<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 10, 1998
REGISTRATION NO. 333-56817
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BRAND SCAFFOLD SERVICES, INC.
(Exact Name of Registrant as Specified in Its Charter)
----------
<TABLE>
<S> <C> <C>
DELAWARE 735915 133909681
(State or Other Jurisdiction of (Primary Standard Industrial (IRS Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
15450 SOUTH OUTER HIGHWAY 40, #270
CHESTERFIELD, MISSOURI 63017
(314) 519-1000
(Address and Telephone Number of Registrant's principal executive offices)
JOHN M. MONTER
CHIEF EXECUTIVE OFFICER AND PRESIDENT
15450 SOUTH OUTER HIGHWAY 40, #270
CHESTERFIELD, MISSOURI 63017
(314) 519-1000
(Name, Address and Telephone Number of Agent for Service)
----------
COPIES TO:
JOSEPH P. HADLEY
DAVIS POLK & WARDWELL
450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 450-4000
----------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
----------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains a prospectus (the "Exchange
Prospectus") relating to the offer (the "Exchange Offer") for all outstanding
10 1/4% Senior Notes due 2008 of Brand Scaffold Services, Inc. in exchange for
its 10 1/4% Senior Notes due 2008 (the "Exchange Notes") which have been
registered under the Securities Act of 1933, as amended. In addition, this
Registration Statement contains a prospectus (the "Market-Making Prospectus")
relating to certain market-making activities (the "Market-Making Activities")
with respect to the Exchange Notes which may, from time to time, be carried out
by Donaldson, Lufkin & Jenrette Securities Corporation ("DLJSC"). The two
prospectuses are identical in all material respects, except that the
Market-Making Prospectus (i) has different front and back cover pages, which
describe the Market-Making Activities instead of the Exchange Offer, (ii)
includes a section captioned "Market-Making Activities of DLJSC," which
describes the Market-Making Activities and (iii) does not include the
information included in the Exchange Prospectus under the captions "Prospectus
Summary--Exchange Offer," "Prospectus Summary--Consequences of Exchanging Old
Notes pursuant to the Exchange Offer," "Risk Factors--Consequences of Failure
to Exchange," "Risk Factors--Exchange Offer Procedures," "The Exchange Offer"
and "Plan of Distribution." In addition, certain conforming changes have been
made in the Market-Making Prospectus in order to eliminate references to the
Exchange Offer. The Exchange Prospectus follows immediately after this
Explanatory Note and is followed by the alternative pages for the Market-Making
Prospectus.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 10, 1998
PROSPECTUS
[GRAPHIC LOGO]
BRAND SCAFFOLD SERVICES, INC.
OFFER TO EXCHANGE 10 1/4% SENIOR NOTES DUE 2008 WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR ANY AND ALL OUTSTANDING 10
1/4% SENIOR NOTES DUE 2008.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1998, UNLESS EXTENDED.
Brand Scaffold Services, Inc., a Delaware corporation (the "Company"),
hereby offers (the "Exchange Offer"), upon the terms and subject to the
conditions set forth in this prospectus (the "Prospectus") and the accompanying
letter of transmittal (the "Letter of Transmittal"), to exchange its 10 1/4%
Senior Notes due 2008 (the "Exchange Notes"), which have been registered under
the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
registration statement of which this Prospectus is a part (including all
amendments, including post-effective amendments, and exhibits thereto, the
"Registration Statement"), for an equal principal amount at maturity of its
outstanding 10 1/4% Senior Notes due 2008 (the "Old Notes," and together with
the Exchange Notes, the "Notes") of which $130.0 million aggregate principal
amount at maturity is outstanding as of the date hereof.
The Company will accept for exchange any and all Old Notes that are
validly tendered and not withdrawn on or prior to 5:00 P.M., New York City
time, on the date the Exchange Offer expires (the "Expiration Date"), which
will be , 1998, (20 business days following the commencement of the
Exchange Offer), unless the Exchange Offer is extended. Tenders of Old Notes
may be withdrawn at any time prior to 5:00 P.M., New York City time, on the
Expiration Date. The Exchange Offer is not conditioned upon any minimum
principal amount of Old Notes being tendered for exchange. Old Notes may be
tendered only in integral multiples at maturity of $1,000. See "The Exchange
Offer."
Interest on the Exchange Notes will be payable in cash semiannually on
February 15 and August 15 of each year, commencing on August 15, 1998. The
Exchange Notes will mature on February 15, 2008. The Exchange Notes will be
redeemable, in whole or in part, at the option of the Company, at any time on
or after February 15, 2003 at the redemption prices set forth herein plus
accrued and unpaid interest to the date of redemption. In addition, prior to
February 15, 2001, the Company may redeem up to 35% of the principal amount of
the Notes at a price equal to 110 1/4% of the principal amount thereof, plus
accrued and unpaid interest thereon to the date of redemption, with the net
cash proceeds of one or more Qualified Equity Offerings (as defined). Upon the
occurrence of a Change of Control (as defined), each holder of Exchange Notes
will have the right to require the Company to repurchase such holder's Exchange
Notes at 101% of the principal amount thereof, plus accrued and unpaid interest
thereon to the repurchase date. See "Description of Notes--Change of Control."
The Exchange Notes will be general senior unsecured obligations of the
Company and will rank pari passu with all existing and future senior unsecured
indebtedness and other obligations of the Company. The Exchange Notes will be
effectively subordinated to all existing and future liabilities of the
Company's subsidiaries, including trade payables. As of June 30, 1998, the
Company's subsidiaries had no outstanding Indebtedness (as defined) other than
intercompany Indebtedness and certain capital lease obligations. In addition,
the Exchange Notes will effectively be subordinated to existing and future
senior secured indebtedness, including the Bank Facility (as defined), which is
secured by a pledge of substantially all of the assets of the Company and its
subsidiaries and is also guaranteed by the Company's U.S. subsidiaries. See
"Risk Factors--Effective Subordination of the Exchange Notes; Dependence on
Subsidiaries." As of June 30, 1998, $29.5 million of indebtedness is
outstanding under the Bank Facility. In addition, as of June 30, 1998, the
Company had $14.0 million in unused senior secured borrowing capacity under the
Bank Facility. Upon completion of the Exchange Offer, the Company will have
total indebtedness of approximately $159.5 million. As of June 30, 1998, the
Company had no indebtedness junior to the Notes.
THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL ARE FIRST BEING MAILED TO
HOLDERS OF OLD NOTES ON OR ABOUT , 1998.
The Exchange Notes will be obligations of the Company evidencing the same
indebtedness as the Old Notes. The Exchange Notes will be issued under and
entitled to the benefits of the same Indenture (as defined) pursuant to which
the Old Notes were issued such that the Exchange Notes and Old Notes will be
treated as a single class of debt securities under the Indenture. The form and
terms of the Exchange Notes are substantially identical in all material
respects to the form and terms of the Old Notes, except that (i) the exchange
will be registered under the Securities Act and, therefore, the Exchange Notes
will not bear legends restricting the transfer thereof, and (ii) holders of the
Exchange Notes will not be entitled to any of the registration rights of
holders of Old Notes under the Registration Rights Agreement (as defined),
which rights will terminate upon the consummation of the Exchange Offer. See
"Description of Notes."
continued on following page
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE PAGE 13, "RISK
FACTORS," FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE PARTICIPANTS IN THE EXCHANGE OFFER.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission"), as set forth in no-action letters issued to
Exxon Capital Holdings Corporation (available May 13, 1988), Morgan Stanley &
Co. Incorporated (available June 5, 1991), Mary Kay Cosmetics, Inc. (available
June 5, 1991), Warnaco, Inc. (available October 11, 1991) and K-III
Communications Corporation (available May 14, 1993), the Company believes that
a holder who exchanges Old Notes for Exchange Notes pursuant to the Exchange
Offer may offer for resale, resell and otherwise transfer such Exchange Notes
without compliance with the registration and prospectus delivery requirements
of the Securities Act, provided, that (i) such Exchange Notes are acquired in
the ordinary course of such holder's business, (ii) such holder is not engaged
in, and does not intend to engage in, a distribution of such Exchange Notes and
has no arrangement with any person to participate in the distribution of such
Exchange Notes, and (iii) such holder is not an affiliate of the Company (as
defined under Rule 405 of the Securities Act). However, the staff of the
Commission has not considered the Exchange Offer in the context of a no-action
letter and there can be no assurance that the staff of the Commission would
make a similar determination with respect to the Exchange Offer as in such
other circumstances. A holder who exchanges Old Notes for Exchange Notes
pursuant to the Exchange Offer with the intention to participate in a
distribution of the Exchange Notes may not rely on the staff's position
enunciated in the Exxon Capital Letter, the Morgan Stanley Letter or similar
letters and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution." The Letter
of Transmittal states that by so acknowledging and by delivering a prospectus,
a broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Old Notes where such
Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 180 days after the Expiration Date, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution." EXCEPT AS DESCRIBED IN THIS PARAGRAPH, THIS PROSPECTUS
MAY NOT BE USED FOR ANY OFFER, SALE OR OTHER TRANSFER OF EXCHANGE NOTES.
Prior to this Exchange Offer, there has been no public market for the Old
Notes or Exchange Notes. The Old Notes have traded in the National Association
of Securities Dealers, Inc. Private Offerings, Resales and Trading through
Automated Linkages ("PORTAL") market. If a public market were to develop, the
Exchange Notes could trade at prices that may be higher or lower than their
principal amount at maturity. However, there can be no assurance that an active
public market for the Exchange Notes will develop. See "Risk Factors--Lack of
Public Market for the Exchange Notes."
THE COMPANY WILL NOT RECEIVE ANY PROCEEDS FROM THIS EXCHANGE OFFER. THE
COMPANY HAS AGREED TO PAY THE EXPENSES OF THE EXCHANGE OFFER. NO UNDERWRITER IS
BEING USED IN CONNECTION WITH THIS EXCHANGE OFFER.
No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the offer
of securities made by this Prospectus and, if given or made, such information
or representations must not be relied upon as having been authorized by the
Company or by any underwriter, dealer or agent. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction. This
Prospectus does not constitute an offer to sell or a solicitation of an offer
to buy any securities other than those to which it relates. Neither the
delivery of this Prospectus nor any sale of, or offer to sell, the securities
offered hereby shall, under any circumstances, create an implication that there
has been no change in the affairs of the Company since the date hereof or that
the information herein is correct as of any time subsequent to its date.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements and
the notes thereto appearing elsewhere in this Prospectus. Unless otherwise
indicated, all references to the "Company" mean (i) Brand Scaffold Services,
Inc. together with its subsidiaries ("Brand") and (ii) prior to the Acquisition
(as defined), Rust Scaffold Services, Inc. together with its subsidiaries
("Rust"). References to industry size and statistics contained herein, unless
otherwise indicated, are derived from information provided by Cook, Holmlund &
Co., Inc.
OVERVIEW
The Company is the largest North American provider of industrial
scaffolding services. The Company's services facilitate access to tall
structures for on-going maintenance, turnarounds (major maintenance projects
which require the complete or partial shutdown of a facility) and capital
projects, principally in the refining, petrochemical, chemical, utility and
pulp and paper industries. The Company estimates that for 1997 it had 25%
market share of the $575 million North American industrial scaffolding services
market and had industrial scaffolding revenues in excess of three times that of
its largest competitor. The Company's turnkey services include equipment
rental, labor for the erection and dismantlement of scaffolding and scaffolding
design services. The Company delivers its services through an extensive field
service organization of approximately 2,900 employees in 29 field offices
located throughout the United States and two in Canada. The Company also
provides scaffolding services to the commercial market (primarily
nonresidential construction) and sells a small amount of scaffolding. For the
twelve months ended June 30, 1998, the Company generated revenues, Adjusted
EBITDA (as defined) and a net loss of $179.2 million, $33.0 million and $7.7
million, respectively. See "Selected Consolidated Financial Data."
Approximately 84% of the Company's 1997 revenues were attributable to
on-going maintenance and turnarounds of industrial facilities. The Company
typically provides on-going maintenance services under long-term contracts; the
duration of these contracts ranges between one and five years. Turnarounds
occur every one to four years depending on the industry and the type of
turnaround being performed. Although some turnarounds may be postponed for a
period of time, they are a necessary component of maintaining industrial
facilities and are required to ensure the safe and efficient operation of such
facilities. The Company believes that the necessity for on-going maintenance
and turnarounds provides it with a stable, recurring revenue base.
The Company's main customers include major integrated oil companies,
independent refiners, large chemical companies, utilities and large engineering
and construction firms. The Company's ten largest customers in 1997, when
measured by revenue to the Company, were Exxon Corporation, Arco, Mobil
Corporation, Texaco Inc., Phillips, Citgo Petroleum Corporation, Lyondell
Petrochemical Company, Dupont, Houston Lighting & Power Company and Shell Oil.
These customers contributed 36% of total sales in the aggregate during the most
recent fiscal year.
The Company believes its position as the largest supplier of industrial
scaffolding services provides it with a number of competitive advantages
including (i) the ability to offer national coverage to large customers, (ii)
the ability to provide required personnel and scaffolding to process major
turnarounds and unanticipated plant outages, (iii) higher asset utilization
through the shifting of assets across regions and across its large customer
base, (iv) purchasing leverage with scaffolding manufacturers, and (v)
comprehensive safety training programs which have resulted in the lowest
accident incident rate in the industry (the Company's total Occupational Safety
and Health Administration ("OSHA") recordable injuries per 200,000 man hours
were 2.3 in 1997 compared to an industry average of 12.5 in 1997) and have
enabled the Company to reduce insurance costs and accident-related expenses.
The Company's size also enables it to maintain its own trucking fleet and to
provide a design department that specializes in the custom design of industrial
scaffolding, which the Company uses to minimize the amount of scaffolding used
and to maximize labor efficiency, thereby providing the Company with a
competitive advantage.
3
<PAGE>
THE INDUSTRY
The $1.3 billion scaffolding services industry consists of the industrial
market and the commercial market, each of which requires different types of
scaffolding equipment and levels of expertise. Industrial applications
generally require systems scaffolding, which is highly versatile, can be
quickly erected and dismantled, is capable of conforming to irregularly shaped
structures and requires a higher level of skill to erect and dismantle.
Commercial applications generally require frame and brace scaffolding which is
not as versatile as systems scaffolding and requires a lower level of
expertise.
Industrial Market. The North American industrial scaffolding market is
approximately $575 million and is serviced predominantly by scaffolding
specialists such as the Company. Although the Company estimates that 30
scaffolding specialists have revenues in excess of $1 million annually, the top
six scaffolding specialists service almost one half of the total industrial
market. Principal end-use industries and their estimated percent of the total
industrial market for 1996 were: (i) refineries--31%; (ii) petrochemical and
chemical plants--30%; (iii) utilities--17%; (iv) pulp and paper mills--11%; and
(v) other industrial users including aerospace, ship building and other
industrial applications--11%. Scaffolding is used by industrial customers for
on-going maintenance, turnarounds and capital projects. Among industrial
applications, maintenance represents approximately 50% and turnarounds
represent approximately 35% of the market. Since turnarounds may require the
complete shutdown of a facility (which may lose up to $1 million of revenues
per day during a turnaround), speed and reliability are key customer
considerations. Safety is another important consideration for industrial
customers as scaffolding contractor accident incidents are counted against a
facility's safety record and may cause increases in both insurance premiums and
attention by OSHA.
Commercial Market. The North American commercial scaffolding market is
approximately $725 million. Commercial scaffolding is used primarily in
nonresidential construction and renovation projects. Commercial applications
are generally characterized by regularly shaped structures with few contoured
or angled surfaces. Due to the simple shapes required, commercial jobs
generally utilize frame and brace scaffolding, a less versatile type of
equipment which is not suited to industrial applications. Commercial
scaffolding requires a less skilled work force and has historically been less
focused on safety issues. These factors combine to make the commercial market
highly fragmented with low barriers to entry.
BUSINESS STRATEGY
The Company has developed a business strategy which it believes will
enable it to profitably increase future revenues and cash flow. The key
components of this strategy are:
Leverage existing strengths. The Company's existing strengths include
longstanding customer relationships, extensive equipment resources, significant
labor capacity and an industry-leading safety record. These strengths have
enabled the Company to gain its current substantial market share and to expand
its business. The Company intends to utilize these strengths to retain its
maintenance contracts and to aggressively pursue turnarounds and capital
projects with its existing customers and to expand scaffolding services to such
customers' other facilities.
Target underpenetrated industrial segments. Due to the Company's leading
market position and extensive service infrastructure, the Company has the
capacity to service several industries in which, due to limited historical
focus, the Company has had a relatively low market share. These include the
chemical, utilities and pulp and paper industries. To increase its penetration
in these markets, the Company has expanded its sales force, initiated incentive
and training programs and created a sales management function to target
opportunities and monitor the effectiveness of the sales force.
Reduce operating costs. In November 1997, the Company implemented a cost
reduction program which is expected to reduce its annual operating overhead and
selling, general and administrative expenses by approximately $5.3 million. The
major initiatives include (i) eliminating 63 administrative and support
positions and consolidating certain administrative functions, (ii)
restructuring and renegotiating benefits programs, (iii) renegotiating the
Company's insurance premiums to reflect continued improve-
4
<PAGE>
ments in its safety record, (iv) negotiating company-wide procurement contracts
in order to take advantage of volume pricing, and (v) implementing a new
management information system to improve inventory utilization and reduce
equipment transportation expenses.
Pursue complementary acquisitions. The Company intends to pursue
complementary acquisitions where significant consolidation savings and
economies of scale can be achieved. The scaffolding industry is characterized
by single-office or regional companies, many of which are undercapitalized and
have limited scaffolding inventories. The Company intends to focus its
acquisition strategy on companies which have long-term contracts or an
expertise in a certain industry or scaffolding application.
Expand its commercial scaffolding operations. The Company intends to
utilize its existing infrastructure to expand its position in the commercial
market. To increase its penetration of the commercial market, the Company has
targeted large-scale new construction and renovation projects, which require
relatively complex scaffolding. Further, the Company has opened new offices in
four cities and expanded its sales force and its inventory of frame and brace
scaffolding. The Company believes its industry-leading safety record provides
it with a competitive advantage in pursuing these commercial scaffolding market
opportunities in the future. In November 1996, OSHA enacted stricter
regulations regarding training and safety in the commercial scaffolding
industry. As a result, the Company expects safety to be a key consideration for
commercial customers in the future.
COMPANY HISTORY AND STRUCTURE
On September 30, 1996, DLJ Merchant Banking Partners, L.P. and certain of
its affiliates ("DLJMB") and Carlisle-Brand Investors, L.P. ("Carlisle")
acquired indirectly, through a series of mergers, an 80.1% equity interest (the
"Acquisition") in the Company from WMI Technologies, Inc. ("WMI"). As a result
of the Acquisition, the Company became a wholly owned subsidiary of DLJ Brand
Holdings, Inc. ("Holdings"), in which DLJMB, Carlisle and Rust Industrial
Services Inc. ("Rust Industrial"), a majority owned subsidiary of WMI, hold
equity interests. In connection with the Acquisition, DLJ Capital Funding, Inc.
