceled." If an assignor is an Issuer its
rights and obligations as Issuer shall be unaffected by any assignment.
Section 11.19. Terms of Collateral Documents not Superseded. Nothing
contained herein shall be deemed or construed to permit any act or omission
which is prohibited by the terms of any Collateral Document, the covenants and
agreements contained herein being in addition to and not in substitution for the
covenants and agreements contained in the Collateral Documents.
Section 11.20. PERSONAL JURISDICTION and Jury Trial Waives.
(a) EXCLUSIVE JURISDICTION. EXCEPT AS PROVIDED IN SUBSECTION (b), THE
AGENT, THE LENDERS AND THE BORROWERS AGREE THAT ALL DISPUTES AMONG THEM ARISING
OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT, AND WHETHER ARISING IN
CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED ONLY BY (AND EACH OF
THEM FOR THE BENEFIT OF THE OTHERS HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF) THE STATE OR FEDERAL COURTS LOCATED IN COOK COUNTY, ILLINOIS,
BUT EACH OF THE AGENT, THE LENDERS AND THE BORROWERS ACKNOWLEDGE THAT ANY
APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF
COOK COUNTY, ILLINOIS. THE BORROWERS WAIVE IN ALL DISPUTES ANY OBJECTION THAT
THEY MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE.
(b) OTHER JURISDICTIONS. THE BORROWERS AGREE THAT THE AGENT, AND EACH OF
THE LENDERS SHALL HAVE THE RIGHT TO PROCEED AGAINST THE BORROWERS OR THEIR
PROPERTY ("PROPERTY") IN A COURT IN ANY LOCATION OR JURISDICTION TO ENABLE THE
AGENT OR ANY LENDER TO REALIZE ON PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER
COURT ORDER ENTERED IN FAVOR OF THE AGENT OR ANY LENDER AND, WITHOUT PREJUDICE
TO THE GENERALITY OF THE FOREGOING, EACH BORROWER AGREES THAT THE AGENT OR ANY
LENDER SHALL BE ENTITLED TO COMMENCE PROCEEDINGS (WHETHER FOR THE PURPOSE OF
OBTAINING OR ENFORCING ANY ORDER OR JUDGMENT OR OTHERWISE HOWSOEVER) IN THE
COURTS OF THE JURISDICTIONS WHERE SUCH BORROWER OR ANY OF ITS PROPERTY IS
LOCATED.
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(c) Jury Trial Waiver. The Borrowers, the Agent, and each Lender hereby
irrevocably waives any and all right to trial by jury in any legal proceeding
arising out of or relating to any Loan Document or the transactions contemplated
thereby.
Section 11.21. Currency. Each reference in this Agreement to U.S.
Dollars or to an Alternative Currency (the "relevant currency") is of the
essence. To the fullest extent permitted by law, the obligation of each Borrower
in respect of any amount due in the relevant currency under this Agreement or
the L/C Documents shall, notwithstanding any payment in any other currency
(whether pursuant to a judgment or otherwise), be discharged only to the extent
of the amount in the relevant currency that the Agent, Issuer or Lender entitled
to receive such payment may, in accordance with normal banking procedures,
purchase with the sum paid in such other currency (after any premium and costs
of exchange) on the Business Day immediately following the day on which such
party receives such payment. If the amount in the relevant currency so purchased
for any reason falls short of the amount originally due in the relevant
currency, the Borrowers shall pay such additional amounts, in the relevant
currency, as may be necessary to compensate for the shortfall. Any obligations
of the Borrowers not discharged by such payment shall, to the fullest extent
permitted by applicable law, be due as a separate and independent obligation
and, until discharged as provided herein, shall continue in full force and
effect.
Section 11.22. Currency Equivalence. If for the purposes of obtaining
judgment in any court it is necessary to convert a sum due from any Borrower on
the Obligations in the currency expressed to be payable herein or in an
Application or under the Revolving Credit Notes (the "specified currency") into
another currency, the parties agree that the rate of exchange used shall be that
at which in accordance with normal banking procedures the Agent could purchase
the specified currency with such other currency on the Business Day preceding
that on which final judgment is given. The obligation of each Borrower in
respect of any such sum due to the Agent, any Issuer or any Lender on the
Obligations shall, notwithstanding any judgment in a currency other than the
specified currency, be discharged only to the extent that on the Business Day
following receipt by the Agent, such Issuer or such Lender, as applicable, of
any sum adjudged to be so due in such other currency, the Agent, such Issuers or
such Lender, as applicable, may in accordance with normal banking procedures
purchase the specified currency with such other currency. If the amount of the
specified currency so purchased is less than the sum originally due to the
Agent, such Issuers or such Lender in the specified currency, the Borrowers
agree, as a separate obligation and notwithstanding any such judgment, to
indemnify the Agent, such Issuers or such Lender, as the case may be, against
such loss, and if the amount of the specified currency so purchased exceeds the
amount originally due to the Agent, such Issuer or such Lender in the specified
currency, the Agent, such Issuer or such Lender, as the case may be, agrees to
remit such excess to the Borrowers.
Section 11.23. European Monetary Union. (a) If, as a result of the EMU
Commencement, (i) any Alternative Currency ceases to be lawful currency of the
state issuing the same and is replaced by the Euro or (ii) any Alternative
Currency and the Euro are at the same time both recognized by the central bank
or comparable governmental authority of the state issuing such currency as
lawful currency of such state, then any amount payable under any Loan Documents
in such Alternative Currency shall instead be payable in the Euro and the amount
so payable shall be determined by redenominating or converting such amount into
the Euro at the exchange
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rate officially fixed by the European Central Bank for the purpose of
implementing the EMU, provided, that to the extent any EMU Legislation provides
that an amount denominated either in the Euro or in the applicable Alternative
Currency can be paid either in Euros or in the applicable Alternative Currency,
each party to this Agreement shall be entitled to pay or repay such amount in
Euros or in the applicable Alternative Currency. Prior to the occurrence of the
event or events described in clause (i) or (ii) of the preceding sentence, each
amount payable hereunder in any such Alternative Currency will, except as
otherwise provided herein, continue to be payable only in that Alternative
Currency.
(b) The Borrowers shall from time to time, at the request of the Agent,
pay to the Agent for the account of each Lender the amount of any cost or
increased cost incurred by, or of any reduction in any amount payable to or in
the effective return on its capital to, or of interest or other return foregone
by, such Lender or any holding company of such Lender as a result of the
introduction of, changeover to or operation of the Euro in any applicable state
to the extent attributable to such Lender's obligations hereunder or for the
credit which is the subject matter hereof.
(c) With respect to the payment of any amount denominated in the Euro or
in any Alternative Currency, the Agent shall not be liable to the Borrowers or
any of the Lenders in any way whatsoever for any delay, or the consequences of
any delay, in the crediting to any account of any amount required by the Loan
Documents to be paid by the Agent if the Agent shall have taken all relevant
steps to achieve, on the date required by the Loan Documents, the payment of
such amount in immediately available, freely transferable, cleared funds (in the
Euro Unit or, as the case may be, in any Alternative Currency) to the account
with the bank in the principal financial center in the Euro Member which the
applicable Borrower or, as the case may be, any Lender shall have specified for
such purpose. In this paragraph (c), "all relevant steps" means all such steps
as may be prescribed from time to time by the regulations or operating
procedures of such clearing or settlement system as the Agent may from time to
time determine for the purpose of clearing or settling payments of the Euro.
(d) If the basis of accrual of interest or fees expressed in this
Agreement with respect to the currency of any state that becomes a Euro Member
shall be inconsistent with any convention or practice in the London interbank
market for the basis of accrual of interest or fees in respect of the Euro, such
convention or practice shall replace such expressed basis effective as of and
from the date on which such state becomes a Euro Member; provided, that if any
Obligation in the currency of such state is outstanding immediately prior to
such date, such replacement shall take effect, with respect to such Loan, at the
end of the then current Interest Period.
(e) In addition, this Agreement (including, without limitation, the
definition of Eurodollar Loans) will be amended to the extent determined by the
Agent (acting reasonably and in consultation with the Company) to the extent
necessary to reflect such EMU Commencement and change in currency and to put the
Lenders and the Borrower in the same position, so far as possible, that they
would have been in if such implementation and change in currency had not
occurred. Except as provided in the foregoing provisions of this Section 11.23,
no such implementation or change in currency nor any economic consequences
resulting therefrom shall (i) give rise to any right to terminate prematurely,
contest, cancel, rescind, alter, modify or
-60-
<PAGE>
renegotiate the provisions of this Agreement or (ii) discharge, excuse or
otherwise affect the performance of any obligations of the Borrowers or
Guarantors under any Loan Documents.
Upon your acceptance hereof in the manner hereinafter set forth, this
Agreement shall be a contract between us for the purposes hereinabove set forth"
Article II. Exhibits.
The exhibits to the Credit Agreement shall be amended and as so amended
shall be restated in their entirety to read in accord with the exhibits attached
hereto.
Article III. Deletion of Certain Banks.
As of and on the Effective Date, Bank of Scotland and The Fuji Bank,
Limited, New York Branch (the "Terminating Lenders") shall no longer be parties
to the Credit Agreement and, accordingly, shall not be deemed to consent or
agree to the terms of the Credit Agreement as deemed hereby and shall have no
liability, of obligations or responsibilities thereunder or under any of the
Loan Documents, including without limitation, and further commitment or
obligation to extend credit to the Company or participate in the credit risk
incident to Letters of Credit issued pursuant to the Credit Agreement as amended
and restated hereby and each Terminating Lender shall be paid all outstanding
Loans and accrued interest thereon, plus all fees and other amounts due and
owing under or in connection with the Credit Agreement or anyother Loan
Documents; provided, however, the Terminating Lenders shall continue to be
entitled to the benefits of all expense reimbursement and indemnity provisions
contained in the Credit Agreement and the other Loan Documents as in effect
immediately prior to the Effective Date.
Article 4. The Commitments of the Continuing Lenders.
From and after the Effective Date the Commitment of each Lender
shall be as set forth on Schedule 1.1 hereto and the Lenders signing
this Agreement who were not previously parties hereto shall become
parties hereto (all Lenders other than the Terminating Lenders being
sometimes referred to collectively as the "Continuing Lenders").
Article 5. DYN.
From and after the Effective Date, DYN Specialty Contracting,
Inc. shall no longer be a Borrower hereunder.
Article 6. Conditions precedent to Effectiveness.
This Amendment and Restatement of Credit Agreement shall become
effective on _____________, 1998 provided the following conditions
precedent to effectiveness have been satisfied.