("DLJ Capital") and Bank of America National Trust and Savings Association
("BofA") provided $190.0 million of financing (the "Bank Facility"), comprised
of three senior secured term loans and a revolving loan facility, to the
Company.
The Company is a Delaware corporation. Its executive offices are located
at 15450 South Outer Highway 40, #270, Chesterfield, Missouri 63017, and its
telephone number is (314) 519-1000.
5
<PAGE>
THE OLD NOTE OFFERING
OLD NOTES................... On February 25, 1998, the Company issued and
sold $130,000,000 aggregate principal amount of
its Old Notes to Donaldson, Lufkin & Jenrette
Securities Corporation, as initial purchaser (the
"Initial Purchaser"). The Initial Purchaser
subsequently offered and resold the Old Notes to
"Qualified Institutional Buyers" (as defined in
Rule 144A under the Securities Act) and in
offshore transactions complying with Rule 903 or
Rule 904 of Regulation S under the Securities Act
(the "Old Note Offering").
EXCHANGE OFFER
EXCHANGE NOTES.............. Up to $130,000,000 aggregate principal amount
of 10 1/4% Senior Notes due 2008 (the "Exchange
Notes") of the Company. The terms of the Exchange
Notes and the Old Notes are substantially
identical in all material respects, except that
the offer of the Exchange Notes will have been
registered under the Securities Act and
therefore, the Exchange Notes will not be subject
to certain transfer restrictions and registration
rights and related provisions for an increase in
interest rate payable on the Old Notes under
certain circumstances if the Company defaults
with respect to its registration requirements
under the Registration Rights Agreement
applicable to the Old Notes.
EXCHANGE OFFER.............. The Company is offering, upon the terms and
subject to the conditions of the Exchange Offer,
to exchange $1,000 principal amount of Exchange
Notes for each $1,000 principal amount of Old
Notes. See "The Exchange Offer" for a description
of the procedures for tendering Old Notes. In
connection with the Old Note Offering, the
Company entered into the Registration Rights
Agreement (the "Registration Rights Agreement")
dated as of February 25, 1998 among the Company
and the Initial Purchaser, which grants holders
of the Old Notes certain exchange and
registration rights. The Exchange Offer is
intended to satisfy obligations of the Company
under the Registration Rights Agreement. The date
of acceptance for exchange of the Exchange Notes
will be the first business day following the
Expiration Date.
TENDERS, EXPIRATION DATE;
WITHDRAWAL................. The Exchange Offer will expire at 5:00 p.m.,
New York City time, on , 1998, or such
later date and time to which it is extended. The
tender of Old Notes pursuant to the Exchange
Offer may be withdrawn at any time prior to the
Expiration Date. Any Old Notes not accepted for
exchange for any reasons will be returned without
expense to the tendering holder thereof as
promptly as practicable after the expiration or
termination of the Exchange Offer.
ACCOUNTING TREATMENT........ No gain or loss for accounting purposes will be
recognized by the Company upon the consummation
of the Exchange Offer. See "The Exchange
Offer--Accounting Treatment."
6
<PAGE>
FEDERAL INCOME
TAX CONSEQUENCES............ The exchange pursuant to the Exchange Offer will
not result in any income, gain or loss to the
holders of the Notes or the Company for federal
income tax purposes. See "The Exchange
Offer--United States Federal Income Tax
Consequences of the Exchange Offer."
USE OF PROCEEDS............. There will be no proceeds to the Company from
the issuance of the Exchange Notes pursuant to
the Exchange Offer.
EXCHANGE AGENT.............. The U.S. Trust Company of Texas, N.A. is
serving as exchange agent (the "Exchange Agent")
in connection with the Exchange Offer.
CONSEQUENCES OF EXCHANGING OLD NOTES PURSUANT TO THE EXCHANGE OFFER
The Company has not requested, and does not intend to request, an
interpretation by the staff of the Commission with respect to whether the
Exchange Notes issued pursuant to the Exchange Offer in exchange for the Old
Notes may be offered for sale, resold or otherwise transferred by any holder
without compliance with the registration and prospectus delivery provisions of
the Securities Act. Based on interpretations by the staff of the Commission set
forth in no-action letters issued to third parties, the Company believes that
Exchange Notes issued pursuant to the Exchange Offer in exchange for Old Notes
may be offered for resale, resold and otherwise transferred by any holder of
such Exchange Notes, other than broker-dealers which must sell in accordance
with the provisions set forth below and other than any holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act, without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such holder's business and such holder has
no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes. Any holder who tenders in the Exchange
Offer for the purpose of participating in a distribution of the Exchange Notes
or who is an affiliate of the Company may not rely on such interpretations by
the staff of the Commission and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
secondary resale transaction. Each broker-dealer (whether or not it is also an
"affiliate" of the Company) that receives Exchange Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution."
By executing the Letter of Transmittal, each holder of Old Notes will
represent to the Company that, among other things, (i) the Exchange Notes
acquired pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such Exchange Notes, whether or not
such person is such holder, (ii) neither the holder of Old Notes, nor any such
other person has an arrangement or understanding with any person to participate
in the distribution of such Exchange Notes, (iii) if the holder is not a
broker-dealer, or is a broker-dealer but will not receive Exchange Notes for
its own account in exchange for Old Notes, neither the holder nor any such
other person is engaged in or intends to participate in the distribution of
such Exchange Notes and (iv) neither the holder nor any such other person is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act or, if such holder is an "affiliate," that such holder will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable. If the tendering holder is a broker-dealer (whether or not
it is also an "affiliate") that will receive Exchange Notes for its own account
in exchange for Old Notes that were acquired as a result of market-making
activities or other trading activities, it will be required to acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. See "Plan of Distribution." To comply with the securities laws of
certain jurisdictions, it may be necessary to qualify for sale or register the
Exchange Notes prior to offering or selling such Exchange Notes. The Company
does not currently intend to take any action to register or qualify the
Exchange Notes for resale in any such jurisdictions.
7
<PAGE>
Following the consummation of the Exchange Offer, holders of Old Notes not
tendered will not have any future registration rights and the Old Notes will
continue to be subject to certain restrictions on transfer. In general, the Old
Notes may not be offered or sold, unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. Failure to comply with
such requirements in such instance may result in such holder incurring
liability under the Securities Act for which such holder is not indemnified by
the Company. See "The Exchange Offer--Consequences of Failure to Exchange."
SUMMARY DESCRIPTION OF THE NOTES
The terms of the Exchange Notes and the Old Notes are substantially
identical in all material respects, except that the offer of the Exchange Notes
is registered under the Securities Act and, therefore, the Exchange Notes will
not be subject to certain transfer restrictions, registration rights and
related provisions requiring an increase in the interest rate on the Old Notes
under certain circumstances if the Company defaults with respect to its
registration requirements under the Registration Rights Agreement applicable to
the Old Notes.
EXCHANGE NOTES OFFERED...... 10 1/4% Senior Notes due 2008
PRINCIPAL AMOUNT............ $130,000,000
MATURITY DATE............... February 15, 2008
INTEREST PAYMENT DATES...... February 15 and August 15 of each year,
commencing August 15, 1998
OPTIONAL REDEMPTION......... The Notes will be redeemable, at the Company's
option, in whole or in part from time to time on
or after February 15, 2003, at the redemption
prices set forth herein, plus accrued and unpaid
interest to the redemption date plus Liquidated
Damages, if any. In the event the Company
consummates one or more Qualified Equity
Offerings on or prior to February 15, 2001, the
Company at its option may use all or a portion of
the net cash proceeds from such Qualified Equity
Offerings to redeem up to 35% of the aggregate
principal amount of the Notes at a redemption
price equal to 110 1/4% of the aggregate
principal amount thereof, together with accrued
and unpaid interest to the date of redemption
plus Liquidated Damages, if any. See "Description
of Notes--Optional Redemption."
MANDATORY REDEMPTION........ Except as set forth herein, the Company is not
required to make mandatory redemption or sinking
fund payments with respect to the Notes.
RANKING OF THE NOTES........ The Notes will be general senior unsecured
obligations of the Company and will rank pari
passu with all existing and future senior
unsecured indebtedness and other obligations of
the Company. The Notes will be effectively
subordinated to all existing and future
liabilities of the Company's subsidiaries,
including trade payables. As of June 30, 1998,
the Company's subsidiaries had no outstanding
Indebtedness other than intercompany Indebtedness
and certain capital lease obligations. In
addition, the Notes will effectively be
subordinated to existing and future senior
secured Indebtedness, including the Bank
Facility, which is secured by a pledge of
substantially all of the
8
<PAGE>
assets of the Company and its subsidiaries and
is also guaranteed by the Company's U.S.
subsidiaries. As of June 30, 1998, $29.5 million
of Indebtedness was outstanding under the Bank
Facility. In addition, as of June 30, 1998, the
Company had $14.0 million in unused senior
secured borrowing capacity under the Bank
Facility. Further, as of June 30, 1998, the
Company had outstanding approximately $159.5
million in aggregate principal amount of senior
Indebtedness, of which approximately $29.5
million was secured Indebtedness. As of June 30,
1998, the Company had the ability to incur up to
$180.6 million in senior indebtedness based upon
the covenants with which it must comply. See
"Description of Notes--General."
CHANGE OF CONTROL........... Upon a Change of Control, each holder of Notes
will have the right to require the Company to
repurchase all or any part of such holder's Notes
at a purchase price equal to 101% of the
aggregate principal amount thereof, plus accrued
and unpaid interest to the date of purchase plus
Liquidated Damages, if any. However, the
Company's ability to repurchase the Notes upon a
Change of Control may be limited by the terms of
then existing contractual obligations of the
Company and its subsidiaries. Furthermore, under
the Bank Facility, a "Change in Control" (as
defined therein) would constitute an event of
default, causing acceleration of all payments
required thereunder. There can be no assurance
that upon the occurrence of a Change of Control,
the Company will have sufficient funds to
repurchase the Notes. See "Description of
Notes--Change of Control" and "Risk
Factors--Possible Inability to Repurchase Notes
Upon a Change of Control."
CERTAIN COVENANTS........... The Indenture contains covenants limiting the
ability of the Company and its Subsidiaries to,
among other things, pay dividends or make other
Restricted Payments (as defined), make
Investments (as defined), incur additional
Indebtedness, permit Liens (as defined), incur
dividend and other payment restrictions affecting
Subsidiaries (as defined), enter into
consolidation, merger, conveyance, lease or
transfer transactions, make asset sales, enter
into transactions with Affiliates (as defined)
and engage in unrelated lines of business. In
addition, the Indenture imposes restrictions on
the ability of Subsidiaries to issue guarantees.
These covenants are subject to certain exceptions
and qualifications. See "Description of Notes--
Certain Covenants" and "--Consolidation, Merger,
Conveyance, Lease or Transfer."
EXCHANGE OFFER;
REGISTRATION RIGHTS....... In the event that applicable law or
interpretations of the staff of the Commission do
not permit the Company to effect this Exchange
Offer or if certain holders of the Old Notes
notify the Company that they are not permitted to
participate in, or would not receive freely
transferable Exchange Notes pursuant to, the
Exchange Offer, or upon the request of the
Initial Purchaser under certain circumstances,
the Company will use its best efforts to cause to
become effective a registration statement (the
"Shelf Registration Statement") with respect to
the resale of the Old Notes and to keep the Shelf
Registration Statement
9
<PAGE>
effective for a period of two years from the
date of original issuance of the Old Notes or
such shorter period that will terminate when Old
Notes covered by the Shelf Registration
Statement have been sold pursuant thereto or can
be sold pursuant to Rule 144(k). The interest
rate on the Old Notes is subject to increase
under certain circumstances if the Company
defaults with respect to its registration
obligations under the Registration Rights
Agreement. See "The Exchange Offer."
RISK FACTORS
Prospective investors in the Exchange Notes should carefully consider the
factors discussed in detail elsewhere in this Prospectus under the caption
"Risk Factors."
10
<PAGE>
SUMMARY FINANCIAL DATA
The following table presents (i) summary historical financial data of
Rust, prior to the Acquisition ("Predecessor"), for the year ended December 31,
1995 and for the nine months ended September 30, 1996 and (ii) summary
historical financial data of Brand, after the Acquisition ("Successor"), for
the three months ended December 31, 1996, the year ended December 31, 1997, the
six months ended June 30, 1998 and as of December 31, 1996, December 31, 1997
and June 30, 1998. The summary historical financial data as of and for the year
ended December 31, 1995 and for the nine months ended September 30, 1996 has
been derived from the audited financial statements of Predecessor. The summary
historical financial data as of and for the three months ended December 31,
1996 and the year ended December 31, 1997 has been derived from the audited
financial statements of Successor. The summary historical financial data as of
and for the six months ended June 30, 1998 has been derived from the unaudited
financial statements of Successor. The financial data set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's financial statements and
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
-------------------------------- ------------------------------------------------
YEAR NINE MONTHS THREE MONTHS YEAR SIX MONTHS
ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1996 1997 1998
-------------- --------------- -------------- -------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA: (1)
Revenue ............................. $193,829 $124,769 $44,412 $160,660 100,655
Operating Expenses .................. 138,968 89,073 34,170 122,638 76,655
-------- -------- ------- -------- --------
Gross Profit ....................... 54,861 35,696 10,242 38,022 24,000
Selling and Administrative
Expenses ........................... 25,807 15,825 4,743 25,840 12,269
Nonrecurring Start-up Expenses ...... -- -- -- 2,498 --
-------- -------- ------- -------- --------
Operating Income .................... 29,054 19,871 5,499 9,684 11,731
Interest Expense .................... 9,444 7,872 4,504 15,422 8,359
Interest Income ..................... (1,012) (482) (195) (397) (104)
Other Expense, Net (2) .............. 853 708 -- -- --
-------- -------- ------- -------- --------
Pretax Income (Loss) ............... 19,769 11,773 1,190 (5,341) 3,476
Provision for Income Tax ............ 8,300 4,813 525 -- --
Extraordinary Loss, Net of Tax ..... -- -- -- -- 4,329
-------- -------- ------- -------- --------
Net Income (Loss) ................... $11,469 $ 6,960 $ 665 $(5,341) $ (853)
======== ======== ======= ======== ========
OTHER DATA: (1)
EBITDA (3) .......................... $36,803 $25,832 $ 8,398 $22,009 $18,138
EBITDA before Nonrecurring
Start-up Expenses (3) .............. 36,803 25,832 8,398 24,507 18,138
Adjusted EBITDA (3) (4) ............. 36,803 25,832 9,387 29,629 21,356
Cash Flow from Operations ........... 35,587 28,478 4,966 11,983 11,952
Depreciation and Amortization ....... 8,602 6,669 3,567 13,294 6,788
Cash Interest Expense (5) ........... 9,444 7,872 3,836 14,453 7,978
Ratio of Adjusted EBITDA to
Cash Interest Expense (3) (4) (5) 3.9x 3.3x 2.4x 2.1x 2.7x
Capital Expenditures
Maintenance ........................ $ 2,755 $ 512 $ 97 $ 3,024 $ 2,879
Expansion .......................... 5,847 1,298 111 6,733 6,521
-------- -------- ------- -------- --------
Total ............................. $ 8,602 $ 1,810 $ 208 $ 9,757 $ 9,400
Ratio of Earnings to Fixed
Charges (6) ........................ 3.0x 2.4x 1.3x .7x 1.4x
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
SUCCESSOR
---------------------------------------
AT DECEMBER 31,
------------------------ AT JUNE 30,
1996 1997 1998
---------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA: (1)
Working Capital ................................... $ 12,656 $ 4,207 $ 18,752
Total Assets ...................................... 204,266 197,543 206,941
Debt (including current portion) .................. 158,000 154,250 159,500
14.5% Senior Exchangeable Preferred Stock ......... 25,906 31,140 33,439
Stockholder's Equity (Deficit) .................... 4,247 (5,176) (8,493)
</TABLE>
- ----------
(1) The Acquisition had a significant impact on the Company's financial
position and results of operations. Consequently, the financial data for
and as of dates prior to the Acquisition may not be directly comparable
to corresponding information for and as of dates after the Acquisition.
(2) Since the Acquisition, the Company has not separately classified other
income and expense and has included it in selling and administrative
expenses because such amounts have been immaterial.
(3) EBITDA is defined as earnings before interest income, cash interest
expense, income taxes, depreciation and amortization. EBITDA is commonly
used to analyze companies on the basis of operating performance, leverage
and liquidity. EBITDA is not intended to represent cash flows for the
period, nor has it been presented as an alternative to operating income
as an indicator of operating performance and should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles.
(4) Adjusted EBITDA reflects the cash impact of two items that are not
reflected in the income statement. First, in connection with the
Acquisition, the Company entered into a Transitional Services Agreement
with WMI and Rust. In consideration of certain services to be rendered by
the Company and the licenses and preferred customer status granted by the
Company, WMI agreed to pay the Company $725,000 per quarter for the
quarter ending December 31, 1996 through the quarter ending September 30,
1999 ($2,900,000 for three years or $8,700,000 in total) (the "WMI
Payments"). For the three months ended December 31, 1996, the year ended
December 31, 1997, and the six months ended June 30, 1998, the WMI
Payments were $725,000, $2,900,000 and $1,450,000, respectively. The
portion of the WMI Payments directly offsetting expenses of the Company
is recognized in EBITDA. Adjusted EBITDA is increased by the portion of
the WMI Payments not reflected in EBITDA or $362,000, $2,200,000, and
$1,350,000 for the three months ended December 31, 1996, the year ended
December 31, 1997, and the six months ended June 30, 1998, respectively.
Second, in connection with the Acquisition, WMI assumed liabilities for
all claims arising from accidents which occurred on or before September
30, 1996. As a result of having no liability for accidents which occurred
prior to the Acquisition, the amounts expensed by the Company for
accident-related claims occurring since the Acquisition exceed the cash
payments for accident-related claims. The Company recorded claims expense
of $1,189,000, $5,927,000, and $3,424,000 for the three months ended
December 31, 1996, the year ended December 31, 1997, and the six months
ended June 30, 1998, respectively, but had cash expenditures related to
these items of $562,000, $3,005,000, and $1,556,000, respectively.
Adjusted EBITDA for the three months ended December 31, 1996, the year
ended December 31, 1997, and the six months ended June 30, 1998 is
therefore increased by the portion of claims expense not paid in cash, or
$627,000, $2,922,000, and $1,868,000, respectively. The total of the
adjustments for the WMI Payments and the non-cash claims for the three
months ended December 31, 1996, the year ended December 31, 1997, and the
six months ended June 30, 1998 is an increase of $989,000, $5,122,000,
and $3,218,000, respectively.
(5) Cash interest expense represents total interest expense less amortization
of deferred financing fees of $668,000 for the three months ended
December 31, 1996, $969,000 for the year ended December 31, 1997, and
$381,000 for the six months ended June 30, 1998.
(6) For the purposes of calculating the ratio of earnings to fixed charges,
earnings represent income (loss) before income taxes plus fixed charges.
Fixed charges consist of interest expense on all indebtedness plus the
interest portion of rental expense on noncancelable leases, and
amortization of debt issuance costs.
12
<PAGE>
RISK FACTORS
In addition to the other matters described in this Prospectus, prospective
purchasers of the Exchange Notes offered hereby should consider the specific
factors set forth below.
The information herein contains forward-looking statements that involve a
number of risks and uncertainties. A number of factors could cause actual
results, performance, achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. These factors include,
but are not limited to, the competitive environment in the industrial and
commercial scaffolding industry in general and in the Company's specific market
areas; changes in prevailing interest rates and the availability of and terms
of financing to fund the anticipated growth of the Company's business;
inflation; changes in costs of goods and services; economic conditions in
general and in the Company's specific market areas; demographic changes;
changes in or failure to comply with federal, state and/or local government
regulations; liability and other claims asserted against the Company; changes
in operating strategy or development plans; the ability to attract and retain
qualified personnel; the significant indebtedness of the Company; labor
disturbances; changes in the Company's acquisition and capital expenditure
plans; and other factors referenced herein. In addition, such forward-looking
statements are necessarily dependent upon assumptions, estimates and dates that
may be incorrect or imprecise and involve known and unknown risks uncertainties
and other factors. Accordingly, any forward-looking statements included herein
do not purport to be predictions of future events or circumstances and may not
be realized. Forward-looking statements can be identified by, among other
things, the use of forward-looking terminology such as "believes," "expects,"
"may," "will," "should," "seeks," "pro forma," "anticipates," "intends" or the
negative of any thereof, or other variations thereon or comparable terminology,
or by discussions of strategy or intentions. Given these uncertainties,
prospective investors are cautioned not to place undue reliance on such
forward-looking statements. The Company disclaims any obligations to update any
such factors or to publicly announce the results of any revisions to any of the
forward-looking statements contained herein to reflect future events or
developments.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT
The Company is highly leveraged. As of June 30, 1998, the Company's total
long-term debt was $159.5 million, which constitutes the Company's aggregate
amount of senior debt outstanding. The Company's estimated annual payment
obligation for 1998 with respect to its indebtedness is comprised of
approximately $1.5 million of principal payments and $11.4 million of interest
payments. The Company's payment obligation for 1997 consisted of $8.3 million
of principal payments and $14.1 million of interest payments. The degree to
which the Company is leveraged could have important consequences to holders of
the Exchange Notes, including (i) the Company's ability to obtain additional
financing in the future for working capital, capital expenditures,
acquisitions, general corporate purposes or other purposes may be impaired;
(ii) a substantial portion of the Company's cash flow from operations will be
dedicated to the payment of principal and interest on its indebtedness, thereby
reducing the funds available to the Company for its operations and expansion
plans; and (iii) the Company may be more vulnerable to a downturn in general
economic conditions or its business. The Company's borrowings under the Bank
Facility are at floating rates of interest, which could result in higher
interest expense in the event of an increase in interest rates. Further, the
discretion of the Company's management with respect to certain business matters
will be limited by covenants contained in the Indenture and the Bank Facility.
The Company's ability to make scheduled payments or to refinance its
obligations with respect to its indebtedness depends on its financial and
operating performance, which, in turn, is subject to prevailing economic
conditions and to financial, business and other factors beyond its control and
to the ability of the Company to access payments and advances from its
subsidiaries in amounts and at times sufficient to fund its debt obligations.
Further, there can be no assurance that the Company's operating results or
access to payments and advances from its subsidiaries will be sufficient for
payment of the Company's indebtedness, including the Notes. See "--Effective
Subordination of the Exchange Notes; Dependence on Subsidiaries."
13
<PAGE>
RESTRICTIVE COVENANTS
Among other things, the covenants contained in the Indenture restrict,
condition or prohibit the Company from incurring additional indebtedness,
creating liens on its assets, making certain asset dispositions, entering into
transactions with affiliates, merging or consolidating with any other person or
selling, assigning, transferring, leasing, conveying or otherwise disposing of
substantially all assets of the Company. In addition, the Bank Facility
contains financial and operating covenants and prohibitions, including
requirements that the Company maintain certain financial ratios and use a
portion of excess cash flow (as defined) and proceeds of assets sales to repay
indebtedness under such facility. There can be no assurance that the Company's
leverage and such restrictions will not materially and adversely affect the
Company's ability to finance its future operations or capital needs or to
engage in other business activities. Moreover, a failure to comply with the
obligations contained in the Indenture or any other agreements with respect to
additional financing (including the Bank Facility or any replacement facility)
could result in an event of default under such agreements, which could permit
acceleration of the related debt and acceleration of debt under future debt
agreements that may contain cross acceleration or cross default provisions. See
"Description of Bank Facility" and "Description of Notes."
As of December 31, 1997, the Company was not in compliance with certain
covenants in the Bank Facility. The Company obtained waivers of such covenant
violations from the lenders under the Bank Facility. The Company also obtained
an amendment to the Bank Facility which became effective upon the consummation
of the Old Note Offering and, among other things, reset the financial ratios
and financial tests required to be met thereunder to levels that are more
consistent with the Company's capital structure following the Old Note Offering
and its current and expected financial performance. As of June 30, 1998, the
Company was in compliance with the reset financial ratios and financial tests.
Although the Company has not been required to seek additional waivers from the
lenders under the Bank Facility, there can be no assurance that the Company
will not be required to seek waivers in the future or that such waivers will be
granted. See "Description of Bank Facility."
EFFECTIVE SUBORDINATION OF THE EXCHANGE NOTES; DEPENDENCE ON SUBSIDIARIES
The Exchange Notes will be effectively subordinated to all current and
future senior secured indebtedness, including indebtedness under the Bank
Facility, to the extent of any pledged assets. The Company's obligations under
the Bank Facility are secured by a pledge of substantially all of the assets of
the Company and its subsidiaries. In the event of a bankruptcy, liquidation or
reorganization of the Company, the assets of the Company would be available to
pay obligations on the Exchange Notes only after all indebtedness under the
Bank Facility has been paid in full, and there may not be sufficient assets
remaining to pay amounts due on any or all of the Exchange Notes then
outstanding. The indebtedness under the Bank Facility will become due prior to
the time the principal obligations under the Exchange Notes become due. The
Company's U.S. subsidiaries have issued guarantees under the Bank Facility. As
of June 30, 1998, $29.5 million of indebtedness was outstanding under the Bank
Facility. In addition, as of June 30, 1998, the Company had $14.0 million in
unused senior secured borrowing capacity under the Bank Facility.
In addition, the operations of the Company are conducted primarily through
its subsidiaries. Therefore, the Company's ability to make required principal
and interest payments with respect to the Company's indebtedness, including the
Exchange Notes, depends on the earnings of its subsidiaries and on its ability
to receive funds from such subsidiaries through dividends or other payments.
Since the Exchange Notes are obligations of the Company only, the Company's
subsidiaries are not obligated or required to pay any amounts due pursuant to
the Exchange Notes or to make funds available therefor in the form of dividends
or advances to the Company. Furthermore, the Exchange Notes effectively will be
subordinated to all outstanding indebtedness and other liabilities and
commitments (including trade payables and operating lease obligations) of the
Company's subsidiaries. Any right of the Company to receive assets of any of
its subsidiaries upon their liquidation or reorganization (and the consequent
right of holders of Exchange Notes to participate in those assets) effectively
will be subordinated to the claims of that subsidiary's creditors, except to
the extent that the Company itself is recognized as a creditor of such
subsidiary, in which case the claims of the Company would still be subordinate
to any security
14
<PAGE>
interest in the assets of such subsidiary and any indebtedness of such
subsidiary senior to that held by the Company. As of March 31, 1998, the
Company's subsidiaries had no indebtedness outstanding other than intercompany
indebtedness and certain capital lease obligations.
EFFECTS OF SEASONALITY AND CYCLICALITY
The market for industrial scaffolding services experiences seasonal
fluctuations in demand. In particular, because of high demand for gasoline for
automobiles during the summer, most refineries prefer to close down for
turnarounds during the spring and fall. Similar patterns are evidenced for
utilities. While the Company may be able to take advantage of differing
seasonal patterns in other industries and, in particular, in the commercial
scaffolding market, seasonality may lead to low inventory utilization during
periods of low demand and an inability to fully service all of the Company's
customers in periods of high demand. In addition, seasonality may lead to price
fluctuations and periods of low cash flow.
Historically, the market for industrial scaffolding services has
experienced a degree of cyclicality. In particular, demand for nonresidential
construction and capital projects is highly cyclical. In addition, when
refining products are in high demand the price of pulp are high, refineries and
pulp and paper mills often delay turnarounds. It does not appear that any areas
of the Company's business exhibit a significant degree of counter-cyclicality
that would offset these effects. This cyclicality could have a material adverse
effect on the Company.
CONCENTRATION OF CUSTOMERS
The Company's top ten customers accounted for approximately 36% of total
revenues during 1997. The largest customer, Exxon Corporation ("Exxon"),
accounted for approximately 17% of the Company's revenues. The loss of any of
these customers could have a material adverse effect on the Company.
COMPETITION
The Company currently faces competition from other existing scaffolding
services providers, including entities providing substantially similar
services, some of which have significantly greater resources than the Company.
The Company also competes with larger engineering and construction ("E&C")
firms. While the Company believes that it currently has a dominant position in
the industrial scaffolding market, there can be no assurance that the Company
will be able to increase or maintain its market share.
DEPENDENCE ON LABOR
The Company's business has a high labor content and, as a result, the
Company's financial performance is affected by the availability of qualified
personnel and the cost of labor. In recent years, unemployment rates have
reached unusually low levels leading to lower availability of labor and to wage
inflation. In particular, the supply of labor has been low relative to demand
in the Gulf Coast Region, in which the Company has significant operations.
While the Company has been successful in hiring workers for its projects and
does not believe that contraction of the labor market has had a material
adverse effect on its financial performance, there can be no assurance that
sufficient labor will be available in the future or that the cost of labor will
not rise, either of which could have an adverse effect on the Company.
Approximately 25% of the Company's employees are represented by labor
unions. There can be no assurance that strikes or other types of conflicts with
unions or personnel will not arise or that the Company will not become a target
for further union organizing activity. Since the Company's business has a high
labor content, any such activity could have a material adverse effect on the
Company.
DEPENDENCE ON CERTAIN INDUSTRIES
The Company's financial performance is dependent upon the continued
viability and financial stability of its customers, which are in turn
substantially dependent on the viability and financial stability
15
<PAGE>
of the oil, petrochemical, chemical, utilities, pulp and paper and construction
industries. In addition, many of the Company's customers are affected by
general economic conditions. The factors affecting these industries in general,
and the Company's customers in particular, could have a material adverse effect
on the Company.
DEPENDENCE ON KEY PERSONNEL
The Company's continued success depends to a large extent upon the
continued services of its senior management and certain individuals with
critical client relationships. The loss of the services of any such employee
could have a material adverse effect on the Company. The Company does not
maintain "key man" insurance with respect to any such individuals.
ACQUISITION STRATEGY
The Company intends to pursue an acquisition strategy, expanding its
business by acquiring other scaffolding providers. The various risks associated
with pursuing an acquisition strategy of this nature include problems inherent
in integrating new businesses such as potential loss of customers and key
personnel and potential disruption of operations. There also can be no
assurance that suitable acquisition candidates will be available, that
acquisitions can be completed on reasonable terms, that the Company will
successfully integrate the operations of any acquired entities or that the
Company will have access to adequate funds to effect any desired acquisitions.
In addition, acquisitions may be limited by restrictions in the Company's
indebtedness.
POSSIBLE INABILITY TO REPURCHASE NOTES UPON A CHANGE OF CONTROL
Upon a Change of Control, each holder of the Notes will have the right to
require the Company to repurchase any or all of the Notes owned by such holder
at a price equal to 101% of the principal amount thereof, together with accrued
and unpaid interest. However, the Company's ability to repurchase the Notes
upon a Change of Control may be limited by the terms of then existing
contractual obligations of the Company and its subsidiaries. Furthermore, under
the Bank Facility, a "Change in Control" (as defined therein) would constitute
an event of default, causing acceleration of all payments required thereunder.
In addition, the Company may not have adequate financial resources to effect
such a repurchase, and there can be no assurance that the Company would be able
to obtain such resources through a refinancing of the Notes to be repurchased
or otherwise. If the Company fails to repurchase all of the Notes tendered for
purchase upon the occurrence of a Change of Control, such failure will
constitute an Event of Default under the Indenture. See "Description of
Notes--Change of Control."
With respect to the sale of assets referred to in the definition of
"Change of Control", the phrase "all or substantially all" as used in such
definition varies according to the facts and circumstances of the subject
transaction, has no clearly established meaning under the relevant law and is
subject to judicial interpretation. Accordingly, in certain circumstances there
may be a degree of uncertainty in ascertaining whether a particular transaction
would involve a disposition of "all or substantially all" of the assets of a
person and therefore it may be unclear whether a Change of Control has occurred
and whether the Notes are subject to an offer to purchase.
The Change of Control provision may not necessarily afford the holders
protection in the event of a highly leveraged transaction, including a
reorganization, restructuring, merger or other similar transaction involving
the Company that may adversely affect the holders, because such transactions
may not involve a shift in voting power or beneficial ownership or, even if
they do, may not involve a shift of the magnitude required under the definition
of Change of Control to trigger such provisions. Except as described under
"Description of Notes--Change of Control," the Indenture does not contain
provisions that permit the holders of the Notes to require the Company to
repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar transaction.
FRAUDULENT TRANSFER STATUTES
Under federal or state fraudulent transfer laws, if a court were to find
that, at the time the Notes were issued, the Company (i) issued the Notes with
the intent of hindering, delaying or defrauding current or
16
<PAGE>
future creditors or (ii)(A) received less than fair consideration or reasonably
equivalent value for incurring the indebtedness represented by the Notes and
(B)(1) was insolvent or was rendered insolvent by reason of the issuance of the
Notes, (2) was engaged, or about to engage, in a business or transaction for
which its assets were unreasonably small or (3) intended to incur, or believed
(or should have believed) it would incur, debts beyond its ability to pay as
such debts mature (as all of the foregoing terms are defined in or interpreted
under such fraudulent transfer statutes), such court could avoid all or a
portion of the Company's obligations to the holders of the Notes, subordinate
the Company's obligations to the holders of the Notes to other existing and
future indebtedness of the Company, the effect of which would be to entitle
such other creditors to be paid in full before any payment could be made on the
Notes, and take other action detrimental to the holders of the Notes, including
in certain circumstances, invalidating the Notes. In that event, there would be
no assurance that any repayment on the Notes would ever be recovered by the
holders of the Notes.
The definition of insolvency for purposes of the foregoing considerations
varies among jurisdictions depending upon the federal or state law that is
being applied in any such proceeding. However, the Company generally would be
considered insolvent at the time it incurs the indebtedness constituting the
Notes, if (i) the fair market value (or fair saleable value) of its assets is
less than the amount required to pay its total existing debts and liabilities
(including the probable liability on contingent liabilities) as they become
absolute or matured or (ii) it is incurring debts beyond its ability to pay as
such debts mature. There can be no assurance as to what standard a court would
apply in order to determine whether the Company was "insolvent" as of the date
the Notes were issued, or that, regardless of the method of valuation, a court
would not determine that the Company was insolvent on that date. Nor can there
be any assurance that a court would not determine, regardless of whether the
Company was insolvent on the date the Notes were issued, that the payments
constituted fraudulent transfers on another ground. To the extent that proceeds
from the sale of the Notes are used to repay indebtedness under the Company's
existing indebtedness, a court may find that the Company did not receive fair
consideration or reasonably equivalent value for the incurrence of the
indebtedness represented by the Notes.
LACK OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The Exchange Notes are being offered to the holders of the Old Notes. The
Old Notes were offered and sold in February 1998 to "Qualified Institutional
Buyers" and in offshore transactions complying with Rule 903 or Rule 904 of
Regulation S under the Securities Act and are eligible for trading in the
PORTAL Market.
The Exchange Notes are a new issue of securities for which there is
currently no active trading market. If any of the Exchange Notes are traded
after their initial issuance, they may trade at a discount from their initial
offering price, depending upon prevailing interest rates, the market for
similar securities and other factors, including general economic conditions and
the financial condition, performance of, and prospects for, the Company.
Although the Exchange Notes are eligible for trading by "Qualified
Institutional Buyers", as defined under Rule 144A of the Securities Act in the
PORTAL market, there can be no assurance as to the development of any market or
liquidity of any market that may develop for the Exchange Notes. The liquidity
of, and trading markets for, the Exchange Notes may also be adversely affected
by declines in the market for high-yield securities generally. See "Notice to
Investors" and "Plan of Distribution."
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for Exchange
Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Old Notes as set forth in the legend thereon.
In general, the Old Notes may not be offered or sold, unless registered under
the Securities Act, except pursuant to an exemption from, or in a transaction
not subject to the Securities Act and applicable state securities laws. The
Company does not intend to register the Old Notes under the Securities Act. The
Company believes that, based upon interpretations contained in letters issued
to third parties by the staff of the Commission, Exchange Notes issued pursuant
to the Exchange Offer in exchange for Old Notes may be offered for resale,
resold or otherwise transferred by each holder thereof
17
<PAGE>
(other than a broker-dealer, as set forth below, and any such holder which is
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act provided that such Exchange Notes are
acquired in the ordinary course of such holder's business and such holder has
no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes. Eligible holders wishing to accept the
Exchange Offer must represent to the Company that (i) the Exchange Notes
acquired pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such Exchange Notes, whether or not
such person is such holder, (ii) neither the holder of Old Notes nor any such
other person has an arrangement or understanding with any person to participate
in the distribution of such Exchange Notes, (iii) if the holder is not a
broker-dealer or is a broker-dealer but will not receive Exchange Notes for its
own account in exchange for Old Notes, neither the holder nor any such other
person is engaged in or intends to participate in a distribution of the
Exchange Notes and (iv) neither the holder nor any such other person is an
"affiliate" of the Company within the meaning of Rule 405 or if such holder is
an "affiliate," that such holder will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent
applicable. Each broker-dealer (whether or not it is also an "affiliate") that
receives Exchange Notes for its own account pursuant to the Exchange Offer must
represent that the Old Notes tendered in exchange therefor were acquired as a
result of market-making activities or other trading activities and must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with the resales of Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. The
Company has agreed that, for a period of 180 days after the Expiration Date, it
will make this Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution." However, to comply with the
securities laws of certain jurisdictions, if applicable, the Exchange Notes may
not be offered or sold unless they have been registered or qualified for sale
in such jurisdiction or an exemption from registration or qualification is
available and is complied with. The Company does not currently intend to take
any action to register or qualify the Exchange Notes for resale in any such
jurisdictions.