-61-
<PAGE>
Section 6.1. Execution. The Agent shall have received
counterparts hereof which, taken together bear the signature of the
Borrowers, DYN Specialty Contracting Inc., the Agent, the Terminating
Lenders and the Continuing Lenders.
Section 6.2. Other Deliveries. The Agent shall have received the
following for the account of the Continuing Lenders (each to be properly
executed and completed) and the same shall have been approved as to form
and substance by the Lenders:
(a) Revolving Credit Notes for each Continuing Lender
payable to its order (such Revolving Credit Notes issued to the
present Lenders to be issued in replacement for the Revolving
Credit Notes currently held by them and to evidence the same
indebtedness evidenced by the Revolving Credit Notes so replaced
as well as all additional Loans made by the holders thereof);
(b) Any new or amended Collateral Documents required by the
Agent in connection herewith;
(c) Amendments to or replacement of the Guaranties
satisfactory to the Agent (any such replacement guaranties to
constitute "Guaranties" for purposes of this Agreement and the
other Loan Documents);
(d) Copies (executed or certified as may be appropriate) of
Resolutions of the Board of Directors of each Borrower and
Guarantor authorizing the execution, delivery and performance of
the loan documents to which it is party and all other documents
related thereto;
(e) Incumbency certificates in form satisfactory to the
Agent;
(f) Good Standing Certificates for each Borrower and
Guarantor dated as of a date no earlier than 30 days prior to the
date hereof from the appropriate governmental offices in the
jurisdiction of incorporation;
(g) Articles of Incorporation and By-laws for each Borrower
and Guarantor certified by such Borrower's or Guarantor's
corporate secretary or other appropriate officer; and
(h) Such steps shall have been taken as the Agent may
require to provide for the continued perfection of its liens on
the Collateral.
Section 6.3. Legal Matters. Legal matters incident to the
execution and delivery of this Agreement and the other documents to be
issued pursuant hereto shall be reasonably satisfactory to the Lenders
and their counsel and the Agent shall have received for the account of
the Lenders an opinion of counsel of the Borrowers and Guarantors
covering the matters set forth on Exhibit B hereto, with such
exceptions, qualifications, assumptions and exemptions as are acceptable
to the Agent.
-62-
<PAGE>
Section 6.4. Representations True, No Default. Each and all of
the representations and warranties contained in the Credit Agreement as
amended hereby shall be true and correct as of and on the Effective Date
and after giving effect thereto all with the same force and effect as if
made on such date and no Default or Event of Default shall have occurred
and be continuing and the Company shall have delivered a certificate to
the foregoing effects to the Agent, which shall be and constitute a Loan
Document.
Section 6.5. Payout. As of and on the Effective Date the Company
shall have (i) repaid all Loans from the Terminating Lenders, together
with accrued interest thereon, and (ii) all accrued and unpaid
commitment fees and all other amounts due the Terminating Lenders.
Section 6.6. Adjustments. On the Effective Date there shall be
such nonratable Borrowings and repayments of Revolving Loans as shall be
necessary so that after giving effect thereto the percentage of each
Continuing Lender's Commitment is identical.
Section 6.7. DYN. On the Effective Date and as a condition
thereto there shall be no outstanding Revolving Loans to DYN Specialty
Contracting, Inc. and no outstanding Letters of Credit for which it is
the applicant.
Article 7. Letter of Credit Fee Transition Provisions.
From and after the Effective Date, Letter of Credit fees shall
accrue and be payable in arrears as provided for in the first sentence
of Section 3.3 hereof, provided however there shall be credited against
(and hence reduce) the amount of Letter of Credit fees otherwise due
each Continuing Lender which was a Lender party to the Credit Agreement
prior to giving effect to this amendment and restatement thereof the
amount, if any, of Letter of Credit fees which it received under the
Credit Agreement prior to giving effect to this Amendment and
Restatement in respect of Letters of Credit heretofore issued which were
paid in advance and which are attributable to periods from and after the
Effective Date.
-63-
<PAGE>
Upon your acceptance hereof in the manner hereinafter set forth, this
Agreement shall be a contract between us for the purposes hereinabove set forth.
Dated as of this th day of , 1998.
----- ------------------
EMCOR GROUP, INC.
By
Its
----------------------------------------
DYN SPECIALTY CONTRACTING INC. (solely to
acknowledge that it is to no longer be
a Borrower hereunder)
By
Its
----------------------------------------
COMSTOCK CANADA, LTD.
By:
-------------------------------------------
Its
----------------------------------------
DRAKE & SCULL ENGINEERING LTD.
By
Its
----------------------------------------
<PAGE>
Accepted and Agreed to at Chicago, Illinois as of the day and year last
above written.
Each of the Lenders hereby agrees with each other Lender that if it
should receive or obtain any payment (whether by voluntary payment, by
realization upon collateral, by the exercise of rights of setoff or banker's
lien, by counterclaim or cross action, or by the enforcement of any rights under
the Credit Agreement, the Revolving Credit Notes or the Collateral Documents or
otherwise) in respect of the Obligations, in a greater amount than such Lender
would have received had such payment been made to the Agent and been distributed
among the Lenders as contemplated by Section 3.7 hereof, then in that event the
Lender receiving such disproportionate payment shall purchase for cash without
recourse from the other Lenders an interest in the Obligations owed to such
Lenders in such amount as shall result in a distribution of such payment as
contemplated by Section 3.7 hereof. In the event any payment made to a Lender
and shared with the other Lenders pursuant to the provisions hereof is ever
recovered from such Lender, the Lenders receiving a portion of such payment
hereunder shall restore the same to the payor Lender, with interest to the
extent payable by the payor. In the event any amount paid to an Issuer under the
Applications shall ever be recovered from such Issuer, each Lender shall
reimburse such Issuer for its pro rata share of the amount so recovered with
interest to the extent payable by the Issuer.
-2-
<PAGE>
CONTINUING LENDERS
HARRIS TRUST AND SAVINGS BANK
By
--------------------------------------------
Its
----------------------------------------
111 West Monroe Street
Chicago, Illinois 60690
Attention: Wes Frangul
LASALLE NATIONAL BANK
By
--------------------------------------------
Its
----------------------------------------
135 South LaSalle Street
Chicago, Illinois 60603
Attention: Robert W. Frentzel
FIRST UNION NATIONAL BANK
By
--------------------------------------------
Its
----------------------------------------
PA 4827
1339 Chestnut Street
Philadelphia, Pennsylvania 19107
Attention: William Musselman
UNION BANK OF CALIFORNIA, N.A.
By
--------------------------------------------
Its
----------------------------------------
350 California Street
San Francisco, California 94104
Attention: Susan Biba
-3-
<PAGE>
BANK ONE, ARIZONA, N.A.
By
--------------------------------------------
Its
----------------------------------------
201 N. Central - 21st Floor
Phoenix, Arizona 85004
Attention: Brad Richards
BANKBOSTON, N.A.
By
--------------------------------------------
Its
-------------------------------------------
One Landmark Square - 20th Floor
Stamford, Connecticut 06901
Attention: John T. Murphy
Senior Vice President
-4-
<PAGE>
TERMINATING LENDERS
Agreed and Accepted as to Article III only
Commitment: $-0- BANK OF SCOTLAND
Percentage: -0-%
By
---------------------------------------
Its
-----------------------------------
Commitment: $-0- THE FUJI BANK, LIMITED, NEW YORK
Percentage: -0-% BRANCH
By
---------------------------------------
Its
-----------------------------------
-5-
<PAGE>
EXHIBIT A
REVOLVING CREDIT NOTE
_________________, 1998
For value received, the undersigned, _____________________, a
________________ corporation ("Borrower"), hereby promises to pay to the order
of _______________________________________________ (the "Lender"), at the
principal office of Harris Trust and Savings Bank in Chicago, Illinois, in the
currency of each Revolving Loan evidenced hereby in accordance with Section 1 of
the Credit Agreement, the aggregate unpaid principal amount of each Revolving
Loans made by the Lender to the Borrower pursuant to the Credit Agreement or the
due date therefore as specified in the Credit Agreement, together with interest
on the principal amount of each Revolving Loan from time to time outstanding
hereunder at the rates, and payable in the manner and on the dates specified in
the Credit Agreement.
The Lender shall record on its books or records or on a schedule
attached to this Note, which is a part hereof, each Revolving Loan made by it
pursuant to the Credit Agreement, any repayment of principal and interest and
the principal balances from time to time outstanding hereon, and the currency in
which made, provided that prior to the transfer of this Note all such amounts
shall be recorded on a schedule attached to this Note. The record thereof,
whether shown on such books or records or on a schedule to this Note, shall be
prima facie evidence of the same, provided, however, that the failure of the
Lender to record any of the foregoing or any error in any such record shall not
limit or otherwise affect the obligation of the Borrowers to repay all Revolving
Loans made to them pursuant to the Credit Agreement together with accrued
interest thereon.
This Note is one of the Revolving Credit Notes referred to in the
Amended and Restated Credit Agreement dated as of ________ ___, 1998, among the
Borrowers, Harris Trust and Savings Bank, as Agent, and the Lenders from time to
time party thereto (the "Credit Agreement"), and this Note and the holder hereof
are entitled to all the benefits provided for thereby or referred to therein, to
which Credit Agreement reference is hereby made for a statement thereof. All
defined terms used in this Note, except terms otherwise defined herein, shall
have the same meaning as in the Credit Agreement.
This Note is issued by the Borrower under the terms and provisions of
the Credit Agreement and is secured by the Collateral Documents, and this Note
and the holder hereof are entitled to all of the benefits and security provided
for thereby or referred to therein, to which reference is hereby made for a
statement thereof. This Note may be declared to be, or be and become, due prior
to its expressed maturity, voluntary prepayments may be made hereon, and certain
prepayments are required to be made hereon, all in the events, on the terms and
with the effects provided in the Credit Agreement.
This Note shall be construed in accordance with, and governed by, the
internal laws of the State of Illinois without regard to principles of conflicts
of law.
<PAGE>
The Borrower hereby promises to pay all costs and expenses (including
attorneys' fees) suffered or incurred by the holder hereof in collecting this
Note or enforcing any rights in any collateral herefor. The Borrower hereby
waives presentment for payment and demand.
By
---------------------------------------
Its
-----------------------------------
-2-
<PAGE>
EXHIBIT B
FORM OF OPINION OF COUNSEL
<PAGE>
EXHIBIT C
EMCOR GROUP, INC.
BORROWING BASE CERTIFICATE
TO: Harris Trust and Savings Bank as Agent under, and the Lenders party to, the
Credit Agreement described below
Pursuant to the terms of the Amended and Restated Credit Agreement dated
as of __________, 1998 among us (the "Credit Agreement"), we submit this
Borrowing Base Certificate to you and certify that the information set forth
below and on any attachments to this Certificate is true, correct and complete
as of the date of this Certificate. Any capitalized terms used herein without
definition shall have the same meanings as such terms have in the Credit
Agreement.
I. BORROWING BASE
A. BORROWING BASE
1. Gross accounts -----------
A1
2. Ineligible accounts identified in Credit
Agreement -----------
A2
3. Claims/disputed amounts not included in A2 -----------
A3
4. Borrowing Base -----------
(A1 minus A2 and A3) x .45 A4
B. ADVANCES/AVAILABILITY (SHORTFALL)
1. Revolving Loans -----------
B1
2. Letters of Credit -----------
B2
3. Total Advances (sum of line B1 and B2) -----------
B3
<PAGE>
4. Borrowing Base (line A4) ===========
B4
5. Unused Availability (B3 minus B4) -----------
B5
Dated as of this day of , 19 .
---- -------------- ---
EMCOR Group, Inc.
By
Its
---------------------------------
-2-
<PAGE>
EXHIBIT D
EMCOR GROUP, INC.
COMPLIANCE CERTIFICATE
FOR THE MONTH ENDING __________
To: Harris Trust and Savings Bank
as Agent under, and the Lenders
party to the Credit Agreement
described below
This Compliance Certificate is furnished to the Lenders pursuant to the
requirements of Section 7.5 of the Amended and Restated Credit Agreement dated
as of ___________, 1998, by and between EMCOR Group, Inc., a Delaware
corporation (the "Company"), Comstock Canada, Ltd., a Canadian corporation
("Comstock Canada"), Drake & Scull Engineering Ltd., a United Kingdom
Corporation ("Drake & Scull") and Harris Trust and Savings Bank as agent
thereunder (the "Agent") and the Lenders named therein (the "Credit Agreement").
Unless otherwise defined herein, the terms used in this Compliance Certificate
have the meanings ascribed thereto in the Credit Agreement.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. I am the duly elected ______________ of the Company;
2. I have reviewed the terms of the Credit Agreement and I have made,
or have caused to be made under my supervision, a detailed review of the
transactions and conditions of the Borrowers and Restricted Subsidiaries during
the accounting period covered by the financial statements being furnished
concurrently with this Certificate;
3. The examinations described in paragraph 2 did not disclose, and I
have no knowledge of, the existence of any condition or the occurrence of any
event which constitutes a Default or an Event of Default at any time during or
at the end of the accounting period covered by the accompanying financial
statements or as of the date of this Certificate, except as set forth
immediately below;
4. The financial statements required by Section 7.5 of the Credit
Agreement and being furnished to you concurrently with this Certificate are
true, correct and complete as of the dates and for the periods covered thereby;
and
5. Schedule I attached hereto sets forth financial data and
computations evidencing the Borrowers' compliance with certain covenants of the
Credit Agreement, all of which data and
-3-
<PAGE>
computations are true, complete and correct and have been made in accordance
with the relevant Sections of the Credit Agreement. *
6. Also attached hereto is a summary of accounts over $1,000,000 (and
invoiced as an asset of $500,000 or more) in litigation, mediation or
arbitration.*
Described below are the exceptions, if any, to paragraph 3 by listing,
in detail, the nature of the condition or event, the period during which it has
existed and the action which the Borrowers have taken, is taking, or proposes to
take with respect to each such condition or event:
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
The foregoing certifications, together with the computations set forth
in Schedule I attached hereto and the financial statements furnished
concurrently with this Certificate in support hereof, are made and delivered as
of this day of , 19 .
------ --------------- ---
EMCOR GROUP, INC.
By:
-------------------------------------
Title:
-----------------------------
(Type or Print Name)
- --------------
* Include only quarterly.
-2-
<PAGE>
SCHEDULE I
EMCOR GROUP, INC.
COMPLIANCE CALCULATIONS
FOR , 1996 CREDIT AGREEMENT
-------------------
CALCULATIONS AS OF , 19
--------------- --
================================================================================
A. ADJUSTED TANGIBLE NET WORTH (SECTION 7.6)
[Calculations to follow.]
B. LEVERAGE RATIO (SECTION 7.7 AND APPLICABLE MARGIN)
[Calculations to follow.]
C. FIXED CHARGE COVERAGE RATIO (SECTION 7.8)
[Calculations to follow.]
D. CURRENT RATIO (SECTION 7.9)
[Calculations to follow.]
D. CAPITAL AND OTHER RESTRICTED EXPENDITURES (SECTION 7.13)
[Calculations to follow.]
E. ACQUISITIONS (SECTION 7.12(i))
[Calculations to follow.]
<PAGE>
EXHIBIT E
ASSIGNMENT AND ACCEPTANCE
Dated , 19
------------- -----
Reference is made to the Amended and Restated Credit Agreement dated as
of _______________, 1998 (the "Credit Agreement") among EMCOR Group, Inc., the
other Borrowers, the Lenders (as defined in the Credit Agreement) and Harris
Trust and Savings Bank, as Agent for the Lenders (the "Agent"). Terms defined in
the Credit Agreement are used herein with the same meaning.
_____________________________________________________ (the "Assignor")
and _________________________ (the "Assignee") agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, a _______% interest in
and to all of the Assignor's rights and obligations under the Credit Agreement
as of the Effective Date (as defined below), including, without limitation, such
percentage interest in the Assignor's Commitment as in effect on the Effective
Date and the Revolving Loans, if any, owing to the Assignor on the Effective
Date and the Assignor's Percentage of any outstanding L/C Obligations, if any.
2. The Assignor (i) represents and warrants that as of the date hereof
(A) its Commitment is $____________, (B) the aggregate outstanding principal
amount of Revolving Loans made by it under the Credit Agreement that have not
been repaid is $____________ and a description of the interest rates and
currencies for such Revolving Loans is attached as Schedule 1 hereto, and (C)
the aggregate principal amount of Assignor's outstanding L/C Obligations is
$___________ and a description of the expiry date, amount and account party for
such L/C Obligations is also attached as Schedule 1 hereto; (ii) represents and
warrants that it is the legal and beneficial owner of the interest being
assigned by it hereunder and that such interest is free and clear of any adverse
claim, lien, or encumbrance of any kind; (iii) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Loan Documents
or the execution, legality, validity, enforceability, genuineness, sufficiency
or value of the Loan Documents or any other instrument or document furnished
pursuant thereto; and (iv) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of any Borrower or any
Guarantor or the performance or observance by any Borrower or any Guarantor of
any of their respective obligations under the Credit Agreement or any other
instrument or document furnished pursuant thereto.
3. The Assignee (i) confirms that it has received copies of the Credit
Agreement and the Intercreditor Agreements, together with copies of the most
recent financial statements delivered to the Lenders pursuant to in Sections
7.5(a), (b) and (c) thereof and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
this Assignment and Acceptance; (ii) agrees that it will, independently and
without reliance upon the Agent, the Assignor or any other Lender and based on
such documents
<PAGE>
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 Credit Agreement;
(iii) appoints and authorizes the Agent to take such action as Agent on its
behalf and to exercise such powers under the Loan Documents as are delegated to
the Agent by the terms thereof, together with such powers as are reasonably
incidental thereto; (iv) agrees that it will perform in accordance with their
terms all of the obligations which by the terms of the Credit Agreement are
required to be performed by it as a Lender; and (v) specifies as its lending
offices (and address for notices) the offices set forth beneath its name on the
signature pages hereof.
4. As consideration for the assignment and sale contemplated in
Section 1 hereof, the Assignee shall pay to the Assignor on the Effective Date
(as hereinafter defined) in federal funds an amount equal to the percentage
specified in Section One of the balance of Revolving Loans outstanding on such
date. It is understood that commitment and/or Letter of Credit fees accrued to
the date hereof with respect to the interest assigned hereby are for the account
of the Assignor and such fees accruing from and including the date hereof are
for the account of the Assignee. Each of the Assignor and the Assignee hereby
agrees that if it receives any amount under the Credit Agreement which is for
the account of the other party hereto, it shall receive the same for the account
of such other party to the extent of such other party's interest therein and
shall promptly pay the same to such other party.
5. The effective date for this Assignment and Acceptance shall be
_____________, 19___ (the "Effective Date"). Following the execution of this
Assignment and Acceptance, it will be delivered to the Company for its
acceptance and to the Agent for acceptance and recording by the Agent.
6. Upon such acceptance and recording, as of the Effective Date, (i)
the Assignee shall be a party to the Credit Agreement and, to the extent
provided in this Assignment and Acceptance, have the rights and obligations of a
Lender thereunder and (ii) the Assignor shall, to the extent provided in this
Assignment and Acceptance, relinquish its rights and be released from its
obligations under the Credit Agreement.
7. Upon such acceptance and recording, from and after the Effective
Date, the Agent shall make all payments under the Credit Agreement in respect of
the interest assigned hereby (including, without limitation, all payments of
principal, interest and commitment and letter of credit fees with respect
thereto) to the Assignee. The Assignor and Assignee shall make all appropriate
adjustments in payments under the Credit Agreement for periods prior to the
Effective Date directly between themselves.
8. In accordance with Section 11.18 of the Credit Agreement, the
Assignee requests and directs that the Agent prepare and cause the Borrowers to
execute and deliver to the Assignee Revolving Credit Notes payable to the
Assignee.
-2-
<PAGE>
9. This Assignment and Acceptance shall be governed by, and construed
in accordance with, the laws of the State of Illinois.
[ASSIGNOR LENDER]
By:
----------------------------------
Title:
[ASSIGNEE LENDER]
By:
----------------------------------
Title:
Lending Office (and
address for notices):
Accepted and consented this
day of , 19
- ---- ----------- --
EMCOR GROUP, INC.
By:
-----------------------------------------
Title:
Accepted and consented to by the Agent this
day of , 19
- ------- ----------- --
HARRIS TRUST AND SAVINGS BANK
By:
-----------------------------------------
Title:
-3-
<PAGE>
SCHEDULE 1.1
COMMITMENTS
LENDER COMMITMENT PERCENTAGE
- ------ ---------- ----------
Harris Trust and Savings Bank $40,000,000 26.67%
LaSalle National Bank $25,000,000 16.7%
First Union National Bank $25,000,000 16.7%
Union Bank of California $20,000,000 13.3%
Bank One, Arizona, N.A. $25,000,000 16.7%
BankBoston $15,000,000 10%
<PAGE>
SCHEDULE 4.2
THE GUARANTORS
GUARANTORS
<TABLE>
<CAPTION>
JURISDICTION OF PERCENTAGE
NAME INCORPORATION OWNERSHIP OWNER
<S> <C> <C> <C>
EMCOR Group, Inc. Delaware
DYN Specialty Contracting Inc. Virginia 100% EMCOR Construction
Holding Services, Inc.