In the event the Exchange Offer is consummated, the Company will not be
required to register the transfer of the Old Notes under the Securities Act or
any applicable securities laws. In such event, holders of Old Notes seeking
liquidity in their investment would have to rely on exemptions to the
registration requirements under such laws. The Old Notes currently may be sold
to "Qualified Institutional Buyers" and in offshore transactions complying with
Rule 903 or Rule 904 of Regulation S under the Securities Act or pursuant to
another available exemption under the Securities Act without registration under
the Securities Act. To the extent that Old Notes are tendered and accepted in
the Exchange Offer, the reduction in the principal amount of Old Notes
outstanding could have an adverse effect upon, and increase the volatility of
the market price for, the untendered and tendered but unaccepted Old Notes.
EXCHANGE OFFER PROCEDURES
To participate in the Exchange Offer, and avoid the restrictions on Old
Notes, each holder of Old Notes must transmit a properly completed Letter of
Transmittal (or acknowledge receipt of and agree to be bound by such Letter of
Transmittal through the Automated Tender Offer Program (the "ATOP") of the
Depository Trust Company ("DTC")) and all other documents required by such
Letter of Transmittal, to the U.S. Trust Company of Texas, N.A. at the address
set forth below under "The Exchange Offer--Exchange Agent" on or prior to the
Expiration Date. In addition, (i) certificates for such Old Notes must be
received by the Exchange Agent, (ii) a timely confirmation of a book-entry
transfer (a "Book-Entry Confirmation") of such Old Notes, if such procedure is
available, into the Exchange Agent's account at DTC pursuant to the procedure
for book-entry transfer described below, must be received by the Exchange Agent
prior to the Expiration Date or (iii) the holder must comply with the
guaranteed delivery procedures. See "The Exchange Offer."
18
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer. The
Company received $125.6 million in net proceeds from the issuance and sale of
the Old Notes. The net proceeds were used to repay debt outstanding under the
Bank Facility. The Company has agreed to pay the expenses of the Exchange
Offer. No underwriter is being used in connection with the Exchange Offer.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
On February 25, 1998, the Company issued $130.0 million aggregate
principal amount of Old Notes to the Initial Purchaser. In connection with the
issuance and sale of the Old Notes, the Company entered into the Registration
Rights Agreement with the Initial Purchaser, which obligated the Company to (i)
file the Registration Statement of which this Prospectus is a part for the
Exchange Offer within 180 days after February 25, 1998, the date the Old Notes
were issued (the "Issue Date"), (ii) use its best efforts to cause the
Registration Statement to become effective within 240 days after the Issue Date
and (iii) cause the Exchange Offer to be consummated no later than the 30th
business day after it is declared effective by the Commission. A copy of the
Registration Rights Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The Exchange Offer is being made
pursuant to the Registration Rights Agreement to satisfy the Company's
obligations thereunder.
Based on interpretations by the staff of the Commission, as set forth in
no-action letters issued to Exxon Capital Holdings Corporation (available May
13, 1988), Morgan Stanley & Co. Incorporated (available June 5, 1991), Mary Kay
Cosmetics, Inc. (available June 5, 1991), Warnaco, Inc. (available October 11,
1991) and K-III Communications Corporation (available May 14, 1993), the
Company believes that a holder who exchanges Old Notes for Exchange Notes
pursuant to the Exchange Offer may offer for resale, resell and otherwise
transfer such Exchange Notes without compliance with the registration and
prospectus delivery requirements of the Securities Act; provided, that (i) such
Exchange Notes are acquired in the ordinary course of such holder's business,
(ii) such holder is not engaged in, and does not intend to engage in, a
distribution of such Exchange Notes and has no arrangement with any person to
participate in the distribution of such Exchange Notes, and (iii) such holder
is not an affiliate of the Company (as defined under Rule 405 of the Securities
Act). However, the staff of the Commission has not considered the Exchange
Offer in the context of a no-action letter and there can be no assurance that
the staff of the Commission would make a similar determination with respect to
the Exchange Offer as in such other circumstances. A holder who exchanges Old
Notes for Exchange Notes pursuant to the Exchange Offer with the intention to
participate in a distribution of the Exchange Notes may not rely on the staff's
position enunciated in the Exxon Capital Letter, the Morgan Stanley Letter or
similar letters and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives Exchange Notes for its own account in exchange
for Old Notes, where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. See "Plan of Distribution." The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes (other than a resale of an unsold allotment from the original
sale of the Notes) received in exchange for Old Notes where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. The Company has agreed that, for a period of 180 days after
the Expiration Date, it will make this Prospectus available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept any and
19
<PAGE>
all Old Notes validly tendered and not withdrawn prior to 5:00 p.m., New York
City time, on the Expiration Date. The Company will issue a principal amount at
maturity of Exchange Notes in exchange for an equal principal amount at
maturity of outstanding Old Notes validly tendered pursuant to the Exchange
Offer and not withdrawn prior to the Expiration Date. Old Notes may only be
tendered in integral multiples at maturity of $1,000. Holders may tender some
or all of their Old Notes pursuant to the Exchange Offer.
The terms of the Exchange Notes and the Old Notes are substantially
identical in all material respects, except that (i) the exchange will be
registered under the Securities Act and, therefore, the Exchange Notes will not
bear legends restricting the transfer of such Exchange Notes, and (ii) holders
of the Exchange Notes will not be entitled to any of the registration rights of
holders of Old Notes under the Registration Rights Agreement, which rights will
terminate upon the consummation of the Exchange Offer. See "Description of
Notes." The Exchange Notes will evidence the same indebtedness as the Old
Notes. The Exchange Notes will be issued under and entitled to the benefits of
the Indenture pursuant to which the Old Notes were issued such that the
Exchange Notes and Old Notes will be treated as a single class of debt
securities under the Indenture.
As of the date of this Prospectus, $130.0 million aggregate principal
amount at maturity of the Old Notes are outstanding. This Prospectus, together
with the Letter of Transmittal, is being sent to all registered holders of the
Old Notes.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the Delaware General Corporation Law or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the provisions of the Registration Rights Agreement and the applicable
requirements of the Exchange Act, and the rules and regulations of the
Commission thereunder. Old Notes which are not tendered and were not prohibited
from being tendered for exchange in the Exchange Offer will remain outstanding
and continue to accrue interest and to be subject to transfer restrictions, but
will not be entitled to any rights or benefits under the Registration Rights
Agreement.
Upon satisfaction or waiver of all the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and not withdrawn and will issue Exchange Notes in exchange
therefor promptly after acceptance of the Old Notes. For purposes of the
Exchange Offer, the Company shall be deemed to have accepted properly tendered
Old Notes for exchange when, as and if, the Company has given oral or written
notice thereof to the Exchange Agent. The Exchange Agent will act as agent for
the tendering holders for the purposes of receiving the Exchange Notes from the
Company.
In all cases, issuance of Exchange Notes for Old Notes that are accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of such Old Notes, a properly completed and duly
executed Letter of Transmittal (receipt of such Letter of Transmittal by the
Exchange Agent is not necessary if the holder of such Old Notes has
acknowledged receipt of and agreed to be bound by such Letter of Transmittal
through the ATOP of DTC) and all other required documents; provided, however,
that the Company reserves the absolute right to waive any defects or
irregularities in the tender or conditions of the Exchange Offer. If any
tendered Old Notes are not accepted for any reason set forth in the terms and
conditions of the Exchange Offer or if Old Notes are submitted for a greater
principal amount at maturity than the holder desires to exchange, such
unaccepted or nonexchanged Old Notes or substitute Old Notes evidencing the
unaccepted portion, as appropriate, will be returned without expense to the
tendering holder thereof as promptly as practicable after the expiration or
termination of the Exchange Offer.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes described below, in connection with the
Exchange Offer. See "--Fees and Expenses."
20
<PAGE>
EXPIRATION DATE; EXTENSION; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998 (20 business days following the commencement of the Exchange Offer),
unless the Company, in its sole discretion, extends the Exchange Offer, in
which case the term "Expiration Date" will mean the latest date and time to
which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
registered holders an announcement thereof, prior to 9:00 a.m., New York City
time, on the next business day after the then Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "--Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of
the Exchange Offer. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written notice
thereof to the registered holders. If the Exchange Offer is amended in a manner
determined by the Company to constitute a material change, the Company will
promptly disclose such amendment in a manner reasonably calculated to inform
the holders of Old Notes of such amendment.
Without limiting the manner in which the Company may choose to make a
public announcement of any delay, extension, amendment or termination of the
Exchange Offer, the Company shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to an appropriate news agency.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from February 25, 1998 at the rate
of 10 1/4% per annum, payable semi-annually in arrears, in cash, on February 15
and August 15 of each year, commencing August 15, 1998. Holders of Old Notes
whose Old Notes are accepted for exchange will be deemed to have waived the
right to receive any payment in respect of interest on the Old Notes accrued
from February 25, 1998 until the date of the issuance of the Exchange Notes.
Consequently, holders who exchange their Old Notes for Exchange Notes will
receive the same interest payment on August 15, 1998 (the first interest
payment date with respect to the Old Notes and the Exchange Notes) that they
would have received had they not accepted the Exchange Offer.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to exchange any Exchange Notes for any Old Notes, and may terminate
or amend the Exchange Offer before the acceptance of any Old Notes for
exchange, if: (a) any action or proceeding is instituted or threatened in any
court or by or before any governmental agency with respect to the Exchange
Offer which seeks to restrain or prohibit the Exchange Offer or, in the
Company's judgment, would materially impair the ability of the Company to
proceed with the Exchange Offer, or (b) any law, statute, rule or regulation is
proposed, adopted or enacted, or any existing law, statute, rule, order or
regulation is interpreted, by any government or governmental authority which,
in the Company's judgment, would materially impair the ability of the Company
to proceed with the Exchange Offer, or (c) the Exchange Offer or the
consummation thereof would otherwise violate or be prohibited by applicable
law.
If the Company reasonably determines that any of these conditions are not
satisfied, the Company may (i) refuse to accept any Old Notes and return all
tendered Old Notes to the tendering holders, (ii) extend the Exchange Offer and
retain all Old Notes tendered prior to the expiration of the Exchange Offer,
subject, however, to the rights of holders who tendered such Old Notes to
withdraw their tendered Old Notes, or (iii) waive such unsatisfied conditions
with respect to the Exchange Offer and accept all properly tendered Old Notes
which have not been withdrawn. Notwithstanding the foregoing, if the Company's
waiver constitutes a material change to the Exchange Offer, the Company will
promptly disclose such waiver by means of a prospectus supplement that will be
distributed to the registered
21
<PAGE>
holders, and the Company will extend the Exchange Offer for a period of five to
ten business days, depending upon the significance of the waiver and the manner
of disclosure to the registered holders, if the Exchange Offer would otherwise
expire during such five to ten business day period.
The foregoing conditions are for the sole benefit of the Company and may
be asserted by the Company regardless of the circumstances giving rise to any
such condition or may be waived by the Company in whole or in part at any time
and from time to time based upon reasonable discretion. The Company's failure
at any time to exercise any of the foregoing rights will be deemed a waiver of
any such right, and each such right will be deemed an ongoing right which may
be asserted at any time and from time to time. Any determination by the Company
concerning the events described above will be final and binding on all parties.
NO VOTE OF THE COMPANY'S SECURITYHOLDERS IS REQUIRED TO EFFECT THE EXCHANGE
OFFER AND NO SUCH VOTE (OR PROXY THEREFOR) IS BEING SOUGHT HEREBY.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the Exchange
Offer. To tender in the Exchange Offer, a holder must (i) complete, sign and
date the Letter of Transmittal, or a facsimile thereof, have the signatures
thereon guaranteed if required by the Letter of Transmittal, and mail or
otherwise deliver such Letter of Transmittal or such facsimile (unless such
holder acknowledges receipt of and agrees to be bound by such Letter of
Transmittal through the ATOP of DTC), together with the Old Notes (unless such
tender is being effected pursuant to the procedure for book-entry transfer
described below) and any other required documents, to the Exchange Agent prior
to 5:00 p.m., New York City time, on the Expiration Date, or (ii) comply with
the guaranteed delivery procedures described below. Delivery of all documents
must be made to the Exchange Agent at its address set forth herein. Each
broker-dealer that receives Exchange Notes for its own account in exchange for
Old Notes, where such Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with the resale of such Exchange Notes.
See "Plan of Distribution."
The tender of Old Notes by a holder as set forth below will constitute an
agreement between such holder and the Company in accordance with the terms and
subject to the conditions set forth in this Prospectus and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner(s) whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's own behalf, such owner must,
prior to completing and executing the Letter of Transmittal and delivering such
owner's Old Notes, either make appropriate arrangement to register ownership of
the Old Notes in such owner's name or obtain a properly completed bond power
from the registered holder. The transfer of registered ownership may take
considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal (described
below), as the case may be, must be guaranteed by an "eligible guarantor
institution" (banks, stockbrokers, savings and loan associations and credit
unions with membership in an approved signature guarantee medallion program),
22
<PAGE>
pursuant to Rule 17Ad-15 under the Exchange Act (an "Eligible Institution")
unless the Old Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Issuance Instructions"
or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution.
If a person other than the registered holder of any Old Notes listed
therein signs the Letter of Transmittal, such Old Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered
holder as such registered holder's name appears on such Old Notes, with the
signature thereon guaranteed by an Eligible Institution. If the Letter of
Transmittal or any Old Notes or bond powers are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or
others acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and unless waived by the Company, evidence satisfactory
to the Company of their authority to so act must be submitted with the Letter
of Transmittal.
The Company will determine, in its sole discretion, all questions as to
the validity, form, eligibility (including time of receipt), acceptance of
tendered Old Notes and withdrawal of tendered Old Notes and the Company's
determination will be final and binding. The Company reserves the absolute
right to reject any and all Old Notes not properly tendered or any Old Notes
the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Old Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Old Notes, neither the
Company, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Old Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Old Notes received by the Exchange Agent that are not properly tendered and
as to which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
In addition, the Company reserves the right in its sole discretion to
purchase or make offers for any Old Notes that remain outstanding subsequent to
the Expiration Date or, as set forth above under "Conditions," to terminate the
Exchange Offer and, to the extent permitted by applicable law, to purchase Old
Notes in the open market, in privately negotiated transactions or otherwise.
The terms of any such purchases or offers could differ from the terms of the
Exchange Offer.
By tendering, each holder will represent to the Company that, among other
things, (i) the Notes to be acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of such holder, (ii) such holder
has no arrangement or understanding with any person to participate in the
distribution (within the meaning of the Securities Act) of the Exchange Notes
and (iii) such holder is not an "affiliate," as defined in Rule 405 under the
Securities Act, of the Company, or that if it is an "affiliate," it will comply
with applicable registration and prospectus delivery requirements of the
Securities Act.
BOOK-ENTRY TRANSFER
Within two business days after the date of this Prospectus, the Exchange
Agent will make a request to establish an account with respect to the Old Notes
at the book-entry transfer facility for the Old Notes, DTC, for purposes of the
Exchange Offer. Any financial institution that is a participant in DTC's
systems may make book-entry delivery of Old Notes by causing DTC to transfer
such Old Notes into the Exchange Agent's account with respect to the Old Notes
in accordance with DTC's procedures for such transfer. Effecting transfers
through DTC eliminates the need to deliver a Letter of Transmittal to the
Exchange Agent. Through the ATOP of DTC, holders can acknowledge receipt of and
agree to be bound by such Letter of Transmittal.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the
23
<PAGE>
Exchange Agent prior to the Expiration Date, or (iii) who cannot complete the
procedures for book-entry transfer of Old Notes to the Exchange Agent's account
with DTC prior to the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) On or prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution (by facsimile transmission, mail or hand delivery) a
properly completed and duly executed notice of guaranteed delivery
substantially in the form provided by the Company (the "Notice of Guaranteed
Delivery"), setting forth the name and address of the holder, the certificate
number(s) of such Old Notes (if possible) and the principal amount at maturity
of Old Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within five business trading days after the Expiration Date,
(i) the Letter of Transmittal (or facsimile thereof) together with the
certificate(s) representing the Old Notes and any other documents required by
the Letter of Transmittal will be deposited by the Eligible Institution with
the Exchange Agent, or (ii) that book-entry transfer of such Old Notes into the
Exchange Agent's account at DTC will be effected and confirmation of such
book-entry transfer will be delivered to the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered Old
Notes in proper form for transfer and all other documents required by the
Letter of Transmittal, or confirmation of book-entry transfer of the Old Notes
into the Exchange Agent's account at DTC, are received by the Exchange Agent
within five business trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will
be sent to holders who wish to tender their Old Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, the Exchange
Agent must receive at its address set forth herein a telegram, telex, facsimile
transmission or letter indicating notice of withdrawal prior to 5:00 p.m., New
York City time, on the Expiration Date. Any such notice of withdrawal must (i)
specify the name of the person having tendered the Old Notes to be withdrawn
(the "Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number or numbers and principal amount at maturity of such Old
Notes), (iii) be signed by the holder in the same manner as the original
signature on the Letter of Transmittal by which such Old Notes were tendered
(including any required signature guarantees) or be accomplished by documents
of transfer sufficient to have the Trustee with respect to the Old Notes
register the transfer of such Old Notes into the name of the person withdrawing
the tender and (iv) specify the name in which any such Old Notes are to be
registered, if different from that of the Depositor. If Old Notes have been
tendered pursuant to the procedures for book-entry transfer, any notice of
withdrawal must specify the name and number of the account at DTC to be
credited with the withdrawn Old Notes or otherwise comply with DTC's
procedures. All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto unless
the Old Notes so withdrawn are validly retendered. Any Old Notes which have
been tendered but which are not accepted for payment will be returned to the
holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described above under "--Procedures for Tendering" at any time prior to the
Expiration Date.
UNTENDERED OLD NOTES
Holders of Old Notes whose Old Notes are not tendered or are tendered but
not accepted in the Exchange Offer will continue to hold such Old Notes and
will be entitled to all the rights and preferences
24
<PAGE>
and subject to the limitations applicable thereto under the Indenture.
Following consummation of the Exchange Offer, the holders of Old Notes will
continue to be subject to the existing restrictions upon transfer contained in
the legend thereon. In general, the Old Notes may not be offered for resale or
resold, unless registered under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company will have no further obligations
to such holders, other than the Initial Purchaser, to provide for the
registration under the Securities Act of the Old Notes held by them after the
Expiration Date. To the extent that Old Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered and tendered but unaccepted
Old Notes could be adversely affected.
EXCHANGE AGENT
U.S. Trust Company of Texas, N.A., has been appointed as Exchange Agent of
the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notices of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
By Mail, Overnight Courier or Hand:
U.S. Trust Company of Texas, N.A.
2001 Ross Avenue, Suite 2700
Dallas, TX 75201
Attention: Corporate Trust Division
(registered or certified mail recommended)
Telephone: (214) 754-1255
Facsimile: (214) 754-1303
Delivery to an address other than as set forth above or transmission of
instructions via facsimile to a number other than as set forth above will not
constitute a valid delivery.
FEES AND EXPENSES
The Company will bear the expenses of soliciting tenders. The principal
solicitation is being made by mail; however, officers and regular employees of
the Company and its affiliates may make additional solicitation by telegraph,
facsimile transmission, telephone or in person.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection therewith.