Dynalectric Company Delaware 100% DYN Specialty
Contracting, Inc.
Dynalectric Company of Nevada Nevada 100% DYN Specialty
Contracting, Inc.
Contra Costa Electric, Inc. California 100% DYN Specialty
Contracting, Inc.
B&B Contracting and Supply Texas 100% DYN Specialty
Company Contracting, Inc.
KDC, Inc. California 100% DYN Specialty
Contracting, Inc.
EMCOR Construction Holding
Services, Inc. Delaware 100% MES Holdings Corp.
EMCOR Mechanical/Electrical Delaware 100% EMCOR Construction
Services (East), Inc. Holding
Heritage Air Systems, Inc. New York 100% EMCOR
Mechanical/Electrical
Services (East), Inc.
Welsbach Electric Corp. Delaware 100% EMCOR
Mechanical/Electrical
Services (East), Inc.
Forest Electric Corp. New York 100% EMCOR
Mechanical/Electrical
Services (East), Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Welsbach Electric Corp. of L.I. New York 100% EMCOR
Mechanical/Electrical
Services (East), Inc.
Penguin Maintenance and Delaware 100% EMCOR
Services Inc. Mechanical/Electrical
Services (East), Inc.
Penguin Air Conditioning Corp. New York 100% EMCOR
Mechanical/Electrical
Services (East), Inc.
R.S. Harritan & Company, Inc. Virginia 100% EMCOR
Mechanical/Electrical
Services (East), Inc.
J.C. Higgins Corp. Delaware 100% EMCOR
Mechanical/Electrical
Services (East), Inc.
Labov Mechanical, Inc. Delaware 100% J.C. Higgins Corp.
Labov Plumbing, Inc. Delaware 90% Labov Mechanical, Inc.
EMCOR Mechanical/Electrical Delaware 100% EMCOR
Construction Holding
Services (Midwest), Inc. Services, Inc.
JWP/Hyre Electric Co. of Indiana, Delaware 100% EMCOR
Inc. Mechanical/Electrical
Services, Inc.
Romanoff/Dynalectric Company Ohio 100% EMCOR
Mechanical/Electrical
Services (Midwest), Inc.
EMCOR Midwest, Inc. Delaware 100% EMCOR
Mechanical/Electrical
Services (Midwest), Inc.
Gibson Electric Co., Inc. New Jersey 100% EMCOR Midwest, Inc.
EMCOR Mechanical/Electrical Delaware 100% EMCOR
Service (West), Inc. Construction Holding
Services, Inc.
John Miller Electric Company Delaware 100% EMCOR
Mechanical/Electrical
Services (Midwest), Inc.
</TABLE>
-2-
<PAGE>
<TABLE>
<S> <C> <C> <C>
University Mechanical & California 100% EMCOR
Engineering Contractors, Inc. Mechanical/Electrical
Services (West), Inc.
Pace Mechanical Services, Inc. Michigan 100% University Mechanical &
Engineering Contractors, Inc.
Northern Digital, Inc. California 100% EMCOR
Facilities Services, Inc.
Newcomb Anderson Associates California 100% EMCOR
Facilities Services, Inc.
The Fred B. DeBra Co. Delaware 100% EMCOR
Mechanical/Electrical
Services (Midwest), Inc.
University Mechanical & Engineering Arizona 100% University Mechanical &
Contractors, Inc. Engineering
Contractors, Inc., a
California corporation
Hansen Mechanical Contractors, Inc. Nevada 100% University Mechanical &
Engineering
Contractors, Inc., a
California corporation
Trautman & Shreve, Inc. Colorado 100% University Mechanical &
Engineering
Contractors, Inc., a
California corporation
EMCOR Mechanical/Electrical Delaware 100% EMCOR
Services (South), Inc. Construction Holding
Services, Inc.
EMCOR Gowan, Inc. Texas 100% EMCOR Mechanical/Electrical
Services (South) Inc.
EMCOR International, Inc. Delaware 100% MES Holdings Corporation
Marelich Mechanical Co. Inc. California 100% EMCOR Mechanical/Electrical
Services (West) Inc.
</TABLE>
-3-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Inte-Fac Corp New York 100% EMCOR Mechanical/Electrical
Services (East), Inc.
Zack Power & Industrial Company New York 100% EMCOR Mechanical/Electrical
Services (East), Inc.
EMCOR Facilities Services, Inc. Delaware 100% MES Holdings Corporation
EMCOR Construction Services, Inc. Delaware 100% MES Holdings Corporation
MES Holdings Corporation Delaware 100% EMCOR Group, Inc.
EMCOR (UK) Limited UK 100% EMCOR International Inc.
Drake & Scull Engineering UK 100% EMCOR (UK) Limited
Ltd.
Drake & Scull Airport Services UK 100% Drake & Scull
Ltd. Engineering Ltd.
Drake & Scull Technical Services UK 100% Drake & Scull
Ltd. Engineering Ltd.
Drake & Scull Engineering (UK) UK 100% Drake & Scull
Limited Engineering Ltd.
Drake & Scull International, Ltd. UK 100% Drake & Scull
Engineering Ltd.
Drake & Scull Engineering UK 100% Drake & Scull
(North) Ltd. Engineering Ltd.
Drake & Scull Engineering UK 100% Drake & Scull
(South) Ltd. Engineering Ltd.
Drake & Scull Holdings Ltd. UK 100% EMCOR (UK) Limited
Del Commerce (Contract UK 100% Drake & Scull Holdings
Services) Ltd. Ltd.
JWP Leasing Ltd. UK 100% EMCOR (UK) Limited
Heritage Air Systems Ltd. UK 100% EMCOR (UK) Limited
</TABLE>
-4-
<PAGE>
<TABLE>
<S> <C> <C> <C>
JWP NRO Holdings, Inc. Canada 100% EMCOR International Inc.
Comstock Canada, Ltd. Canada 100% EMCOR International Inc.
</TABLE>
-5-
<PAGE>
SCHEDULE 5.2
THE SUBSIDIARIES
RESTRICTED SUBSIDIARIES
<TABLE>
<CAPTION>
JURISDICTION OF PERCENTAGE OWNER
NAME INCORPORATION OWNERSHIP
<S> <C> <C> <C>
DYN Specialty Contracting Inc. Virginia 100% EMCOR Construction Holding
Services, Inc.
Dynalectric Company Delaware 100% DYN Specialty
Contracting, Inc.
Dynalectric Company of Nevada Nevada 100% DYN Specialty
Contracting, Inc.
Contra Costa Electric, Inc. California 100% DYN Specialty
Contracting, Inc.
B & B Contracting and Supply Texas 100% DYN Specialty
Company Contracting, Inc.
KDC, Inc. California 100% DYN Specialty
Contracting, Inc.
EMCOR Construction Holding Delaware 100% MES Holdings Corp.
Services, Inc.
Defender Indemnity, Ltd. Vermont 100% EMCOR Risk Holdings, Inc.
EMCOR Risk Holdings, Inc. Delaware 100% MES Holdings Corp.
EMCOR Mechanical/Electrical Delaware 100% EMCOR Construction
Services (East), Inc. Holding Services, Inc.
Heritage Air Systems, Inc. New York 100% EMCOR Mechanical
Electrical Services
(East), Inc.
Welsbach Electric Corp. New York 100% EMCOR Mechanical
Electrical Services
(East), Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Forest Electric Corp. New York 100% EMCOR Mechanical
Electrical Services
(East), Inc.
Welsbach Electric Corp. of L.I. New York 100% EMCOR Mechanical
Electrical Services
(East), Inc.
Penguin Maintenance and Delaware 100% EMCOR Mechanical
Services Inc. Electrical Services
(East), Inc.
Inte-Fac Corp. New York 100% EMCOR Mechanical
Electrical Services
(East), Inc.
Penguin Air Conditioning Corp. New York 100% EMCOR Mechanical
Electrical Services
(East), Inc.
R.S. Harritan & Company, Inc. Virginia 100% EMCOR Mechanical
Electrical Services
(East), Inc.
J.C. Higgins Corp. Delaware 100% EMCOR Mechanical
Electrical Services
(East), Inc.
Labov Mechanical, Inc. Delaware 100% J.C. Higgins Corp.
Labov Plumbing, Inc. Delaware 90% Labov Mechanical, Inc.
EMCOR Facilities Services, Inc. Delaware 100% MES Holdings Corp.
Northern Digital, Inc. California 100% EMCOR Facilities
Services, Inc.
Newcomb Anderson Associates California 100% EMCOR Facilities
Services, Inc.
EMCOR Mechanical/Electrical Delaware 100% EMCOR Construction
Services (Midwest), Inc. Holding Services, Inc.
JWP/Hyre Electric Co. of Indiana, Delaware 100% EMCOR Mechanical/Electrical
Inc. Services (Midwest), Inc.
</TABLE>
-2-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Romanoff/Dynalectric Company Ohio 100% EMCOR Mechanical/Electrical
Services (Midwest), Inc.
John Miller Electric Company Delaware 100% EMCOR Mechanical/Electrical
Services (Midwest), Inc.
EMCOR Midwest, Inc. Delaware 100% EMCOR Mechanical/Electrical
Services (Midwest), Inc.
Gibson Electric Co., Inc. New Jersey 100% EMCOR Midwest, Inc.
Unique Construction Company Illinois 100% Gibson Electric Co., Inc.
The Fred B. DeBra Co. Delaware 100% EMCOR Mechanical/Electrical
Services (Midwest), Inc.
Zack Power & Industrial Company Delaware 100% EMCOR Mechanical/Electrical
Services (Midwest), Inc.
EMCOR Mechanical/Electrical Delaware 100% EMCOR Construction Holding
Services (West), Inc. Services, Inc.
University Mechanical & California 100% EMCOR Mechanical/Electrical
Engineering Contractors, Inc. Services (West), Inc.
Pace Mechanical Services, Inc. Michigan 100% University Mechanical &
Engineering Contractors, Inc., a
California corporation
University Mechanical & Arizona 100% University Mechanical &
Engineering Contractors, Inc. Engineering Contractors, Inc., a
California corporation
MES Holding Corp. Delaware 100% EMCOR Group, Inc.