The Company will pay the cash expenses to be incurred in connection with
the Exchange Offer. Such expenses include registration fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs, among
others.
The Company will pay any and all transfer taxes applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person other than the registered holder of the Old Notes
tendered, or if tendered Old Notes are registered in the name of any person
other than the person signing the Letter of Transmittal, or if a transfer tax
is imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, satisfactory evidence of the payment of the amount of any such
transfer taxes must be submitted with the Letter of Transmittal (whether
imposed on the registered holder or any other person). Certificates
representing Exchange Notes will not be issued to such persons until
satisfactory evidence of the payment of such taxes, or an exemption therefrom,
is submitted.
CONSEQUENCES OF FAILURE TO EXCHANGE
Upon consummation of the Exchange Offer, holders that were not prohibited
from participating in the Exchange Offer and did not tender their Old Notes
will not have any registration rights under the
25
<PAGE>
Registration Rights Agreement with respect to such nontendered Old Notes and,
accordingly, such Old Notes will continue to be subject to the restrictions on
transfer contained in the legend thereon as a consequence of the issuance of
the Old Notes pursuant to exemptions from or in transactions not subject to,
the registration requirements of the Securities Act and applicable state
securities laws. In general, the Old Notes may not be offered for resale or
resold, unless registered under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not intend to register the
Old Notes under the Securities Act. Based on interpretations by the staff of
the Commission, as set forth in no-action letters issued to Exxon Capital
Holdings Corporation (available May 13, 1988), Morgan Stanley & Co.
Incorporated (available June 5, 1991), Mary Kay Cosmetics, Inc. (available June
5, 1991), Warnaco, Inc. (available October 11, 1991) and K-III Communications
Corporation (available May 14, 1993) (collectively, the "Exchange Offer No-
Action Letters"), the Company believes that a holder who exchanges Old Notes
for Exchange Notes pursuant to the Exchange Offer may offer for resale, resell
and otherwise transfer such Exchange Notes without compliance with the
registration and prospectus delivery requirements of the Securities Act,
provided, however, that (i) such Exchange Notes are acquired in the ordinary
course of such holder's business, (ii) such holder is not engaged in, and does
not intend to engage in, a distribution of such Exchange Notes and has no
arrangement with any person to participate in the distribution of such Exchange
Notes, and (iii) such holder is not an affiliate of the Company (as defined
under rule 405 of the Securities Act). However, the staff of the Commission has
not considered the Exchange Offer in the context of a no-action letter and
there can be no assurance that the staff of the Commission would make a similar
determination with respect to the Exchange Offer as in such other
circumstances. A holder who exchanges Old Notes for Exchange Notes pursuant to
the Exchange Offer with the intention to participate in a distribution of the
Exchange Notes may not rely on the staff's position enunciated in the Exchange
Offer No-Action Letters or similar letters and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. See "Plan of
Distribution." The Exchange Notes may not be offered or sold unless they have
been registered or qualified for sale under applicable state securities laws or
an exemption from registration or qualification is available and is complied
with. The Registration Rights Agreement requires the Company to register the
Exchange Notes in any jurisdiction requested by the holders, subject to certain
limitations. To the extent the Old Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered and tendered but unaccepted
Old Notes could be adversely affected.
RESALE OF THE EXCHANGE NOTES
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, the Exchange Notes would in general
be freely transferable after the Exchange Offer without further registration
under the Securities Act. However, any purchaser of Old Notes who intends to
participate in the Exchange Offer for the purpose of distributing the Exchange
Notes (i) would not be able to rely on the interpretation of the staff of the
Commission, (ii) will not be able to tender its Old Notes in the Exchange Offer
and (iii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or transfer of
the Notes unless such sale or transfer is made pursuant to an exemption from
such requirements. By executing the Letter of Transmittal, each holder of the
Old Notes will represent that (i) it is not an affiliate of the Company or if
such Holder is an "affiliate," that such Holder will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable, (ii) any Exchange Notes to be received by it were acquired
in the ordinary course of its business and (iii) at the time of commencement of
the Exchange Offer, it had no arrangement with any person to participate in the
distribution (within the meaning of the Securities Act) of the Exchange Notes.
In addition, in connection with any resales of Exchange Notes, any
broker-dealer (a "Participating Broker-Dealer") who acquired the Notes for its
own account as a result of market-making or other trading activities must
deliver a prospectus meeting the requirements of the Securities Act. The
Commission has taken the position that Participating Broker-Dealers may fulfill
their prospectus delivery requirements with respect to the Exchange Notes
(other than
26
<PAGE>
a resale of an unsold allotment from the original sale of the Old Notes) with
the prospectus contained in the Registration Statement. Under the Registration
Rights Agreement, the Company is required to allow Participating Broker-Dealers
and other persons, if any, subject to similar prospectus delivery requirements
to use this Prospectus as it may be amended or supplemented from time to time,
in connection with the resale of such Exchange Notes.
OTHER
PARTICIPATION IN THE EXCHANGE OFFER IS VOLUNTARY AND HOLDERS SHOULD
CAREFULLY CONSIDER WHETHER TO ACCEPT. HOLDERS OF THE OLD NOTES ARE URGED TO
CONSULT THEIR FINANCIAL AND TAX ADVISORS IN MAKING THEIR OWN DECISIONS ON WHAT
ACTION TO TAKE.
Upon consummation of the Exchange Offer, holders who were not prohibited
from participating in the Exchange Offer and who did not tender their Old Notes
will not have any registration rights under the Registration Rights Agreement
with respect to such nontendered Old Notes and such Old Notes will continue to
be subject to the restrictions on transfer contained in the legend thereon.
Accordingly, such Old Notes may not be offered, sold, pledged or otherwise
transferred except (i) to a person whom the seller reasonably believes is a
"Qualified Institutional Buyer" within the meaning of Rule 144A under the
Securities Act purchasing for its own account or for the account of a Qualified
Institutional Buyer in a transaction meeting the requirements of Rule 144A,
(ii) in an offshore transaction complying with Rule 904 of Regulation S under
the Securities Act, (ii) pursuant to an exemption from registration under the
Securities Act provided by Rule 144 thereunder (if available), (iv) pursuant to
an effective registration statement under the Securities Act or (v) to the
Company and, in each case, in accordance with all other applicable securities
laws.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded in the Company's accounting records at
the same carrying value as the Old Notes as reflected in the Company's
accounting records on the date of the exchange. Accordingly, the Company will
recognize no gain or loss for accounting purposes upon the consummation of the
Exchange Offer.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER
The exchange of Old Notes for Exchange Notes pursuant to the Exchange
Offer will not result in any United States federal income tax consequences to
holders. When a holder exchanges an Old Note for an Exchange Note pursuant to
the Exchange Offer, the holder will have the same adjusted basis and holding
period in the Exchange Note as in the Old Note immediately before the exchange.
This summary is based on the Internal Revenue Code of 1986, as amended,
administrative pronouncements, judicial decisions and existing and proposed
Treasury Regulations, changes to any of which subsequent to the date of this
Prospectus may affect the tax consequences described herein. HOLDERS OF THE OLD
NOTES SHOULD CONSULT THEIR TAX ADVISORS AS TO THE FEDERAL, STATE AND LOCAL
INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER.
27
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization
of the Company as of June 30, 1998. This table should be read in conjunction
with the consolidated financial statements, including the notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
-----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Long-term Debt (including current portion):
Bank Facility
Term Facilities ............................................... 29,500
Revolving Facility(1) ......................................... --
10 1/4% Senior Notes due 2008 ................................. 130,000
-------
Total Long-term Debt ..........................................
14.5% Senior Exchangeable Preferred;
1,250,000 shares authorized; 1,042,460 shares issued(2) ......... 33,439
Stockholder's Deficit ............................................ (8,493)
-------
Total Capitalization .......................................... 184,446
=======
</TABLE>
- ----------
(1) The Company has $7.1 million of letters of credit outstanding to cover
insurance commitments for the policy year October 1, 1997 to September
30, 1998 and $.4 million which allows the beneficiary, Lyondell-Citgo
Refining Company Ltd., to pay all amounts due the Company in full without
withholding a retention amount.
(2) The Company's 14.5% Senior Exchangeable Preferred Stock due 2008, par
value $0.01 per share (the "14.5% Preferred Stock"), has an initial
liquidation preference of $25.00 per share. Dividends accrete to the
liquidation value at the rate of 14.5% per annum until the later of
September 30, 2001 and the first date upon which cash dividends are
permitted under the terms of the Company's then outstanding indebtedness.
The Company is required to redeem the 14.5% Preferred Stock on March 31,
2008. See "Description of Preferred Stock."
28
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents (i) selected historical financial data of
Predecessor as of and for each of the years ended December 31, 1993, 1994 and
1995 and for the nine months ended September 30, 1996 and (ii) selected
historical financial data of Successor, for the three months ended December 31,
1996, the year ended December 31, 1997 and the six months ended June 30, 1997
and 1998. The selected historical financial data as of and for the years ended
December 31, 1994 and 1995 and for the nine months ended September 30, 1996 has
been derived from the audited financial statements of Predecessor. The selected
historical financial data as of and for the year ended December 31, 1993 has
been derived from the unaudited financial statements of Predecessor. The
selected historical financial data as of and for the three months ended
December 31, 1996 and the year ended December 31, 1997 has been derived from
the audited financial statements of Successor. The selected historical
financial data as of and for the six months ended June 30, 1997 and 1998 has
been derived from the unaudited financial statements of Successor. The
financial data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's financial statements and notes thereto included elsewhere in this
Offering Memorandum.
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------------------------------
NINE
MONTHS
YEAR ENDED DECEMBER 31, ENDED
----------------------------------- SEPTEMBER 30,
1993 1994 1995 1996
----------- ----------- ----------- ---------------
(DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA: (1)
<S> <C> <C> <C> <C>
Revenue ....................... $188,972 $182,372 $193,829 $124,769
Operating Expenses ............ 133,284 129,045 138,968 89,073
-------- -------- -------- --------
Gross Profit ................. 55,688 53,327 54,861 35,696
Selling and Administrative
Expenses ..................... 22,824 27,111 25,807 15,825
Nonrecurring Start-up
Expenses ..................... -- -- -- --
-------- -------- -------- --------
Operating Income .............. 32,864 26,216 29,054 19,871
Interest Expense .............. 8,534 9,655 9,444 7,872
Interest Income ............... (301) (707) (1,012) (482)
Other Expense, Net (2) ........ -- 813 853 708
-------- -------- -------- --------
Pretax Income (Loss) ......... 24,631 16,455 19,769 11,773
Provision for Income Tax ...... 9,761 7,200 8,300 4,813
Extraordinary Loss, Net of
Tax ......................... -- -- -- --
-------- -------- -------- --------
Net Income (Loss) ............ $ 14,870 $ 9,255 $ 11,469 $ 6,960
======== ======== ======== ========
OTHER DATA: (1)
EBITDA (3) .................... $ 41,751 $ 33,956 $ 36,803 $ 25,832
EBITDA before
Nonrecurring Start-up
Expenses (3) ................. 41,751 33,956 36,803 25,832
Adjusted EBITDA (3) (4) ....... 41,751 33,956 36,803 25,832
Cash Flow from Operations ..... 17,088 22,234 35,587 28,478
Depreciation and
Amortization ................. 8,887 8,553 8,602 6,669
Cash Interest Expense (5) 8,534 9,655 9,444 7,872
Ratio of Adjusted EBITDA
to Cash Interest Expense
(3) (4) (5) .................. 4.9x 3.5x 3.9x 3.3x
Capital Expenditures
Maintenance .................. $ 4,494 $ 3,368 $ 2,755 $ 512
Expansion .................... 7,523 7,691 5,847 1,298
-------- -------- -------- --------
Total ........................ $ 12,017 $ 11,059 $ 8,602 $ 1,810
Ratio of Earnings to Fixed
Charges (6) .................. 3.8x 2.6x 3.0x 2.4x
<CAPTION>
SUCCESSOR
-----------------------------------------------------
THREE SIX SIX
MONTHS YEAR MONTHS MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1996 1997 1997 1998
-------------- -------------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue ....................... $44,412 $160,660 $82,103 $100,655
Operating Expenses ............ 34,170 122,638 60,741 76,655
------- -------- ------- --------
Gross Profit ................. 10,242 38,022 21,362 24,000
Selling and Administrative
Expenses ..................... 4,743 25,840 11,329 12,269
Nonrecurring Start-up
Expenses ..................... -- 2,498 1,239 --
------- -------- ------- --------
Operating Income .............. 5,499 9,684 8,794 11,731
Interest Expense .............. 4,504 15,422 7,576 8,359
Interest Income ............... (195) (397) (240) (104)
Other Expense, Net (2) ........ -- -- -- --
------- -------- ------- --------
Pretax Income (Loss) ......... 1,190 (5,341) 1,458 3,476
Provision for Income Tax ...... 525 -- -- --
Extraordinary Loss, Net of
Tax ......................... -- -- -- 4,329
------- -------- ------- --------
Net Income (Loss) ............ $ 665 $ (5,341) $ 1,458 $ (853)
======= ======== ======= ========
OTHER DATA: (1)
EBITDA (3) .................... $ 8,398 $ 22,009 $14,667 $ 18,138
EBITDA before
Nonrecurring Start-up
Expenses (3) ................. 8,398 24,507 15,906 18,138
Adjusted EBITDA (3) (4) ....... 9,387 29,629 18,009 21,356
Cash Flow from Operations ..... 4,966 11,983 5,900 11,952
Depreciation and
Amortization ................. 3,567 13,294 6,358 6,788
Cash Interest Expense (5) 3,836 14,453 7,091 7,978
Ratio of Adjusted EBITDA
to Cash Interest Expense
(3) (4) (5) .................. 2.4x 2.1x 2.5x 2.7x
Capital Expenditures
Maintenance .................. $ 97 $ 3,024 $ 1,561 $ 2,879
Expansion .................... 111 6,733 3,475 6,521
------- -------- ------- --------
Total ........................ $ 208 $ 9,757 $ 5,036 $ 9,400
Ratio of Earnings to Fixed
Charges (6) .................. 1.3x .7x 1.2x 1.4x
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
-------------------------------- -------------------------------------------------
AT DECEMBER 31,
------------------------------------------------------- AT JUNE 30, AT JUNE 30,
1993 1994 1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------- ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA: (1)
Working Capital ............................. $ 28,457 $ 34,155 $ 30,227 $ 12,656 $ 4,207 $ 12,602 $ 18,752
Total Assets ................................ 180,310 180,107 178,201 204,266 197,543 199,365 206,941
Long-Term Debt (including current portion)... -- -- -- 158,000 154,250 154,000 159,500
14.5% Senior Exchangeable Preferred Stock ... -- -- -- 25,906 31,140 29,000 33,439
Stockholder's Equity (Deficit) .............. 161,005 150,005 141,374 4,247 (5,176) 2,553 (8,493)
</TABLE>
- ----------
(1) The Acquisition had a significant impact on the Company's financial
position and results of operations. Consequently, the financial data for
and as of dates prior to the Acquisition may not be directly comparable
to corresponding information for and as of dates after the Acquisition.
(2) Since the Acquisition, the Company has not separately classified other
income and expense and has included it in selling and administrative
expenses because such amounts have been immaterial.
(3) EBITDA is defined as earnings before interest income, cash interest
expense, income taxes, depreciation and amortization. EBITDA is commonly
used to analyze companies on the basis of operating performance, leverage
and liquidity. EBITDA is not intended to represent cash flows for the
period, nor has it been presented as an alternative to operating income
as an indicator of operating performance and should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles.
(4) Adjusted EBITDA reflects the cash impact of two items that are not
reflected in the income statement. First, in connection with the
Acquisition, the Company entered into a Transitional Services Agreement
with WMI and Rust. In consideration of certain services to be rendered by
the Company and the licenses and preferred customer status granted by the
Company, WMI agreed to pay the Company $725,000 per quarter for the
quarter ending December 31, 1996 through the quarter ending September 30,
1999 ($2,900,000 for three years or $8,700,000 in total). For the three
months ended December 31, 1996, the year ended December 31, 1997, and the
six months ended June 30, 1997 and 1998, the WMI Payments were $725,000,
$2,900,000, $1,450,000 and $1,450,000, respectively. The portion of the
WMI Payments directly offsetting expenses of the Company is recognized in
EBITDA. Adjusted EBITDA is increased by the portion of the WMI Payments
not reflected in EBITDA or $362,000, $2,200,000, $1,100,000 and
$1,350,000 for the three months ended December 31, 1996, the year ended
December 31, 1997, and the six months ended June 30, 1997 and 1998,
respectively. Second, in connection with the Acquisition, WMI assumed
liabilities for all claims occurring since the Acquisition arising from
accidents which occurred on or before September 30, 1996. As a result of
having no liability for accidents which occurred prior to the
Acquisition, the amounts expensed by the Company for accident-related
claims exceed the cash payments for accident-related claims. The Company
recorded claims expense of $1,189,000, $5,927,000, $2,446,000 and
$3,424,000 for the three months ended December 31, 1996, the year ended
December 31, 1997, and the six months ended June 30, 1997 and 1998
respectively, but had cash expenditures related to these items of
$562,000, $3,005,000, $1,443,000 and $1,556,000, respectively. Adjusted
EBITDA for the three months ended December 31, 1996, the year ended
December 31, 1997, and the six months ended June 30, 1997 and 1998 is
therefore increased by the portion of claims expense not paid in cash, or
$627,000, $2,922,000, $1,003,000 and $1,868,000 respectively. The total
of the adjustments for the WMI Payments and the non-cash claims for the
three months ended December 31, 1996, the year ended December 31, 1997,
and the six months ended June 30, 1997 and 1998 is an increase of
$989,000, $5,122,000, $2,103,000 and $3,218,000, respectively.
(5) Cash interest expense represents total interest expense less amortization
of deferred financing fees of $668,000 for the three months ended
December 31, 1996, $969,000 for the year ended December 31, 1997, and
$485,000 and $381,000 for the six months ended June 30, 1997 and 1998
respectively.
(6) For the purposes of calculating the ratio of earnings to fixed charges,
earnings represent income (loss) before income taxes plus fixed charges.
Fixed charges consist of interest expense on all indebtedness plus the
interest portion of rental expense on noncancelable leases, and
amortization of debt issuance costs.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto included herewith. Financial data
and discussions relating to the year ended December 31, 1996 reflect the
combined results of operations of Rust prior to the Acquisition and Brand after
the Acquisition.
OVERVIEW
The Company is the largest North American provider of industrial
scaffolding services which facilitate access to tall structures for
maintenance, turnarounds and capital projects, principally in the refining,
petrochemical, chemical, utility and pulp and paper industries. The Company
provides turnkey services which include equipment rental, labor for the
erection and dismantlement of the scaffolding and scaffolding design services.
The Company also provides scaffolding services to the commercial market
(primarily nonresidential construction) and sells a small amount of
scaffolding.