Hansen Mechanical Contractors, Nevada 100% University Mechanical &
Inc. Engineering Contractors, Inc., a
California corporation
</TABLE>
-3-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Trautman & Shreve, Inc. Colorado 100% University Mechanical &
Engineering Contractors, Inc., a
California corporation
Marelich Mechanical Co., Inc. California 100% EMCOR Mechanical/Electrical
Services (West), Inc.
EMCOR Mechanical/Electrical Delaware 100% EMCOR Construction Holding
Services (South), Inc. Services, Inc.
EMCOR Gowan, Inc. Texas 100% EMCOR Mechanical/Electrical
Services (South) Inc.
EMCOR International, Inc. Delaware 100% MES Holdings Corp.
EMCOR Construction Services, Delaware 100% MES Holdings Corp.
Inc.
JWP NRO Holdings, Inc. Canada 100% EMCOR International, Inc.
Comstock Canada Ltd. Canada 100% EMCOR International, Inc.
EMCOR Canada Ltd. Canada 100% EMCOR International, Inc.
EMCOR (UK) Limited UK 100% EMCOR International, Inc.
Drake & Scull Engineering Ltd. UK 100% EMCOR UK Limited
Drake & Scull Airport Services UK 100% Drake & Scull Engineering, Ltd.
Ltd.
Drake & Scull Technical Services UK 100% Drake & Scull Engineering, Ltd.
Ltd.
Drake & Scull Engineering (UK) UK 100% Drake & Scull Engineering, Ltd.
Limited
Drake & Scull International, Ltd. UK 100% Drake & Scull Engineering, Ltd.
</TABLE>
-4-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Drake & Scull Engineering (North) UK 100% Drake & Scull Engineering, Ltd.
Ltd.
Drake & Scull Engineering (South) UK 100% Drake & Scull Engineering Ltd.
Ltd.
Drake & Scull (Scotland) Ltd. UK 100% EMCOR (UK) Limited
HKW Consultancy Ltd. UK 100% EMCOR (UK) Limited
Drake & Scull Holdings Ltd. UK 100% Drake & Scull Engineering Ltd.
DSC Building Ltd. UK 100% Drake & Scull Holdings Ltd.
Del Commerce (Contract Services) UK 100% EMCOR UK Limited
Ltd.
H & F Kornfeld Ltd. (UK) UK 100% EMCOR UK Limited
JWP Leasing (UK) Ltd. UK 100% EMCOR (UK) Limited
BL Distribution Ltd. UK 100% EMCOR (UK) Limited
Businessland Holdings Ltd. UK 100% EMCOR (UK) Limited
Heritage Air Systems Ltd. UK 100% EMCOR (UK) Limited
Forest Drake & Scull Electric Ltd. UK 100% EMCOR (UK) Limited
JWP Technical Services (Malaysia)* Malaysia 100% EMCOR International, Inc.
EMCOR (Cayman Islands) Ltd.* Cayman Islands 100% EMCOR International, Inc.
NESMA EMCOR Company Ltd. (50%)* Saudia Arabia 50% JWP (Cayman Islands) Ltd.
Drake & Scull (Cayman Islands) Ltd.* Cayman Islands 100% EMCOR International, Inc.
</TABLE>
- -----------
* Designated Foreign Restricted Subsidiaries.
-5-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Langgit TinggiSdn Bhd.* Malaysia 100% EMCOR (UK) Limited
Drake & Scull Assarain (Oman) (49%)* Oman 49% Drake & Scull (Cayman Islands)
Ltd.
Lunar Drake & Scull LLC. (UAE) (49%)* __________ 49% Drake & Scull (Cayman Islands)
Ltd.
</TABLE>
-6-
<PAGE>
UNRESTRICTED SUBSIDIARIES
<TABLE>
<CAPTION>
JURISDICTION OF PERCENTAGE
NAME INCORPORATION OWNERSHIP OWNER
<S> <C> <C> <C>
A to Z Equipment Corp. New York 100% Sellco Corporation
Afgo Engineering Corporation New York 100% Sellco Corporation
Afgo Engineering Corp. of Washington Delaware 100% Sellco Corporation
Antwerp Education Center N.V. Belgium 100% Sellco Corporation
AZCO Inc. Delaware 100% Sellco Corporation
Businessland Canada Ltd. Canada 100% JWP Information Services Inc.
Businessland (Hong Kong) Limited Hong Kong 100% JWP Information Services Inc.
Case/Acme Systems, Inc. New York 100% Sellco Corporation
Computer Maintenance Corporation New Jersey 100% Sellco Corporation
Drake & Scull France SARL France 100% Sellco Corporation
E.M.A. International, Inc. District of Columbia 100% Sellco Corporation
Gone Inc. California 100% Sellco Corporation
G/M Tech New York 100% Sellco Corporation
Guzovsky/JWP Electrical Inc. Rhode Island 100% Sellco Corporation
Jamaica Water Securities Corp. New York 100% Sellco Corporation
Jamaica Water Supply Company New York 96% Jamaica Water Securities Corp.
JWP Communications Inc. Delaware 100% Sellco Corporation
JWP Controls Inc. California 100% Sellco Corporation
JWP Controls Holding, Inc. Delaware 100% Sellco Corporation
</TABLE>
-7-
<PAGE>
<TABLE>
<S> <C> <C> <C>
JWP Credit Corp. Delaware 100% Sellco Corporation
JWP E.C. Corp. New York 100% Sellco Corporation
JWP Environmental Composting Technologies, Minnesota 100% Sellco Corporation
Inc.
JWP Espana SA Spain 100% Sellco Corporation
JWP France SARL France 100% Sellco Corporation
JWP/Guzovsky Electrical Corp. Massachusetts 100% Sellco Corporation
JWP/HCII Corp. Delaware 100% Sellco Corporation
JWP of Hartford, Inc. Connecticut 100% Sellco Corporation
JWP Information Services, Inc. California 100% Sellco Corporation
JWP Information Services SARL France 100% Sellco Corporation
JWP/IS Network Integration Services, Inc. Pennsylvania 100% Sellco Corporation
JWP Merger Sub Inc. Delaware 100% Sellco Corporation
JWP TS Corp. New Jersey 100% Sellco Corporation
Kerby Saunders, Inc. New York 100% Sellco Corporation
Kerby Saunders-Warkol, Inc. Delaware 100% Sellco Corporation
Marlon of Texas, Inc. Texas 100% Sellco Corporation
Micro Avenue Belgium 100% Sellco Corporation
MicroCom Belgium 100% Sellco Corporation
North Am. Heating & Air Conditioning Company Delaware 100% Sellco Corporation
Sivea Benelux Belgium 100% Sellco Corporation
SLR Constructors Inc. New York 100% Sellco Corporation
Sutter Hill Industries, Inc. Illinois 100% Sellco Corporation
Teletime Limited Ontario 100% Sellco Corporation
</TABLE>
-8-
<PAGE>
<TABLE>
<S> <C> <C> <C>
University Cogeneration, Inc. California 100% Sellco Corporation
Wachtel, Duklauer & Fein Incorporated New York 100% Sellco Corporation
JWP Unrestricted Sub 9 Inc. New York 100% Sellco Corporation
Sellco Corporation Delaware 100% EMCOR Group, Inc.
JWP Energy Products Inc. Idaho 100% EMCOR Group, Inc.
JWP/MEC Corp. Pennsylvania 100% EMCOR Group, Inc.
University Energy Services of California, Inc. California 100% EMCOR Group, Inc.
University Technical Services Inc. California 100% University Energy Services of
California
JWP Telecom, Inc. Delaware 100% EMCOR Group, Inc.
JWP Telecommunication Services Inc. Delaware 100% JWP Telecom, Inc.
Standard Telecommunications, Inc. New York 100% JWP Telecom, Inc.
Standard Telecommunications Equipment Inc. New Jersey 100% JWP Telecom, Inc.
MEC Constructors, Inc. (formerly JWP Pacific Delaware 100% EMCOR Group, Inc.
International, Inc.)
Jamaica Technical Trading Company Delaware 100% MEC Constructors, Inc.
JWP Technical Services (C.N.M.I.) Inc. Northern Marianas 100% MEC Constructors, Inc.
JWP Technical Services (Hong Kong) Limited Hong Kong 100% MEC Constructors, Inc.
JWP Technical Services (Singapore) PTE Ltd. Singapore 100% MEC Constructors, Inc.
JWP Thailand Ltd. Thailand 100% MEC Constructors, Inc.
</TABLE>
-9-
<PAGE>
<TABLE>
<S> <C> <C> <C>
JWP Technical Services of Guam, Inc. Delaware 50% MEC Constructors, Inc.
50% EMCOR Mechanical/Electrical
Services (West), Inc.
</TABLE>
-10-
<PAGE>
SCHEDULE 5.9
LITIGATION
Comstock Canada Ltd. ("Comstock") is one of two defendants in a lawsuit brought
by Henry J. Kaiser Company (Canada) Ltd. seeking $15 million in damages. A copy
of the lawsuit has been delivered to Lenders. The complaint arises out of a job
performed by Comstock and Comstock believes it has good and meritorious defenses
to the action. Comstock intends to assert counterclaims against Henry J. Kaiser
Company (Canada) Ltd.
<PAGE>
SCHEDULE 7.10
INDEBTEDNESS
<PAGE>
SCHEDULE 7.11
LIENS
<PAGE>
SCHEDULE 7.12
INVESTMENTS, LOANS, ADVANCES AND GUARANTEES
<PAGE>
Exhibit 10(k)
1997 NON-EMPLOYEE DIRECTORS' NON-QUALIFIED
STOCK OPTION PLAN
OF
EMCOR GROUP, INC.
1. Purpose. The purpose of this Plan is to enhance the Corporation's ability to
attract and retain talented individuals to serve as members of the Board and to
promote a greater alignment of interests between members of the Board and the
stockholders of the Corporation.
2. Definitions. When used in this Plan, unless the context otherwise requires:
(a) "Board " means the Board of Directors of the Corporation.