Approximately 84% of the Company's 1997 revenues were attributable to
on-going maintenance and turnarounds of industrial facilities. The Company
typically provides on-going maintenance services under long-term contracts; the
duration of these contracts ranges between one and five years. Turnarounds
typically occur every one to four years depending on the industry and the type
of turnaround being performed, but refineries sometimes postpone planned
turnarounds when margins are high, such as in 1996 and 1997. However,
turnarounds are a necessary component of maintaining industrial facilities and
are required to ensure the safe and efficient operation of such facilities.
Thus, as a result of postponements in 1996 and 1997, an unusually high number
of refineries have scheduled turnarounds for the first half of 1998. While the
postponement of scheduled turnarounds causes fluctuations in the Company's
quarterly and annual results, the Company believes the necessity for on-going
maintenance and turnarounds provides a stable, recurring revenue base.
Revenues from capital projects, which represented approximately 4% of 1997
revenues, result from new plant construction, plant expansions and
modifications. Capital projects can and have had material impacts on the
Company's results of operations. For example, the Company provided scaffolding
services for the construction of a new refinery in St. Croix which resulted in
$24.1 million of revenues.
Commercial scaffolding revenues, which represented approximately 11% of
1997 revenues, are related to the level of nonresidential construction and
renovation. Demand for commercial scaffolding services has recently been high
due to the recent strength in the commercial construction industry. In 1997,
the Company increased its penetration of the commercial market, having opened
four new offices, expanded its sales force and invested $7.3 million in frame
and brace scaffolding inventory.
In November 1997, the Company implemented a cost reduction program which
is expected to reduce its annual operating overhead and selling, general and
administrative expenses by approximately $5.3 million. The major initiatives
included (i) eliminating 63 administrative and support positions and
consolidating certain administrative functions, (ii) restructuring and
renegotiating benefits programs, (iii) renegotiating the Company's insurance
premiums to reflect continued improvements in its safety record, (iv)
negotiating company-wide procurement contracts in order to take advantage of
volume pricing, and (v) implementing a new management information system to
improve inventory utilization and reduce equipment transportation expenses. The
Company recorded a one-time expense in the fourth quarter of 1997 of $437,000
to reflect severance and other expenses of the cost reduction program.
In connection with the Acquisition, WMI agreed to pay the Company a
quarterly fee of $725,000 for transition services for three years beginning on
December 31, 1996. Such payments will continue through September 30, 1999. In
addition, WMI agreed to pay for all historical accident-related claims in which
the accident occurred prior to the Acquisition. Because cash expenditures
related to accidents are paid out over time but accident-related expenses are
accrued in the period in which the accident occurs, the Company has a
significant non-cash claims expense ($2.9 million in 1997) which it anticipates
will decline over time.
The Company's business is seasonal. End-use industries such as the
refining and utility industries experience increased demand for their products
during the summer months. Consequently, turnarounds are generally scheduled
during the first and fourth quarters of the year.
31
<PAGE>
RESULTS OF OPERATIONS
The following discussion of results of operations is presented for the
fiscal years ended December 31, 1995, 1996 and 1997, and for the six months
ended June 30, 1997 and 1998.
On September 30, 1996, the Company was formed and acquired the net assets
of Rust Scaffold Services, Inc. The acquisition was accounted for as a
purchase. Also on September 30, 1996, the Company entered into a Credit
Agreement pursuant to which $160.0 million was borrowed. As a result of the
acquisition and the borrowings, the periods prior to September 30, 1996 are not
comparable to the periods after September 30, 1996. For purposes of the tables
and discussion that follows, combined 1996 financial data represents the
summation of the results for Predecessor for the nine months ended September
30, 1996 and for Successor for the three months ended December 31, 1996. This
1996 data does not include pro forma adjustments to reflect the acquisition or
the borrowings, which had the effect of increasing amortization and
depreciation expense and interest expense. The combined 1996 revenues,
operating expenses and selling and administrative expenses are presented for
comparative purposes. Other combined 1996 income and expense items are not
presented as the information was not considered meaningful.
The following tables set forth, for the periods indicated, certain
operating data expressed in dollar amounts and as a percentage of revenue:
SUMMARY OF HISTORICAL FINANCIAL RESULTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR COMBINED SUCCESSOR
-------------- -------------- --------------------------------------
SIX MONTHS
YEAR YEAR YEAR ENDED
ENDED ENDED ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, DECEMBER 31, -----------------------
1995 1996(1) 1997 1997 1998
-------------- -------------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue ................................ $193,829 $169,181 $160,660 $82,103 $100,655
Operating Expenses ..................... 138,968 123,243 122,638 60,741 76,655
-------- -------- -------- ------- --------
Gross Profit .......................... 54,861 45,938 38,022 21,362 24,000
Selling and Administrative Expenses..... 25,807 20,568 25,840 11,329 12,269
Nonrecurring Start-up Expenses .........
-- -- 2,498 1,239 --
-------- -------- -------- ------- --------
Operating Income ....................... 29,054 25,370 9,684 8,794 11,731
Interest Expense ....................... 9,444 15,422 7,576 8,359
Interest Income ........................ (1,012) (397) (240) (104)
Other Expense, Net ..................... 853 -- -- --
-------- -------- ------- --------
Pre-Tax Income (Loss) ................. 19,769 (5,341) 1,458 3,476
Provision for Income Tax ............... 8,300 -- -- --
Extraordinary Items (Net of Tax) ....... -- -- -- 4,329
-------- -------- ------- --------
Net Income (Loss) ..................... $ 11,469 $ (5,341) $ 1,458 $ (853)
======== ======== ======= ========
OTHER DATA:
EBITDA ................................. $ 36,803 $ 22,009 $14,667 $ 18,138
EBITDA Before Nonrecurring
Start-up Expenses ..................... 36,803 24,507 15,906 18,138
Adjusted EBITDA ........................ 36,803 29,629 18,009 21,356
</TABLE>
- ----------
(1) Combined 1996 financial data represents the summation of the results for
Predecessor for the nine months ended September 30, 1996 and for
Successor for the three months ended December 31, 1996 and is not
indicative of the results the Company would have achieved for the full
year had the Acquisition occurred on January 1, 1996.
32
<PAGE>
SUMMARY OF HISTORICAL FINANCIAL RESULTS AS A PERCENTAGE OF REVENUE
<TABLE>
<CAPTION>
PREDECESSOR COMBINED SUCCESSOR
-------------- -------------- -----------------------------------------
SIX MONTHS
YEAR YEAR YEAR ENDED
ENDED ENDED ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, DECEMBER 31, -------------------------
1995 1996(1) 1997 1997 1998
-------------- -------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue ................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Operating Expenses ..................... 71.7 72.8 76.3 74.0 76.2
----- ----- ----- ----- -----
Gross Profit .......................... 28.3 27.2 23.7 26.0 23.8
Selling and Administrative Expenses..... 13.3 12.2 16.1 13.8 12.2
Nonrecurring Start-up Expenses ......... -- -- 1.6 1.5 --
----- ----- ----- ----- -----
Operating Income ....................... 15.0 15.0 6.0 10.7 11.7
Interest Expense ....................... 4.9 9.6 9.2 8.3
Interest Income ........................ ( 0.5) ( 0.2) ( 0.3) ( 0.1)
Other Expenses, Net .................... 0.4 -- -- --
----- ----- ----- -----
Pre-Tax Income (Loss) ................. 10.2 ( 3.4) 1.8 3.5
Provision for Income Tax ............... 4.3 -- -- --
Extraordinary Items (Net of Tax) ....... -- -- -- 4.3
----- ----- ----- -----
Net Income (Loss) ..................... 5.9% ( 3.4)% 1.8% ( 0.8)%
===== ===== ===== =====
OTHER DATA:
EBITDA ................................. 19.1% 13.7% 17.9% 18.0%
EBITDA Before Nonrecurring
Start-up Expenses ..................... 19.1 15.3 19.4 18.0
Adjusted EBITDA ........................ 19.1 18.4 21.9 21.2
</TABLE>
- ----------
(1) Combined 1996 financial data represents the summation of the results for
Predecessor for the nine months ended September 30, 1996 and for
Successor for the three months ended December 31, 1996 and is not
indicative of the results the Company would have achieved for the full
year had the Acquisition occurred on January 1, 1996.
SIX MONTHS ENDED JUNE 30, 1998 AS COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Revenues. Revenues for the six months ended June 30, 1998 were $100.7
million as compared to $82.1 million for the six months ended June 30, 1997.
The increase in revenues was primarily attributable to increased activity in
the industrial scaffolding market. Increased turnaround and capital maintenance
activity as well as unplanned utility outages in the gulf coast accounted for
approximately $15.3 million of the positive variance. A majority of the
remaining variance was due to utility plant renovation and maintenance work in
the northern part of the country.
Gross Profit. Gross profit for the six months ended June 30, 1998 was
$24.0 million as compared to $21.4 million for the six months ended June 30,
1997. Gross profit as a percentage of revenues decreased primarily due to a
higher mix of labor and lower profit margins. The drivers of the lower profit
margins on labor include a shift in labor volume from higher profit jobs in the
western part of the country during 1997 to lower profit jobs in the gulf coast
and northern part of the country during 1998.
Selling and Administrative Expenses. Selling and administrative expenses
for the six months ended June 30, 1998 were $12.3 million as compared to $11.3
million for the six months ended June 30, 1997. The decrease in selling and
administrative expenses as a percentage of revenue from 13.8% for the six
months ended June 30, 1997 to 12.2% for the six months ended June 30, 1998 is
directly attributable to the cost reduction program which was implemented in
November, 1997. Selling and administrative expenses were
33
<PAGE>
also reduced by $350,000 in 1997 and $100,000 in 1998 as a result of payments
by WMI pursuant to the transition services agreement related to the
Acquisition.
Operating Income. Operating income for the six months ended June 30, 1998
was $11.7 million as compared to $8.8 million for the six months ended June 30,
1997. The increase was attributable to an increase in revenues combined with an
increase in direct costs as a percentage of revenues.
Interest Expense. Interest expense for the six months ended June 30, 1998
was $8.4 million compared to $7.6 million for the six months ended June 30,
1997. The $800,000 increase is due to the combination of increased activity
under the Revolving Facility and a higher weighted average interest rate on all
outstanding debt of 9.7% for the six months ended June 30, 1998 as compared to
8.8% for the six months ended June 30, 1997.
Extraordinary Items (net of tax). Extraordinary items for the six months
ended June 30, 1998 were $4.3 million compared to $0 for the six months ended
June 30, 1997. This extraordinary charge represents the write off of the pro
rata share of deferred financing costs related to the portion of the Term Loans
repaid with proceeds of the Old Note Offering.
YEAR ENDED DECEMBER 31, 1997 AS COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues. Revenues for the year ended December 31, 1997 were $160.7
million as compared to $169.2 million for the year ended December 31, 1996. The
decline in revenues is attributable to: (i) the loss of several contracts with
a single customer in 1996 which accounted for approximately $3.4 million loss
in revenues compared to 1996 and (ii) the transfer, in connection with the
Acquisition, of a contract, which generated revenues in excess of $2.0 million
in 1996, to a former sister corporation of the Company. Also contributing to
the decline was lengthened turnaround schedules at refineries due to a strong
operating environment in 1997. These decreases were partially offset by several
new accounts obtained during 1997, including three large accounts which
generated a total of $2.8 million.
Gross Profit. Gross profit for the year ended December 31, 1997 was $38.0
million as compared to $45.9 million for the year ended December 31, 1996. The
$7.9 million decline was due to lower revenue levels and a $3.2 million
increase in depreciation and amortization expenses resulting from the
Acquisition. An increase in gross profit as a percentage of revenues for labor
services and a decrease in insurance claims partially offset the decrease in
gross profit.
Selling and Administrative Expenses. Selling and administrative expenses
for the year ended December 31, 1997 were $25.8 million as compared to $20.6
million for the year ended December 31, 1996. The $5.2 million increase was due
to the hiring of additional sales personnel and the opening of four new
commercial scaffolding offices. During 1997, selling and administrative
expenses were reduced by $700,000 as a result of payments by WMI pursuant to
the transition services agreement relating to the Acquisition.
Nonrecurring Start-up Expenses. In 1997, the Company incurred certain
expenses to establish the Company as a stand-alone entity. These expenses were
comprised of costs related to establishing benefit plans, a treasury
department, strategic planning and cash management.
Operating Income. Operating income for the year ended December 31, 1997
was $9.7 million as compared to $25.4 million for the year ended December 31,
1996. The $15.7 million decrease was attributable primarily to a decrease in
revenues, increased depreciation and, to a lesser extent, to an increase in
direct costs as a percentage of revenues and in nonrecurring start-up expenses
and an increase in selling and administrative expenses.
YEAR ENDED DECEMBER 31, 1996 AS COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues. Revenues for the year ended December 31, 1996 were $169.2
million as compared to $193.8 million for the year ended December 31, 1995. The
$24.6 million decrease was primarily attributable to two factors. First, 1996
revenues decreased $8.6 million from 1995 due to many customers completing work
in 1995 to comply with clean fuels legislation in California which dictated
that refineries meet stringent environmental requirements by the end of 1995.
Plant modifications to comply with this legislation also caused turnaround
activity to be unusually high during 1995 as customers took advantage of the
opportunity to consolidate the two activities. Second, the Company lost four
contracts with a single
34
<PAGE>
major customer which had the impact of reducing the revenues in the year ended
December 31, 1996 by $10.6 million as compared to the year ended December 31,
1995.
Gross Profit. Gross profit for the year ended December 31, 1996 was $45.9
million as compared to $54.9 million for the year ended December 31, 1995. The
$9.0 million decline was due to a decrease in revenues of 12.9% and a $700,000
increase in depreciation and amortization expenses related to the Acquisition.
Partially offsetting the declines were lower claims expenses due to a better
safety record in 1996.
Selling and Administrative Expenses. Selling and administrative expenses
for the year ended December 31, 1996 were $20.6 million as compared to $25.8
million for the year ended December 31, 1995. The $5.2 million decrease was due
to a restructuring at WMI during the fourth quarter of 1995 which resulted in a
$4.0 million reduction in Company expenses due to the consolidation of the
Company's corporate and regional overhead expenses into the WMI infrastructure.
Also reducing selling and administrative expenses were lower benefit costs
obtained by moving from the Rust plans to the WMI plans, lower allocation
charges from WMI and lower facility expenses created by merging operations.
Offsetting these decreases were higher ($1.2 million) bonus expenses. The
Company received a payment of $725,000 from WMI for transition services, of
which $425,000 was recorded as a reduction of selling and administrative
expenses in 1996.
Operating Income. Operating income for the year ended December 31, 1996
was $25.4 million as compared to $29.1 million for the year ended December 31,
1995. The $3.7 million decrease in operating income is attributable primarily
to a decrease in revenues which was not fully offset by the decrease in direct
costs.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically utilized internal cash flow from operations
and borrowings under the Bank Facility to fund its operations, capital
expenditures, and working capital requirements. As of June 30, 1998, the
Company had working capital of $18.8 million and cash of $6.1 million.
Historically, the principal uses of cash have been capital expenditures
(primarily scaffolding) and working capital. Since the Acquisition, the Company
has also used cash to repay the Term Loans which payments amounted to $2.0
million in 1996 and $8.3 million in 1997. In February, 1998, $119.8 million of
the Term Loans were repaid with proceeds from the Old Note Offering and
$500,000 in payments were made in June, 1998. Additionally, the Company will
pay $6.3 million in interest relating to the Old Note Offering in August, 1998.
For the six months ended June 30, 1998, the Company provided cash of $3.9
million, and for the year ended December 31, 1995, the nine months ended
September 30, 1996, and the three months ended December 31, 1996, the year
ended December 31, 1997, and the six months ended June 30, 1997 and 1998 cash
provided by (used for) operating activities was $35.6 million, $28.5 million,
$5.0 million, $12.0 million, and $12.0 million, respectively.
The Company's capital expenditure requirements are comprised of
maintenance and expansion expenditures. The Company's maintenance capital
expenditure requirements are approximately $2.5 million to $3.5 million
annually and are generally used for scaffolding planks and other items used in
the business, such as trucks. Expansion capital expenditures are for new
scaffolding, are discretionary and vary annually based on the Company's level
of scaffolding rental activity and management's growth expectations. During the
six months ended June 30, 1998, expansion capital expenditures were $6.5
million, of which approximately $.8 million was spent on new frame and brace
scaffolding. Expansion capital expenditures in 1995, 1996 and 1997 were $5.8
million, $1.3 million and $6.7 million, respectively, and were principally used
to expand the Company's inventory of systems scaffolding for use in industrial
applications.
Pursuant to a credit agreement dated as of September 30, 1996, the Company
entered into the Bank Facility. The Bank Facility consisted of three term loan
facilities, under which the Company borrowed a total of $160.0 million
immediately upon closing of the Bank Facility, and the $30.0 million Revolving
Facility (as defined). All but $30.0 million of the loans outstanding under the
term facilities was repaid on February 20, 1998 with the proceeds of the Old
Note Offering. Borrowings under the Revolving Facility
35
<PAGE>
are governed by a borrowing base equal to 85% of eligible accounts receivable.
A $15.0 million sub-facility is available for the issuance of letters of
credit. As of June 30, 1998, the Company had $14.0 million in unused senior
secured borrowing capacity under the Bank Facility. The interest rate on each
facility under the Bank Facility is variable. During the six months ended June
30, 1998, the interest rate on loans outstanding under the term facility was an
annual dollar-weighted rate of 8.9%. Total payments for interest and principal
by the Company under the Bank Facility in 1996 were $3.0 million and $2.0
million, respectively, and in 1997 were $14.1 million and $8.3 million,
respectively. During the six months ended June 30, 1998 total payments for
interest were $3.8 million. During the six months ended June 30, 1998, $120.3
million of the Term Loans were repaid of which $119.8 million was from the
proceeds of the Old Note Offering.
The Bank Facility contains financial and operating covenants, including
among other things, that the Company maintain certain financial ratios and
satisfy certain financial tests, and imposes limitations on the Company's
ability to make capital expenditures, to incur indebtedness and to pay
dividends. As of December 31, 1997, the Company was not in compliance with
certain covenants in the Bank Facility. The Company obtained waivers of such
covenant violations from the lenders under the Bank Facility. The Company also
obtained an amendment (the "Bank Amendment") to the Bank Facility which became
effective upon the consummation of the Old Note Offering and, among other
things, reset the financial ratios and financial tests required to be met
thereunder to levels that are more consistent with the Company's capital
structure following the Old Note Offering and its current and expected
financial performance.
On February 25, 1998, the Company raised $125.6 million from the Old Note
Offering. Substantially all of the net proceeds of the sale of the Old Notes by
the Company were used to reduce outstanding indebtedness under the Bank
Facility. The Term B Facility (as defined), the Term C Facility (as defined)
and the Revolving Facility were repaid in full, and loans under the Term A
Facility (as defined) were paid down such that the aggregate principal amount
of loans outstanding under the Term A Facility after such prepayment was $30.0
million. In addition, pursuant to the Bank Amendment, the Bank Facility was
reduced to $60.0 million. Certain provisions contained in the Credit Agreement
(as defined) were amended to eliminate the Cleandown Requirement (as defined in
the Credit Agreement). Also, certain of the covenants contained in the Credit
Agreement were amended to permit the Company to incur certain additional
indebtedness, engage in a broader range of business, make certain additional
investments and capital expenditures and reinvest asset disposition proceeds
within 180 days, rather than prepay the Term Facilities (as defined) with such
proceeds.
NET OPERATING LOSSES
As of December 31, 1997, the Company had estimated net operating loss
carryforwards, resulting primarily from depreciation timing differences, of
approximately $65.9 million for U.S. income tax purposes. As a result of such
loss carryforwards, cash paid for income taxes in 1997 was minimal. The Company
does not expect to expend cash for taxes in the next several years.
EFFECT OF INFLATION; SEASONALITY
Inflation has not generally been a material factor affecting the Company's
business. In recent years, the cost of scaffolding equipment has remained
relatively stable due to competitive pressures within the industry. The
Company's general operating expenses, such as salaries, employee benefits and
facilities costs are subject to normal inflationary pressures.
The operations of the Company are generally subject to seasonal
fluctuations coinciding with the spring and fall turnaround schedules of its
major customers.
ACCOUNTING STANDARD NOT YET IMPLEMENTED
In June 1998, the Financial Accounting Standards Board (FASB) adopted SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at
36
<PAGE>
its fair value and that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative's gains and losses
to offset related results on the hedged item in the income statement, and
requires that a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting. SFAS No. 133 is
effective for fiscal years beginning after June 15, 1999. The Company has not
yet quantified the impacts of adopting SFAS No. 133 on its consolidated
financial statements nor has it determined the timing or method of its adoption
of SFAS No. 133. However, SFAS No. 133 could increase volatility in earnings
and other comprehensive income.
37
<PAGE>
BUSINESS
OVERVIEW
The Company is the largest North American provider of industrial
scaffolding rental, erection, dismantlement and design services. The Company's
services facilitate access to tall structures for on-going maintenance,
turnarounds and capital projects, principally in the refining, petrochemical,
chemical, utility and pulp and paper industries. The Company estimates that for
1997 it had a 25% market share of the $575 million North American industrial
scaffolding services market and had industrial scaffolding revenues in excess
of three times that of its largest competitor. The Company's turnkey services
include equipment rental (accounting for approximately 24%, 27% and 25% of
total revenue for the years 1995, 1996 and 1997, respectively), labor for the
erection and dismantlement of the scaffolding (accounting for approximately
72%, 70% and 70% of total revenue for the years 1995, 1996 and 1997,
respectively) and scaffolding design services. The Company delivers its
services through an extensive field service organization of approximately 2,900
employees in 29 field offices located throughout the United States and two in
Canada. The Company also provides scaffolding services to the commercial market
(primarily nonresidential construction) and sells a small amount of
scaffolding. For the twelve months ended June 30, 1998, the Company generated
revenues, Adjusted EBITDA (as defined) and a net loss of $179.2 million, $33.0
million and $7.7 million, respectively. See "Selected Consolidated Financial
Data."
Approximately 84% of the Company's 1997 revenues were attributable to
on-going maintenance and turnarounds of industrial facilities. The Company
typically provides on-going maintenance services under long-term contracts; the
duration of these contracts ranges between one and five years. Turnarounds
occur every one to four years depending on the industry and the type of
turnaround being performed. Although some turnarounds may be postponed for a
period of time, they are a necessary component of maintaining industrial
facilities and are required to ensure the safe and efficient operation of such
facilities. The Company believes that the necessity for on-going maintenance
and turnarounds provides it with a stable, recurring revenue base.
The Company believes its position as the largest supplier of industrial
scaffolding provides it with a number of competitive advantages including (i)
the ability to offer national coverage to large customers, (ii) the ability to
provide required personnel and scaffolding to process major turnarounds and
unanticipated plant outages, (iii) higher asset utilization through the
shifting of assets across regions and across its large customer base, (iv)
purchasing leverage with scaffolding manufacturers, and (v) comprehensive
safety training programs which have resulted in the lowest accident incident
rate in the industry (total OSHA recordable injuries per 200,000 man hours of
2.3 in 1997 compared to the industry average of 12.5 in 1997) and have enabled
the Company to reduce insurance costs and accident-related expenses. The
Company's size also enables it to maintain its own trucking fleet and to
provide a design department that specializes in the custom design of industrial
scaffolding, which the Company uses to minimize the amount of scaffolding used
and to maximize labor efficiency thereby providing the Company with a
competitive advantage.
BUSINESS STRATEGY
The Company has developed a business strategy which it believes will
enable it to profitably grow future revenue and cash flow. The key components
of this strategy are:
Leverage existing strengths. The Company's existing strengths include
longstanding customer relationships, extensive equipment resources, significant
labor capacity and an industry-leading safety record. These strengths have
enabled the Company to gain its current substantial market share and to expand
its business. The Company will utilize these strengths to retain its
maintenance contracts and to aggressively pursue turnarounds and capital
projects with its existing customers and to expand scaffolding services to such
customers' other facilities.
Target underpenetrated industrial segments. Due to the Company's leading
market position and extensive service infrastructure, the Company has the
capacity to service several industries in which, due to limited historical
focus, the Company has had a relatively low market share. These include the
38
<PAGE>
chemical, utilities and pulp and paper industries. To increase its penetration
in these markets, the Company has expanded its sales force, initiated incentive
and training programs and created a sales management function to target
opportunities and monitor the effectiveness of the sales force.
Reduce operating costs. In November 1997, the Company implemented a cost
reduction program which is expected to reduce its annual operating overhead and
selling, general and administrative expenses by approximately $5.3 million. The
major initiatives include (i) eliminating 63 administrative and support
positions and consolidating certain administrative functions, (ii)
restructuring and renegotiating benefits programs, (iii) renegotiating the
Company's insurance premiums to reflect continued improvements in its safety
record, (iv) negotiating company-wide procurement contracts in order to take
advantage of volume pricing, and (v) implementing a new management information
system to improve inventory utilization and reduce equipment transportation
expenses.
Pursue complementary acquisitions. The Company intends to pursue
complementary acquisitions where significant consolidation savings and
economies of scale can be achieved. The scaffolding industry is characterized
by single-office or regional companies, many of which are undercapitalized and
have limited scaffolding inventories. The Company intends to focus its
acquisition strategy on companies which have long-term contracts or an
expertise in a certain industry or scaffolding application.
Expand its commercial scaffolding operations. The Company intends to
utilize its existing infrastructure to expand its position in the commercial
market. To increase its penetration of the commercial market, the Company has
targeted large-scale new construction and renovation projects, which require
relatively complex scaffolding. Further, the Company has opened new offices in
four cities and expanded its sales force and its inventory of frame and brace
scaffolding. The Company believes its industry-leading safety record provides
it with a competitive advantage in pursuing these commercial scaffolding market
opportunities in the future. In November 1996, OSHA enacted stricter
regulations regarding training and safety in the commercial scaffolding
industry. As a result, the Company expects safety to be a key consideration for
commercial customers in the future.
THE INDUSTRIAL SCAFFOLDING MARKET
Overview
The industrial scaffolding market represents approximately $575 million of
the $1.3 billion scaffolding market. Industrial customers generally require
systems scaffolding, which is highly versatile, can be quickly erected and
dismantled, is capable of conforming to irregularly shaped structures and
requires a higher level of skill to erect and dismantle. Principal end-use
industries and their estimated percent of the total industrial market for 1996
were: (i) refineries--31%; (ii) petrochemical and chemical plants--30%; (iii)
utilities--17%; (iv) pulp and paper mills--11%; and (v) other industrial users
including aerospace, ship building and other miscellaneous industrial
applications--11%. Scaffolding is used by industrial customers for on-going
maintenance, turnarounds and capital projects. Since turnarounds may require
the complete shutdown of a facility, speed and reliability are key customer
considerations. Safety is another important consideration for industrial
customers. The industrial scaffolding market is fragmented and is serviced
predominantly by scaffolding specialists such as the Company.
End-Use Industries
The primary end-use industries for both the Company and the industrial
scaffolding market in general are refineries, petrochemical and chemical
plants, utilities, pulp and paper mills and other industries such as the
aerospace, ship building and certain miscellaneous industries.
Refining Industry. The refining industry, the Company's and the industrial
scaffolding market's largest end-use industry, accounted for approximately 31%
of 1996 the industrial scaffolding market and represented approximately 42% of
the Company's revenues for 1997. A maintenance contract at a refinery generates
between $250,000 and $2.0 million of scaffolding revenues annually, depending
on the size of the refinery and the scope of the contract (i.e., rentals and
labor or rental only). A major turnaround typically generates between $2.0 and
$4.0 million of revenues to the scaffolding services provider, while a minor
turnaround typically generates in excess of $1.0 million. Turnarounds are
essential at refineries
39
<PAGE>
as the failure to overhaul equipment may ultimately jeopardize the safe and
efficient operation of a plant. Capital projects include greenfield
construction, plant expansions, restoration of mothballed refineries, upgrading
the heavy crude capability of refineries and compliance with new environmental
regulations. Capital projects have generated as much as $24.1 million in
scaffolding revenues for the Company on a single project.
It is not likely that any refineries will be closed permanently in the
near future, due to high exit barriers caused by strict environmental laws
which make it prohibitively expensive to abandon a refinery. In addition,
refineries are generally run at full capacity due to the high fixed costs, and
therefore maintenance operations are not significantly affected by demand.
Petrochemical and Chemical. The petrochemical and chemical industries
accounted for approximately 30% of domestic industrial scaffolding revenues and
represented approximately 14% of the Company's total revenues for 1997. The
petrochemical and chemical industries also use scaffolding services primarily
for maintenance and turnarounds, as well as capital projects. E&C firms often
provide on-going general maintenance at facilities which they originally
constructed. As part of such maintenance services, E&C firms either erect their
own scaffolding or, to a lesser extent, subcontract such services out to
scaffolding specialists such as the Company. The turnaround schedules of
petrochemical and chemical plants generally are similar to refineries, but
depending on the type of chemical being produced at a plant, turnarounds may be
more frequent. Turnarounds at petrochemical and chemical plants typically
generate revenues between $1.0 and $2.0 million. The petrochemical industry is
currently undergoing expansion and current supply is insufficient to meet high
demand. Based on requests for proposal from a number of petrochemical and
chemical companies, the Company expects a number of new facilities to begin
construction to address this demand in 1998.
Utilities. The utility industry accounted for approximately 17% of
industrial scaffolding revenues and represented approximately 14% of the
Company's revenues for 1997. Since plant maintenance has historically been
incorporated into a utility's rate base, utilities have maintained regular
turnaround schedules. A turnaround at a utility typically generates $75,000 to
$175,000 in scaffolding revenues; however, turnarounds may generate
substantially more revenues depending on the extent of a project. Scaffolding
services for on-going maintenance are often completed in-house.
Pulp and Paper. The pulp and paper industry accounted for approximately
11% of industrial scaffolding revenues and represented approximately 4% of the
Company's revenues for 1997. Scaffolding services for on-going maintenance are
generally provided in-house. A turnaround at a major facility can generate
scaffolding revenues in excess of $1.0 million while a small facility will
typically generate revenues of $50,000 to $100,000. Strong demand for pulp has
generally forced mills to stretch turnaround schedules from 12 months to 18
months.
Industrial Scaffolding Job Types
Industrial uses for scaffolding services include on-going maintenance,
turnarounds and capital projects.
On-going Maintenance. On-going maintenance work is typically performed
under long-term contracts which range between one and five years. On-going
maintenance represented approximately 50% of the total industrial scaffolding
market in 1996. On-going maintenance contracts often cover planned outages,
whereby typically one or a few devices in the plant are taken down for a short
period of time. Performance and customer relationships at all levels are
critical to maintaining these contracts. Having a maintenance contract in place
is an important competitive advantage when seeking future turnaround or
emergency scaffolding jobs.
Turnarounds. Turnarounds are major equipment overhauls which involve
shutting down all or a significant portion of a plant. Turnarounds represented
approximately 35% of the total industrial scaffolding market in 1996.
Turnarounds occur on a regular basis, typically every one to two years for
minor turnarounds and every four years for major turnarounds. However,
turnarounds are often delayed during periods of high operating profit for end
users, but they eventually must be completed. Though
40
<PAGE>
contracts for planned turnarounds are typically bid out, the scaffold
specialist with the maintenance contract is frequently awarded the turnaround
contract. Contracts for emergency outages due to an explosion or natural
disaster are generally handled by the contractor who can mobilize a large
amount of equipment and labor most effectively.
Capital Projects. Capital projects represented approximately 15% of the
industrial scaffolding market in 1996; however, this type of revenue is
cyclical. For instance, a single project has generated $24.1 million in
revenues and certain clean fuel acts resulted in $8.6 million of revenues. The
amount of revenues from capital projects fluctuates from year to year,
depending on the fundamentals of the end users, but can contribute
significantly to the Company's revenues.
A majority of the capital projects in the 1990s have been related to
reactivation of mothballed refineries and compliance with the clean air acts in
California. Plant expansions require two to three years to construct and
generally produce several million dollars of scaffolding revenues. The Company
believes that at least ten companies, including several of its customers, are
currently planning major plant expansions.
THE COMMERCIAL SCAFFOLDING MARKET
The $725 million commercial scaffolding market is characterized by few
national and many regional competitors. Commercial scaffolding is used
primarily in nonresidential construction and renovation. Commercial
applications are generally characterized by regularly shaped structures with
few contoured or angled surfaces. Due to the simple shapes required, commercial
jobs generally utilize frame and brace scaffolding, a less versatile type of
equipment which is not suited to industrial applications. Commercial
scaffolding requires a less skilled work force and has historically been less
focused on safety issues. These factors combine to make the commercial market
highly fragmented with low barriers to entry. In November 1996, OSHA enacted
stricter regulations regarding training and safety in the commercial
scaffolding industry. As a result, the Company expects safety to be a key
consideration for commercial customers in the future.
EQUIPMENT
The Company maintains a substantial inventory of scaffolding at its 31
field offices as well as at customer sites throughout the United States and in
Canada. In order to maximize profitability, the Company monitors asset
utilization daily and can quickly move scaffolding between sites. The Company's
size and national coverage gives it a significant advantage in this respect.
The type of scaffolding used by the Company for a project depends on a number
of factors, including the preference of local tradespeople based on their
familiarity with a particular type of scaffolding and the availability in the
customer's inventory of a particular kind of scaffolding which the client has
requested that the Company utilize. The Company utilizes three types of
scaffolding: systems, tube and clamp and frame and brace. The Company also
offers Sky Climber motorized scaffolding.
Systems scaffolding consists of interlocking horizontal, vertical and
platform pieces which can be assembled and dismantled quickly and with less
labor than the other types of scaffolding. Systems scaffolding is very
versatile because its pieces can be connected in a variety of ways to conform
to the contours of the area in which the scaffolding is required. For this
reason, systems scaffolding is particularly well-suited for refineries which
contain pipes and vessels around which the scaffolding must be erected.
Tube and clamp scaffolding offers similar versatility to systems
scaffolding and thus can be used in similar applications. However, tube and
clamp scaffolding must be bolted together with clamps and is therefore more
difficult and time consuming to assemble. Tube and clamp scaffolding was the
predecessor to and is generally being superceded by systems scaffolding.
Frame and brace scaffolding generally uses pre-constructed pieces
consisting of vertical supports and platforms and is predominantly used for
commercial projects. Frame and brace scaffolding may be assembled and
dismantled quickly but does not offer the versatility of systems or tube and
clamp scaffolding.
41
<PAGE>
Motorized scaffolding consists of motors, platforms and rigging equipment
and the rigging is performed by either the Company or the customer. The Company
sells, rents and provides maintenance services for motorized scaffolding under
the "Sky Climber" brand name. The majority of Sky Climber customers are
commercial users such as painters, window washers, waterproofers, building
restorers and construction companies.
COMPETITION
The Company is the largest North American provider of industrial
scaffolding services with an approximately 25% market share and 1997 industrial
scaffolding revenues that were larger than the industrial scaffolding revenues
for its three largest competitors combined. In 1996, the next five largest
scaffolding specialists after the Company, Aluma Systems USA, Inc., Safway
Steel Products, Patent Construction Systems, Interstate Scaffolding, Inc. and
BET, accounted for approximately 27% of the total market, E&C firms account for
approximately 23% and numerous small, thinly capitalized, local competitors
account for approximately 24%. E&C firms often subcontract scaffolding services
to scaffolding specialists including the Company.
SAFETY
Safety is an important consideration in the selection and continued
employment of a scaffolding services provider. The Company maintains workforce
expertise through extensive internal and external training and safety programs.
The Company believes that its highly skilled workforce translates into lower
accident rates that benefit both the Company and its customers through lower
insurance and accident-related expenses. The Company has the best safety record
of any scaffolding company in the United States. The Company's rate of total
OSHA recordable injuries per 200,000 man hours was 2.3 for the year ended
December 31, 1997, and 2.0 for the six months ended June 30, 1998 as compared
to an industry average (according to National Safety Council 1997 accident
statistics) for the year ended December 31, 1997 of 12.5. Compensation plans
for the Company's project managers have been designed to include incentives to
reduce the numbers of accidents, lost work days and lost time rates.
SALES AND MARKETING
The Company's selling organization consists of 38 sales team members.
These individuals are located throughout the Company's network of service
locations. Each sales team member reports to the respective Division Manager,
who is responsible for managing day-to-day sales activities.
The Company's sales force is charged with identifying and pursuing target
accounts, estimating and bidding on work, closing the sale and coordinating the
initial work relationship with the Company's broader operating team. During
1997, the Company established a National Sales Manager position, which is
charged with the development and implementation of an overall sales reporting
program.
As identified through its strategic planning process, the Company has
developed a comprehensive database of all potential scaffolding opportunities
and a sales plan for each of its Divisions. Using this customer database as a
foundation, the most promising target accounts are then assigned to individual
sales team members. The sales plans consist of two interactive elements. The
broader element is an assessment of the market segments that exist within a
given territory and the identification of those segments that offer the best
opportunity for growth in the territory. The more focused element is the
identification of the individual customer accounts that make up the local
population of each of the target market segments. Annual incremental revenue
goals are established for each sales team member, and actual sales results will
be tracked using the several databases that are being installed.
CUSTOMERS
Brand's primary customers include large oil refineries and petrochemical
plants. The Company's top ten customers account for over one third of 1997
revenues. The Company's ten largest customers, when measured by 1997 revenue to
the Company, were Exxon Corporation, Arco, Mobil Corporation, Texaco Inc.,
Phillips, Citgo Petroleum Corporation, Lyondell Petrochemical Company, DuPont,
Houston Lighting & Power Company and Shell Oil. Exxon, the Company's largest
customer, accounted for
42
<PAGE>
approximately 17% of the Company's 1997 revenues. The Company has contractual
relationships with all of its primary customers. Each of these contracts
contains terms and conditions specific to each customer and are cancellable by
either party by 30 day written notification. Because the contracts are entered
into on a project-by-project basis and typically have a defined scope of work,
they do not have minimum purchase requirements. The percentage of total Company
revenues accounted for by each customer varies greatly from year to year.