(b) "Change of Control" means any of the following events:
(i) any person or person acting in concert (excluding
Corporation benefit plans) becomes the beneficial owner of
securities of the Corporation having at least 25% of the
voting power of the Corporation's then outstanding securities
(unless the event causing the 25% threshold to be crossed is
an acquisition of voting common securities directly from the
Corporation, other than upon the conversion of convertible
debt securities or other securities and/or the exercise of
options or warrants); or
(ii) the stockholders of the Corporation shall approve any
merger or other business combination of the Corporation, sale
or lease of the Corporation's assets or combination of the
foregoing transactions (the "Transactions") other than a
Transaction immediately following which the stockholders of
the Corporation and any trustee or fiduciary of any
Corporation employee benefit plan immediately prior to the
Transaction own at least 65% of the voting power, directly or
indirectly, of (A) the surviving corporation in any such
merger or other business combination; (B) the purchaser or
lessee of the Corporation's assets; or (C) both the surviving
corporation and the purchaser or lessee in the event of any
combination of Transactions; or
(iii) within any 24-month period, the persons who were
directors immediately before the beginning of such period (the
"Incumbent Directors") shall cease (for any reason other than
death) to constitute at least a majority of the Board or the
board of directors of a successor to the Corporation. For this
purpose, any director who was not a director at the beginning
of such period shall be deemed to be an Incumbent Director if
such director was elected to the Board by, or on the
recommendation of or with the approval of, at least two-thirds
of the directors who then qualified as Incumbent Directors (so
long as such director was not nominated by a person who has
expressed an intent to effect a Change of Control or engage in
a proxy or other control contest).
(c) "Corporation" means EMCOR Group, Inc., a Delaware corporation.
1
<PAGE>
(d) "Director" means any member of the Board not employed by the
Corporation or any Subsidiary thereof.
(e) "Election Date" means the date of election to the Board of a New
Director.
(f) "Effective Date" means the effective date of the Plan as set forth
in Section 15.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(h) "Fair Market Value" on a specified date shall mean the closing
price at which a Share is traded on the stock exchange, if any, on which
the Shares are primarily traded or, if the Shares are not then traded on
a stock exchange, the closing price of a Share as reported on the NASDAQ
National Market System or, if the Shares are not then traded on the
NASDAQ National Market System, the average of the closing bid and ask
prices at which a Share is traded on the over-the-counter market, but if
no Shares were traded on such date, then on the last previous date on
which a Share was so traded, or, if none of the above are applicable, the
value of a Share as determined by an unaffiliated investment. banking
firm selected by the Board.
(i) "Issue Date" means the first business day of a calendar year except
that when used with reference to an Option issued to a New Director means
the Election Date of such New Director.
(j) "New Director" means a Director who was not serving as a Director
on the first day of a calendar year but was elected during such calendar
year to the Board subsequent to the first day of such calendar year.
(k) "Option" means a stock option issued pursuant to the Plan.
(l) "Plan" means this 1997 Non-Employee Directors' Non-Qualified Stock
Option Plan of EMCOR Group, Inc., as such Plan from time to time may be
amended.
(m) "Portion" means one-third or two-thirds of the annual cash retainer
payable to a Director, as selected by the Director.
(n) "Share" means a share of common stock of the Corporation.
(o) "Subsidiary" means any corporation 50% or more of whose stock
having general voting power is owned directly or indirectly by the
Corporation.
3. Participants. The class of persons who are potential recipients of Options
issued under the Plan consists of Directors. The Directors to whom Options are
issued under the Plan, and the number of Shares subject to each such Option,
shall be determined in accordance with the terms and conditions of the Plan.
4. Shares. Subject to the provisions of Section 11, the aggregate number of
Shares which may be the subject of Options issued under the Plan is 300,000
Shares, all of which Shares may be either Shares held in treasury or authorized
but unissued Shares. If the Shares that would be issued or transferred pursuant
to any Option are not issued or transferred and cease to be issuable or
transferable for any reason, the number of Shares subject to such Option will no
longer be charged against the limitation provided for herein and may again be
made subject to Options.
2
<PAGE>
5. Issuance of Options; Number of Options; Purchase Price. Each Director who is
serving or is to serve as a Director as of the first day of a calendar year may
elect prior to the first day of such calendar year, commencing with the 1998
calendar year, to receive all or a Portion of his annual retainer for such
calendar year in the form of an Option to purchase the number of Shares
hereafter provided; such election shall be made in writing and delivered to the
Secretary of the Corporation or his designee, no sooner than sixty days and no
later than the last day of the calendar year immediately preceding the calendar
year in respect of which the election is made. However, each New Director may
elect on or prior to his Election Date to receive all or a Portion of the annual
cash retainer otherwise payable to him for such calendar year in the form of an
Option to purchase the number of Shares hereafter provided; such election shall
be made in writing and delivered to the Secretary of the Corporation or his
designee on or before the Election Date of such New Director. The per share
purchase price of Shares to be purchased pursuant to the exercise of Options
issued pursuant hereto shall be the Fair Market Value of a Share as of the
applicable Issue Date. Options issued in lieu of the annual cash retainer for a
calendar year payable to a Director shall be for a number of Shares equal to
that determined by dividing the amount of the annual cash retainer otherwise
payable to such Director and to be converted into Options by the value, on the
applicable Issue Date, of an Option to purchase one Share. Options shall be
valued using the Black Scholes' methodology with reasonable assumptions as to
volatility and taking into account any other factors required or reasonably
desirable for the valuation of the Options. In valuing the Options the Board
shall utilize the services of an investment banking firm of national repute and
such other experts or consultants as it deems advisable. If a Director elects to
receive an Option in lieu of all or a Portion of the annual cash retainer for a
calendar year otherwise payable to him, then the Board also shall issue to that
Director a like Option for an additional number of Shares equal to the product
of .5 times the number of Shares for which the Option is otherwise to be issued
to him as a result of his election.
A certificate of option in the form attached hereto as Exhibit A, signed by
the Chairman of the Board or the President or a Vice President of the
Corporation, attested by the Treasurer or an Assistant Treasurer, or
Secretary or an Assistant Secretary of the Corporation and bearing the seal
of the Corporation affixed thereto, shall be issued to each person to whom
an Option is issued pursuant hereto.
Payments of the annual retainer which remain to be paid to a Director
in cash will be distributed on a quarterly basis. Nothing herein contained
shall affect fees otherwise payable to a Director for (a) attending Board
or Committee meetings and/or (b) serving as a Chairman of a Committee of
the Board.
7. Duration of Options. The duration of any Option issued under this Plan shall
be for a period of five years from the date upon which the Option is issued.
8. Exercise of Options. No Option may be exercised prior to the approval of the
Plan by a majority vote of the stockholders of the Corporation as provided in
Section 15 hereof. During the calendar year in respect of which Options are
issued in lieu of all or a Portion of the annual cash retainer, subject to the
provisions of the immediately preceding sentence, one-fourth of the Shares
subject to the Option may be purchased on or after the Issue Date, one-fourth of
the Shares subject to the Option may be purchased on or after the following
April 1, one-fourth of the Shares subject to the Option may be purchased on or
after the following July 1 and the balance may be purchased on or after the
following October 1, except that in the case of an Option in respect of a
calendar year issued to a New Director, the number of Shares subject to such
Option that may be purchased on and after the Issue Date of such Options and on
and
3
<PAGE>
after the first day of each succeeding calendar quarter during the calendar year
in which such Issue Date occurs shall be determined by the Board on the
applicable Issue Date, taking into account the number of calendar quarters
remaining in such calendar year subsequent to such Issue Date. Notwithstanding
the foregoing, subsequent to approval of the Plan by stockholders as hereinabove
provided and during the duration of an Option, such Option shall be exercisable
at any time or from time to time following a Change of Control.
An Option shall be exercised by the delivery of a written notice duly
signed by the holder thereof to such effect ("Exercise Notice"), together
with the option certificate and the full purchase price of the Shares
purchased pursuant to the exercise of the Option, to the Chairman of the
Board or an officer of the Corporation appointed by the Chairman of the
Board for the purpose of receiving the same. Payment of the full purchase
price shall be made as follows: in cash or by check payable to the order of
the Corporation; by delivery to the Corporation of Shares which shall be
valued at their Fair Market Value on the date of exercise of the Option
(provided, that a holder may not use any Shares acquired pursuant to this
Plan or any other plan maintained by the Corporation or a Subsidiary unless
the holder has beneficially owned such Shares for at least six months) or
by providing with the Exercise Notice an order to a designated broker to
sell part or all of the Shares and to deliver sufficient proceeds to the
Corporation, in cash or by check payable to the order of the Corporation,
to pay the full purchase price of the Shares.
Within a reasonable time after the exercise of an Option, the Corporation
shall cause to be delivered to the person entitled thereto, a certificate
for the Shares purchased pursuant to the exercise of the Option. If the
Option shall have been exercised with respect to less than all of the
Shares subject to the Option, the Corporation shall also cause to be
delivered to the person entitled thereto a new option certificate in
replacement of the certificate surrendered at the time of the exercise of
the Option, indicating the number of Shares with respect to which the
Option remains available for exercise, or the original option certificate
shall be endorsed to give effect to the partial exercise thereof.
Notwithstanding any other provision of the Plan or of any Option, no Option
granted pursuant to the Plan may be exercised at any time when the Option
or the granting or exercise thereof violates any law or governmental order
or regulation.
9. Non-transferability of Options. Unless otherwise so provided by the Board,
Options and all other rights thereunder and hereunder may not be assigned or
transferred by a Director otherwise than by will or the laws of descent and
distribution, and Options may be exercised or surrendered during the holder's
lifetime only by the holder thereof or his guardian or legal representative.
10. Effect Upon Termination of Service. Subject to the provisions of Section 8,
a Director may exercise an Option at any time or from time to time prior to the
expiration of the term of such Option regardless of the Director's cessation or
termination of service as a director of the Corporation for any reason;
provided, that if, before a Change of Control, the Director's service shall
terminate during the calendar year in respect of which an Option was issued,
twenty-five percent of the Shares with respect to which such Option was issued
shall be forfeited for each calendar quarter subsequent to the calendar quarter
in which such Director's Board service terminates. However, if, before a Change
of Control, a New Director's service shall terminate during the calendar year in
respect of which an Option was issued, the percent of the Shares with respect to
which such Option was issued that shall be forfeited for each calendar quarter
subsequent to the calendar quarter in which such New Director's Board service
terminates shall be determined by the Board on the applicable Issue Date taking
into account the number of calendar quarters remaining in such calendar year
subsequent to such Issue Date. In the event
4
<PAGE>
of a Director's death at any time prior to the expiration of the term of an
Option and before it is exercised, the executors, administrators, legatees or
distributees of the Director's estate shall have the privilege of exercising any
Option that the Director could have exercised at the time of his death until the
expiration of the term of such Option.
11. Adjustment Upon Certain Events. Notwithstanding any provision in the Plan to
the contrary, in the event of any change in the outstanding Shares by reason of
any Share dividend or split, reorganization, recapitalization, merger,
consolidation, spin-off, combination or exchange of Shares or other corporate
exchange, or any distribution to stockholders of Shares other than regular cash
dividends, the Board in its sole discretion and without liability to any person
may make such substitution or adjustment, if any, as it deems to be equitable,
as to (i) the number or kind of Shares or other securities issued or reserved
for issuance pursuant to the Plan or pursuant to outstanding Options, (ii) the
option price and/or (iii) any other affected terms of the Options.
12. Issuance of Shares and Compliance with Securities Act. The Corporation may
postpone the issuance and delivery of Shares pursuant to the exercise of any
Option until the completion of such registration or other qualification of such
Shares under any State or Federal law, rule or regulation as the Corporation
shall determine to be necessary or advisable. Any holder of an Option shall make
such representations and furnish such information as may, in the opinion of
counsel for the Corporation, be appropriate to permit the Corporation, in the
light of the then existence or non-existence with respect to such Shares of an
effective Registration Statement under the Securities Act of 1933, as from time
to time amended (the "Securities Act"), to issue the Shares in compliance with
the provisions of the Securities Act or any comparable act. The Corporation
shall have the right, in its sole discretion, to legend any Shares which may be
issued pursuant to the exercise of any Option, or may issue stop transfer orders
in respect thereof.
13. Administration and Amendment of the Plan. Except as hereinafter provided,
the Board may at any time terminate or from time to time amend the Plan as it
relates to, and the terms and conditions of, any Option not theretofore issued,
and the Board, with the consent of the affected holder of an Option, may at any
time withdraw or from time to time amend the Plan as it relates to, and the
terms and conditions of, any outstanding Option; provided, however, that any
amendment by the Board which would increase the number of Shares issuable under
the Plan, change the class of persons eligible to participate in the Plan or
materially increase the benefits to participants in the Plan shall be subject to
the approval of the stockholders of the Corporation.
The Plan is intended to comply with Rule 16b-3 under the Exchange Act. Any
provision inconsistent with such Rule shall be inoperative and shall not affect
the validity of the Plan.
14. No Right of Service. Nothing contained herein or in an Option shall be
construed to confer on any Director any right to continue to serve as a Director
of the Corporation.
15. Effective Date of the Plan. The Plan is conditioned upon its approval at the
next annual meeting of the stockholders of the Corporation on or before December
31, 1999 by the vote of the holders of a majority of the Shares of the
Corporation voting at such meeting in person or by proxy; except that the Plan
is adopted and approved by the Board effective December 17, 1997 to permit the
issuance of Options prior to the approval of the Plan by the stockholders of the
Corporation as aforesaid. In the event that the Plan is not approved by the
stockholders of the
5
<PAGE>
Corporation as aforesaid, the Plan and any Options issued hereunder shall be
void and of no force or effect.
16. Governing Law. The validity, construction, and effect of the Plan and any
actions taken or relating to the Plan shall be governed by the substantive laws,
but not the choice of law rules, of the State of Connecticut.
<PAGE>
EXHIBIT A
OPTION CERTIFICATE
NON-QUALIFIED STOCK OPTION
To Purchase Common Stock of
EMCOR GROUP, INC.
Issued Pursuant to the 1997
Non-Employee Directors' Non-Qualified
Stock Option Plan of EMCOR Group, Inc.
___________Shares
THIS CERTIFIES that on __________19_, ________________________
(the "Holder") was issued an option ("Option"), to purchase at the Option price
of $ _ per share all or any part of ____________ fully paid and non-assessable
shares ("Shares") of the Common Stock (par value $0.01 per share) of EMCOR
Group, Inc. ("Corporation"), a Delaware corporation, upon and subject to the
following terms and conditions:
Subject to the terms of the 1997 Non-Employee Directors'
Non-Qualified Stock Option Plan, one-fourth of the Shares subject to this Option
may be purchased on or after the date hereof, an additional one-fourth of the
Shares subject to this Option may be purchased on or after the following April
1, an additional one-fourth of the Shares subject to this Option may be
purchased on or after the following July 1, and an additional one-fourth of the
Shares subject to this Option may be purchased on or after the following October
1.
This Option shall expire on ______________
<PAGE>
The Option and this option certificate are issued pursuant to
and are subject to all of the terms and conditions of the Corporation's 1997
Non-Employee Directors' Non-Qualified Stock Option Plan, the terms and
conditions of which are hereby incorporated as though set forth at length, and
the receipt of a copy of which the Holder hereby acknowledges by his receipt of
this certificate.
WITNESS the seal of the Corporation and the signatures of
its duly authorized officers.
Dated: 19-.
(SEAL) EMCOR GROUP, INC.
By:
ATTEST:
By:
<PAGE>
Exhibit 10(l)
1997 STOCK PLAN FOR DIRECTORS
of
EMCOR Group, Inc.
1. Purpose. The purpose of this Plan is to enhance the Corporation's ability
to attract and retain talented individuals to serve as members of the Board and
to promote a greater alignment of interests between members of the Board and the
stockholders of the Corporation.
2. Definitions. When used in this Plan, unless the context otherwise requires:
(a) "Board" means the Board of Directors of the Corporation
(b) "Change of Control" means any of the following events:
(i) any person or person acting in concert (excluding Corporation
benefit plans) becomes the beneficial owner of securities of the
Corporation having at least 25% of the voting power of the Corporation's
then outstanding securities (unless the event causing the 25% threshold
to be crossed is an acquisition of voting common securities directly
from the Corporation, other than upon the conversion of convertible debt
securities or other securities and/or the exercise of options or
warrants); or
(ii) the stockholders of the Corporation shall approve any merger or
other business combination of the Corporation, sale or lease of the
Corporation's assets or combination of the foregoing transactions (the
"Transactions") other than a Transaction immediately following which the
stockholders of the Corporation and any trustee or fiduciary of any
Corporation employee benefit plan immediately prior to the Transaction
own at least 65% of the voting power, directly or indirectly, of (A) the
surviving corporation in any such merger or other business combination;
(B) the purchaser or lessee of the Corporation's assets; or (C) both the
surviving corporation and the purchaser or lessee in the event of any
combination of Transactions; or
(iii) within any 24-month period, the persons who were directors
immediately before the beginning of such period (the "Incumbent
Directors") shall cease (for any reason other than death) to constitute
at least a majority of the Board or the board of directors of a
successor to the Corporation. For this purpose, any director who was not
a director at the beginning of such period shall be deemed to be an
Incumbent Director if such director was elected to the Board by, or on
the recommendation of or with the approval of, at least two-thirds of
the directors who then qualified as Incumbent Directors (so long as such
director was not nominated by a person who has expressed an intent to
effect a Change of Control or engage in a proxy or other control
contest).
1
<PAGE>
(c) "Corporation" means EMCOR Group, Inc., a Delaware corporation.
(d) "Deferred Stock Units" means the aggregate of the Elected Deferred Stock
Units, the Matched Deferred Stock Units awarded to a Director in respect of such
Elected Deferred Stock Units, and additional deferred stock units in respect of
such Deferred Stock Unit credited pursuant to Section 6.
(e) "Director" means any member of the Board not employed by the
Corporation or any subsidiary thereof.
(f) "Effective Date" means the effective date of the Plan as set forth
in Section 18.
(g) "Election Date" means the date of election to the Board of a New
Director.
(h) "Elected Deferred Stock Unit" means a bookkeeping entry, equivalent
in value to a Share credited pursuant to Section 5.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(j) "Fair Market Value" on a specified date means the closing price at
which a Share is traded on the stock exchange, if any, on which the
Shares are primarily traded or, if the Shares are not then traded on
a stock exchange, the closing price of a Share as reported on the
NASDAQ National Market System or, if the Shares are not then traded
on the NASDAQ National Market System, the average of the closing bid
and ask prices at which a Share is traded on the over-the-counter
market, but if no Shares were traded on such date, then on the last
previous date on which a Share was so traded, or, if none of the
above are applicable, the value of a Share as determined by an
unaffiliated investment banking firm selected by the Board.
(k) "Issue Date" means the first business day of each calendar year
commencing with the 1998 calendar year, except in the case of a New
Director, in which case "Issue Date" means with respect to such New
Director, the date of his election to the Board.
(l) "Matched Deferred Stock Unit" means an additional Deferred Stock
Unit awarded in respect of an Elected Deferred Stock Unit credited
to a Director pursuant to Section 5.
(m) "New Director" means a Director who was not serving as a Director on
the first day of a calendar year but elected during such calendar
year to the Board subsequent to the first day of such calendar year.
(n) "Plan" means this 1997 Stock Plan for Directors, as such Plan from
time to time may be amended.
(o) "Portion" means one-third or two-thirds of the annual cash retainer
payable to a Director, as selected by the Director.
(p) "Share" means a share of common stock of the Corporation.
(q) "Subsidiary" means any corporation 50% or more of whose stock having
general voting power is owned directly or indirectly by the
Corporation.
3. Participants. The class of persons who are potential recipients of
Deferred Stock
2
<PAGE>
Units issued under the Plan consists of Directors. The Directors to whom
Deferred Stock Units are issued under the Plan and the number of Deferred Stock
Units shall be determined in accordance with the terms and conditions of the
Plan.
4. Shares. Subject to the provisions of Section 10, the aggregate
number of Shares in respect of Deferred Stock Units that may be issued under the
Plan is 150,000 Shares, all of which Shares may be either Shares held in
treasury or authorized but unissued Shares. If the Shares that would be issued
or transferred pursuant to any Deferred Stock Units are not issued or
transferred and cease to be issuable or transferable for any reason, the number
of Shares in respect of such Deferred Stock Units will no longer be charged
against the limitation provided for herein and may again be subject to Deferred
Stock Units.
5. Deferral of Annual Retainer. Each Director who is serving or is to
serve as a Director as of the first day of a calendar year may elect prior to
the first day of such calendar year, commencing with the 1998 calendar year, to
receive all or a Portion of his annual retainer in the form of Elected Deferred
Stock Units as hereafter provided; such election shall be made in writing and
delivered to the Secretary of the Corporation or his designee no sooner than
sixty days and no later than the last day of the calendar year immediately
preceding the calendar year in respect of which the election is made. However,
each New Director may elect on or prior to his Issue Date to receive all or a
Portion of the annual cash retainer otherwise payable to him for such calendar
year in the form of Elected Deferred Stock Units as hereafter provided; such
election shall be made in writing and delivered to the Secretary of the
Corporation or his designee on or before the Election Date of such New Director.
Such Elected Deferred Stock Units, together with the Matched Deferred Stock
Units in respect thereof, shall be credited to an account maintained for the
Director on the books of the Corporation, as of the applicable Issue Date. The
number of Elected Deferred Stock Units (including fractional Elected Deferred
Stock Units) to be credited shall be determined by dividing the amount of annual
cash retainer otherwise payable to a Director and to be converted into Elected
Deferred Stock Units by the Fair Market Value of a Share as of the close of
business on the applicable Issue Date. If a Director elects to receive Elected
Deferred Stock Units in lieu of all or a Portion of the annual cash retainer for
a calendar year otherwise payable to him, then the Board shall also award to
that Director additional Matched Deferred Stock Units for such calendar year
equal to the product of .2 times the number of Elected Deferred Stock Units
otherwise credited to such Director as a result of such election.
6. Dividend Equivalents. Each Director to whom Deferred Stock Units
have been credited shall also be credited, from time to time, with additional
Deferred Stock Units equal to the aggregate dividends paid on the Shares
represented by the Deferred Stock Units credited to each Director on the record
date of such dividend, divided by the Fair Market Value of a Share on the date
each dividend is paid.
7. Other Fees. Payments of the annual retainer which remain to be paid
to a Director in cash will be distributed on a quarterly basis. Nothing herein
contained shall affect fees otherwise payable to a Director for (a) attending
Board or Committee Meetings and/or (b) serving as a Chairman of a Committee of
the Board.
8. Designation of Beneficiary. A Director may designate a beneficiary
or beneficiaries who, in the event of the Director's death prior to receipt of
all the Shares due under the Plan, shall receive such Shares, subject to the
terms of Section 9. The Director may at any time, change or revoke such
designation. A beneficiary designation, or revocation of a prior beneficiary
designation, will be effective only if it is made in writing on a form provided
by the
3
<PAGE>
Corporation, signed by the Director and received by the Secretary of the
Corporation (or the Secretary's designee). If the Director does not designate a
beneficiary or the beneficiary dies prior to the Director, the Shares shall be
paid to the Director's estate. If the beneficiary dies after the Director, any
Shares to be paid to the beneficiary shall be paid to the beneficiary's estate.
9. Termination of Board Service; Forfeiture of Deferred Stock Units;
Receipt of Shares. Thirty days following the termination of Board service by a
Director, the Director shall receive Shares equal in number to 100% of the
Deferred Stock Units credited to the Director's account; provided that upon
termination of such Director's Board service prior to a Change of Control
twenty-five percent of the Deferred Stock Units that the Director received in
respect of the calendar year in which his Board service terminated, together
with the additional Deferred Stock Units credited in respect of dividends on
such Deferred Stock Units, shall be forfeited for each calendar quarter
subsequent to the calendar quarter in which his Board service terminates and the
Director shall have no right to receive the Shares in respect of the forfeited
Deferred Stock Units. Notwithstanding the foregoing, in the event of termination
of Board service of a New Director the percent of Deferred Stock Units that the
New Director received as of his Issue Date that may be forfeited (together with
the additional Deferred Stock Units credited in respect of dividends on such
Deferred Units) shall be determined by the Board as of the Issue Date taking
into account the number of calendar quarters remaining in the calendar year in
which the Issue Date occurred.
The Director may elect to receive all or a portion of the Shares to
which he is entitled pursuant hereto on the tenth day of the calendar year
following the Director's termination of Board service (the "Alternate Date") or,
in the alternative, may elect to receive such Shares in three equal annual
installments beginning either (a) thirty days following the Director's
termination of Board service or (b) on the Alternate Date. Any such election
with respect to particular Shares shall be made in writing and delivered to the
Secretary of the Corporation or his designee at the time the Director elects to
receive the applicable Deferred Stock Units in respect of which Shares are to be
issued. Any fractional shares remaining after all the Shares in respect of the
Deferred Stock Units are received by the Director shall be paid in cash based on
the Fair Market Value of a Share on the date the last of the Shares are to be
paid to the Director pursuant hereto.
10. Adjustment Upon Certain Events. Notwithstanding any provision in
the Plan to the contrary, in the event of any change in the outstanding Shares
by reason of any Share dividend or split, reorganization, recapitalization,
merger, consolidation, spin-off, combination or exchange of shares or other
corporate exchange, or any distribution to stockholders of Shares other than
regular cash dividends, the Board in its sole discretion and without liability
to any person may make such substitution or adjustment, if any, as it deems to
be equitable, as to (i) the number or kind of Shares or other securities issued
or reserved for issuance pursuant to the Plan or pursuant to outstanding
Deferred Stock Units and/or (ii) any other affected terms of such Deferred Stock
Units.
11. Change of Control. Notwithstanding anything contained herein to the
contrary, promptly following a Change of Control, the Corporation shall issue to
a Director holding Deferred Stock Units, Shares equal to 100% of the Deferred
Stock Units.
12. Issuance of Shares and Compliance with Securities Act. The
Corporation may postpone the issuance and delivery of Shares to be issued in
respect of any Deferred Stock Units until the completion of such registration or
other qualification of such Shares under
4
<PAGE>
any State or Federal law, rule or regulation as the Corporation shall determine
to be necessary or advisable. Any holder of Deferred Stock Units shall make such
representations and furnish such information as may, in the opinion of counsel
for the Corporation, be appropriate to permit the Corporation, in the light of
the then existence or non-existence with respect to such Shares of an effective
Registration Statement under the Securities Act of 1933, as from time to time
amended (the "Securities Act"), to issue the Shares in compliance with the
provisions of the Securities Act or any comparable act. The Corporation shall
have the right, in its sole discretion, to legend any Shares, which may be
issued in respect of Deferred Stock Units, or may issue stop transfer orders in
respect thereof.
13. Transferability. Unless otherwise so provided by the Board,
Deferred Stock Units and all other rights thereunder and hereunder may not be
assigned or transferred by a Director, except as provided in Section 8 hereof,
and any attempted assignment or transfer shall be null and void and shall
extinguish, in the Corporation's sole discretion, the Corporation's obligation
under the Plan with respect to the Director.
14. No Right to Service. Nothing contained herein or in any Deferred
Stock Unit shall be construed to confer on any Director any right to continue to
serve as a director of the Corporation.
15. Unfunded Plan. Unless otherwise determined by the Board, the Plan
shall be unfunded. To the extent any individual holds any rights by virtue of
Deferred Stock Units awarded under the Plan, such rights (unless otherwise
determined by the Board) shall be no greater than the rights of an unsecured
general creditor of the Corporation.
16. Successors and Assigns. The Plan shall be binding on all successors
and assigns of the Corporation and a Director, including without limitation, the
estate of such Director and the executor, administrator or trustee of such
estate, or any receiver or trustee in bankruptcy or representative of the
Director's creditors.
17. Administration and Amendment of the Plan. Except as hereinafter
provided, the Board may at any time terminate or from time to time amend the
Plan as it relates to, and the terms and conditions of, any Deferred Stock Unit
not theretofore issued, and the Board, with the consent of the affected holder
of Deferred Stock Units, may at any time withdraw or from time to time amend the
Plan as it relates to, and the terms and conditions of, any outstanding Deferred
Stock Unit; provided, however, that any amendment by the Board which would
increase the number of Shares issuable under the Plan, change the class of
persons eligible to participate in the Plan or materially increase the benefits
to participants in the Plan shall be subject to the approval of the stockholders
of the Corporation.
The Plan is intended to comply with Rule 16b-3 under the Exchange Act.
Any provision inconsistent with such Rule shall be inoperative and shall not
affect the validity of the Plan.
18. Effective Date of the Plan. The Plan is conditioned upon its
approval at the next annual meeting of the stockholders of the Corporation on or
before December 31, 1999 by the vote of the holders of a majority of the Shares
of the Corporation voting at such meeting in person or by proxy; except that the
Plan is adopted and approved by the Board effective December 17, 1997 to permit
the issuance of Deferred Stock Units prior to the approval of the Plan by the
stockholders of the Corporation as aforesaid; provided, however, in no event
shall Shares be issued in respect of Deferred Stock Units prior to stockholder
approval. In the event
5
<PAGE>
that this Plan is not approved by the stockholders as aforesaid, the Plan and
any Deferred Stock Units issued hereunder shall be void and of no force and
effect.
19. Governing Law. The validity, construction and effect of the Plan
and any actions taken or relating to the Plan shall be governed by the
substantive laws, but not the choice of law rules, of the State of Connecticut.
6
<PAGE>
EXHIBIT 11
SEE NOTE C TO THE ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS FOR INFORMATION
RELATING TO THE CALCULATION OF BASIC EPS AND DILUTED EPS.
<PAGE>
EXHIBIT 21
LIST OF SIGNIFICANT SUBSIDIARIES
Dyn Specialty Contracting, Inc.
MES Holdings Corporation
SellCo Corporation
EMCOR Construction Holdings Services Inc. EMCOR International, Inc.
EMCOR Mechanical/Electrical Services (East), Inc. EMCOR Mechanical/Electrical
Services (MidWest), Inc. EMCOR Mechanical/Electrical Services (West), Inc. EMCOR
Mechanical/Electrical Services (South), Inc. EMCOR (UK) Limited
Drake & Scull Engineering Ltd.
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statement Filed Nos. 333-44369 and 333-02819.
Stamford, Connecticut
February 24, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from EMCOR Group
Inc, Consolidated Financial Statements for the year ended December 31, 1998 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 83,053
<SECURITIES> 0
<RECEIVABLES> 562,463
<ALLOWANCES> 24,006
<INVENTORY> 7,188
<CURRENT-ASSETS> 731,969
<PP&E> 50,012
<DEPRECIATION> 17,914
<TOTAL-ASSETS> 801,002
<CURRENT-LIABILITIES> 511,917
<BONDS> 117,274
0
0
<COMMON> 109
<OTHER-SE> 119,707
<TOTAL-LIABILITY-AND-EQUITY> 801,002
<SALES> 2,210,374
<TOTAL-REVENUES> 2,210,374
<CGS> 1,987,087
<TOTAL-COSTS> 2,173,150
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,508
<INTEREST-EXPENSE> 11,041
<INCOME-PRETAX> 29,741
<INCOME-TAX> 12,649
<INCOME-CONTINUING> 17,092
<DISCONTINUED> 0
<EXTRAORDINARY> (4,777)
<CHANGES> 0
<NET-INCOME> 12,315
<EPS-PRIMARY> 1.20
<EPS-DILUTED> 1.11
</TABLE>