MANAGEMENT INFORMATION SYSTEMS
In 1997, the Company began an analysis of its management information
systems capabilities. It has committed to developing a data communications
backbone and data server that will be used as the foundation for an integrated
operating system. During the first quarter of 1998, two new programs began to
operate: a rental billing module, which gives the Company a centralized ability
to analyze price structures, and a revenue and inventory planning module, which
allows the Company to track the company-wide utilization of inventory and to
plan better for future inventory needs. The Company plans to upgrade its
financial software in the second half of 1998 to increase both data base
informational capabilities and to prepare the Company to be year 2000 compliant
by June, 1999.
PROPERTY
The Company operates facilities in 32 locations. The Company owns two
locations in Canada, two in Texas, one in Alabama and one in Louisiana. The
Company leases its remaining 25 facilities as well as one site used for its
corporate headquarters. The Company's facilities typically include a small
office, warehouse and yard and range in size from 2,000 to 40,000 square feet
under roof with yards from half an acre to more than four acres. The Company's
headquarters are located in a 9,500 square foot facility in Chesterfield,
Missouri. The Company's facilities are concentrated near its customers to
minimize transportation costs, to shorten lead times and to strengthen
oversight and project management abilities.
EMPLOYEES
As of June 30, 1998, the Company had approximately 2,500 employees of
which approximately 432 were union employees. The Company maintains both union
and non-union workforces to meet the demands of its customers. The Company
primarily contracts with the local offices of the Carpenters Union and the
Laborers Union. The Company believes it has good relationships with both unions
and with its employees generally.
INSURANCE
The Company maintains standard insurance for commercial general liability,
workers compensation and automobile liability, as well as, specialty insurance
coverage for directors' and officers' liability, wrongful employment practices,
commercial crime, architects' and engineers' liability and an umbrella
liability through several insurers.
LITIGATION
The Company is not party to litigation which, in the opinion of the
Company's management, could have a material adverse effect on the Company's
financial position, results of operations or liquidity.
43
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to
directors and executive officers of the Company. Each director and officer
holds office until a successor is elected and qualified or until his earlier
death, resignation or removal.
<TABLE>
<CAPTION>
NAME AGE POSITION AND OFFICES
- --------------------- ----- ---------------------------------------------------------------
<S> <C> <C>
David L. Jaffe 39 Chairman of the Board
John M. Monter 50 Chief Executive Officer, President and Director
Ian R. Alexander 51 Chief Financial Officer, Vice President, Finance and Secretary
David R. Cichy 47 Vice President, Operations -- Northern Region
Raymond L. Edwards 44 Vice President, Administration
Guy S. Huelat 36 Vice President, Resource Management
Otto K. Knoll 44 Vice President, Operations -- Western Region
James "Marty" McGee 42 Vice President, Operations -- Southeast Region
Scott M. Robinson 50 Vice President, Operations -- Central Region
Robert Bonczek 53 Director
James S. Carlisle 56 Director
Vincent Langone 55 Director
D.P. "Pat" Payne 55 Director
Karl R. Wyss 57 Director
</TABLE>
DAVID L. JAFFE, CHAIRMAN OF THE BOARD: Mr. Jaffe has been a Managing
Director of DLJ Merchant Banking, Inc. ("DLJMB, Inc.") since 1995 and has been
Chairman of the Board of the Company since the Acquisition. Prior to serving in
his current position with DLJMB, Inc., Mr. Jaffe was a Senior Vice President of
DLJMB, Inc. He serves on the boards of EZ Buy & EZ Sell Recycler Corporation,
OSF Holdings, Inc., Terra Nova Group, OHA Financial, Inc., Pharmaceutical Fine
Chemicals S.A. and Duane Reade Inc. Mr. Jaffe also serves as a director of the
Creative Arts Workshop for Kids, Inc. of New York.
JOHN M. MONTER, CHIEF EXECUTIVE OFFICER, PRESIDENT AND DIRECTOR : Mr.
Monter has served as a director, Chief Executive Officer and President since
the Acquisition. Prior to joining the Company at the time of the Acquisition,
Mr. Monter held a variety of corporate and operating assignments at Cooper
Industries, Inc. ("Cooper") where he began his career in 1977. Mr. Monter was
President of the Bussmann Division of Cooper, which manufactures electrical
overcurrent fuses, from 1992 to 1996.
IAN R. ALEXANDER, CHIEF FINANCIAL OFFICER, VICE PRESIDENT, FINANCE AND
SECRETARY : Prior to joining the Company as Chief Financial Officer, Vice
President, Finance and Secretary in April 1998, Mr. Alexander had a variety of
assignments with BP Oil Company from 1973 until 1992 in Europe, Africa and the
U.S.A. He then became Chief Financial Officer and Executive Vice President of
Purina Mills, Inc. until it was sold to Koch Industries in March, 1998.
DAVID R. CICHY, VICE PRESIDENT, OPERATIONS -- NORTHERN REGION: Mr. Cichy
was appointed Vice President, Operations--Northern Region in 1996. Beginning in
1978, Mr. Cichy served in various construction management functions with Rust
Industrial including Vice President, Resource Management from 1993 to 1996.
RAYMOND L. EDWARDS, VICE PRESIDENT, ADMINISTRATION: Mr. Edwards joined the
Company in his current role in November 1996. Prior to joining the Company, he
held a variety of management positions, most recently, with Cooper from 1984 to
1996, including Vice President, Human Resources from 1990 to 1996.
GUY S. HUELAT, VICE PRESIDENT, RESOURCE MANAGEMENT: Mr. Huelat joined the
Company in January 1997 in his current position. Prior to joining the Company,
Mr. Huelat was a Plant Manager from 1989 to 1994 and a Materials Manager from
1994 to 1996 at Cooper. From 1996 to 1997, he was Director of Logistics for
Planning and Customer Service for Kimble Glass, Inc.
44
<PAGE>
OTTO K. KNOLL, VICE PRESIDENT, OPERATIONS -- WESTERN REGION: Mr. Knoll
has held his current position since the Acquisition. From 1994 until the
Acquisition, Mr. Knoll served as Western Region Vice President of Rust
Industrial. From 1991 to 1994, Mr. Knoll was a Vice President,
Operations--Western Region for Serv-Tech, Inc.
JAMES "MARTY" MCGEE, VICE PRESIDENT, OPERATIONS -- SOUTHEAST REGION: Mr.
McGee has held his current position since the Acquisition. From 1993 until the
Acquisition, Mr. McGee held various Region Management positions with Rust
Industrial and WMI including President, Southern Regional Scaffolding in 1993,
Southern Region Manager in 1994 and Vice President, Southern Operations from
1995 to 1996. Mr. McGee has been with the Company in various management
positions since 1981.
SCOTT M. ROBINSON, VICE PRESIDENT, OPERATIONS -- CENTRAL REGION: Mr.
Robinson joined the Company as Vice President, Marketing in March 1997 and
assumed his present position in November 1997. Prior to joining the Company,
Mr. Robinson held various positions at Cooper, including Vice President, Sales
from 1993 to 1997 and Vice President, Marketing from 1987 to 1993.
ROBERT BONCZEK, DIRECTOR : Mr. Bonczek has been President and a director
of Aspentree Capital, a private money management firm since 1991, and has been
a director of the Company since the Acquisition. He is a legal consultant to
Wilmer, Cutler and Pickering. Mr. Bonczek is a director of DCV, Inc.
JAMES S. CARLISLE, DIRECTOR : Mr. Carlisle has been Chief Executive of
Carlisle Enterprises, LLC, a firm engaged in the acquisition and management of
leveraged buyout companies since 1989, and has been a director of the Company
since the Acquisition.
VINCENT P. LANGONE, DIRECTOR : Mr. Langone has been a director of the
Company since the Acquisition. Mr. Langone has been Chairman, President and
Chief Executive Officer of Formica Corporation since May 1998. From 1995 to
1997, Mr. Langone served as President and Chief Operating Officer of Interbuild
International, Inc., which participates in and manages leveraged buyouts and
provides operational management and general consulting services. Mr. Langone is
a director of United Retail Group and Summit Bank. From 1989 to 1995, Mr.
Langone served as Chairman, President and Chief Executive Officer of Formica
Corporation.
D.P. "PAT" PAYNE, DIRECTOR : Mr. Payne has been Senior Vice President for
WMI since 1995, and has been a director of the Company since February 1998.
Prior to serving in his current position with WMI, Mr. Payne served as
President and Chief Executive Officer of Chemical Waste Management, Inc. from
1991 to 1995.
KARL R. WYSS, DIRECTOR : Mr. Wyss is a Managing Director of DLJMB, Inc.
and has been a director of the Company since the Acquisition. Prior to joining
DLJMB, Inc. in 1993, he was Chairman and Chief Executive Officer of Lear
Siegler Inc., where he served as President and Chief Operating Officer from
1989 to 1993. He serves on the boards of CommVault Systems, Inc., EZ Buy & EZ
Sell Recycler Corp., Localiza Rent A Car S.A., OSF, Inc., Mallory Limitada,
Pharmaceutical Fine Chemicals, S.A. and Von Hoffman Press, Inc.
COMPENSATION OF DIRECTORS
Directors of the Company do not receive cash compensation for serving as
directors; however, in March 1997, pursuant to Holdings' Stock Option Plan for
Outside Directors, directors who were not employees of Holdings, the Company or
any of their institutional shareholders, were each awarded options (the
"Director Options") to purchase 40,000 shares of the common stock of Holdings,
which options will vest in March 1999.
COMPENSATION COMMITTEE AND INSIDER INTERLOCKS
Compensation of the Company's management is determined by a committee
comprised of Messrs. Jaffe, Monter and Wyss. Mr. Monter is the Chief Executive
Officer and President of the Company. In March 1997, Mr. Monter purchased
386,406 newly-issued shares of the common stock of Holdings and 17,500
newly-issued shares of 14.5% Preferred Stock for an aggregate purchase price of
$823,905. In
45
<PAGE>
connection with such purchase, Holdings extended Mr. Monter a recourse loan of
$167,000, which matures in March 2002 (subject to prepayment in the event any
shares are disposed of prior to such time) and bears interest at a rate of
7.03% per annum. The loan is secured by a pledge of the shares purchased.
Messrs. Jaffe and Wyss are Managing Directors of DLJMB, Inc., the general
partner of DLJMB. Pursuant to a Shareholders Agreement dated as of September
30, 1996 between DLJMB, Carlisle, Rust, the Company, Holdings and certain other
individuals (the "Shareholders Agreement"), Holdings' board consists of seven
members, five of whom are nominated by DLJMB. In addition, the Shareholders
Agreement provides for certain rights of first refusal in favor of DLJMB,
certain rights and obligations on the part of shareholders to participate in
transfers of shares by DLJMB and preemptive rights for DLJMB under certain
circumstances. The Shareholders Agreement further provides that DLJMB has the
right, subject to certain conditions, to request that Holdings register
securities that they own under the Securities Act, and to participate in other
registrations of Holdings' and the Company's securities, in each case at
Holdings' expense.
In addition, the Shareholders Agreement provides for certain advisory
relationships and the payment of management advisory fees. For five years after
the date of the agreement, the Initial Purchaser, an affiliate of DLJMB, Inc.,
is engaged as the exclusive financial and investment banking advisor for
Holdings, on customary terms. Pursuant to the Shareholders Agreement, DLJMB,
Inc. receives an annual advisory fee of $250,000 from Holdings. The Initial
Purchaser received customary fees in connection with the underwriting, purchase
and placement of the Notes.
DLJ Capital, the Syndication Agent and a lender under the Bank Facility,
is an affiliate of DLJMB. For a description of the Bank Facility, see
"Description of Bank Facility." The proceeds from the sale of the Old Notes was
used to repay indebtedness under the Bank Facility, $1.6 million of which was
owed to DLJ Capital on the date of the Old Note Offering. In connection with an
amendment to the existing Bank Facility, the Company will pay customary fees to
DLJ Capital, as the Syndication Agent and as a Lender under the Bank Facility.
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by the Chief
Executive Officer and the six other most highly paid executive officers for
services rendered in 1997.
46
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------
ANNUAL COMPENSATION AWARDS
-------------------------------------- ------------
SECURITIES
UNDERLYING ALL
OTHER OPTIONS OTHER
SALARY BONUS COMPENSATION /SARS COMPENSATION
NAME AND PRINCIPAL POSITION ($) ($) ($) (#) ($)
- -------------------------------- --------- --------- -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
John M. Monter 350,000 -- 8,400 437,500 828(1)
Chief Executive Officer
Herman Thibodeaux (2) 123,386 73,950 40,000 94,613(3)
James "Marty" McGee 124,845 121,200 -- 40,000 401(1)
Vice President,
Operations-Southeast Region
Ronald W. Moore (4) 121,145 109,077 -- 40,000 823(1)
Otto K. Knoll 139,870 73,942 1,938 40,000 1,600(1)
Vice President,
Operations-Western Region
Gerald B. Curran (5) 150,000 49,131 -- 40,000 1,442(1)
Raymond L. Edwards 135,000 30,000 -- 40,000 156(1)
Vice President, Administration
</TABLE>
- ----------
(1) Represents the Company's matching 401(k) contributions.
(2) Mr. Thibodeaux retired from his position as Vice President, Marketing and
Sales on October 1, 1997.
(3) Payment pursuant to an employment agreement with WMI upon transition due
to disability status.
(4) Mr. Moore was reassigned from his position as Vice President, Operations
-- Central Region on December 1, 1997 to Division Manager of the
Company's Houston Division.
(5) Mr. Curran resigned from his position as Chief Financial Officer, Vice
President, Finance and Secretary on May 1, 1998. Mr. Curran's severance
agreement includes additional 1998 bonus payments of $32,946, one year of
continued base salary of $150,000 and one year's continued coverage under
the Company's medical and dental plan.
Stock Option Grants in Last Fiscal Year.
The following table sets forth certain information concerning grants of
stock options made to the persons named in the Summary Compensation Table
during the year ended December 31, 1997. Such grants are exercisable for shares
of the common stock of Holdings. No stock appreciation rights were granted.
47
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (2)
---------------------------------------------------------------------- ------------------
% OF TOTAL
OPTIONS
NUMBER OF SECURITIES GRANTED TO EXERCISE OR
UNDERLYING OPTIONS EMPLOYEES IN BASE PRICE
NAME GRANTED (#) (1) FISCAL YEAR ($/SH) EXPIRATION DATE 5% ($) 10% ($)
- --------------------- ---------------------- -------------- ------------ ----------------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
John M. Monter 437,500 45.7 1.00 12/31/06 275,141 697,262
Herman Thibodeaux 40,000 4.2 1.00 12/31/06 25,156 63,750
James "Marty" McGee 40,000 4.2 1.00 12/31/06 25,156 63,750
Ronald W. Moore 40,000 4.2 1.00 12/31/06 25,156 63,750
Otto K. Knoll 40,000 4.2 1.00 12/31/06 25,156 63,750
Gerald B. Curran 40,000 4.2 1.00 12/31/06 25,156 63,750
Raymond L. Edwards 40,000 4.2 1.00 12/31/06 25,156 63,750
</TABLE>
- ----------
(1) Options vest in five equal annual installments beginning January 1, 1998
provided certain performance criteria are met. Unvested options are
subject to forfeiture, and any shares acquired upon exercise are subject
to repurchase rights of the Company, upon termination of employment. Upon
a change of control all unvested options will vest.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These
gains are based on assumed rates of stock price appreciation for the
underlying stock of 5% and 10% compounded annually from the date that the
respective options were granted through their expiration date. This table
does not take into account any appreciation in the price of the
underlying stock to date. Actual gains, if any, on stock option exercises
will depend on the future performance of the underlying stock and the
date at which the options are exercised.
48
<PAGE>
The following table summarizes option exercises during the last fiscal
year and the amount and value of options for persons named in the Summary
Compensation Table.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, DECEMBER 31,
1997 (#) 1997 ($) (1)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- --------------------- ----------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
John M. Monter -- -- 0/437,500 0/0
Herman Thibodeaux -- -- 0/ 40,000 0/0
James "Marty" McGee -- -- 0/ 40,000 0/0
Ronald W. Moore -- -- 0/ 40,000 0/0
Otto K. Knoll -- -- 0/ 40,000 0/0
Gerald B. Curran -- -- 0/ 40,000 0/0
Raymond L. Edwards -- -- 0/ 40,000 0/0
</TABLE>
EMPLOYMENT AGREEMENT
Mr. Monter entered into an employment agreement with the Company on
October 1, 1996 pursuant to which he serves as President and Chief Executive
Officer. The employment agreement terminates on March 31, 1999 and provides for
an annual salary of not less than $350,000. Mr. Monter is also eligible for a
bonus of up to 100% of his base salary and an additional bonus of up to
$50,000. The Company undertakes to pay up to $1,500 of premiums annually under
Mr. Monter's life insurance policy. In the event the Company terminates Mr.
Monter's employment without cause or he becomes disabled, he is entitled to his
(i) base salary until the later to occur of the one year anniversary or March
31, 1999 (the "Severance Period"), (ii) continued coverage under the Company's
welfare benefits for up to the end of the Severance Period, and (iii) in the
case of termination without cause, a bonus equal to $12,500 multiplied by the
number of months remaining in the Severance Period. Any unvested stock options
held by Mr. Monter shall vest upon a change in control of the Company. As a
part of the employment agreement, Mr. Monter has entered into covenants
prohibiting him from competing with the Company, working for any of the
Company's competitors or using proprietary information for a twelve month
period following his departure from the Company.
49
<PAGE>
PRINCIPAL STOCKHOLDERS
All of the issued and outstanding common stock of the Company is held by
Holdings (and pledged to secure the Bank Facility). The following table sets
forth certain information with respect to the beneficial ownership of the
common stock of Holdings as of June 30, 1998 by (i) each person or group known
to the Company who beneficially owns more than five percent of the common stock
of Holdings and (ii) all directors and executive officers of the Company as a
group:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
SHARES OF OF
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK CLASS
- ----------------------------------------------------------------------- ------------------ -----------
<S> <C> <C>
DLJ Merchant Banking Partners, L.P. and related investors (1) ......... 8,762,500 65.5%
Rust Industrial Services, Inc.(2)
3003 Butterfield Road
Oakbrook, IL 60521 ................................................... 2,487,500(4) 18.6%
Carlisle-Brand Investors, L.P.(3)
7777 Fay Avenue
La Jolla, California 92037 ........................................... 1,250,000 9.3%
David L. Jaffe(5)
DLJ Merchant Banking Partners, Inc.
277 Park Avenue
New York, New York 10172 ............................................. -- --
Karl R. Wyss(5)
DLJ Merchant Banking Partners, Inc.
277 Park Avenue
New York, New York 10172 ............................................. -- --
James S. Carlisle(6)
Carlisle Enterprises
7777 Fay Avenue
La Jolla, California 92037 ........................................... -- --
All directors and officers as a group(5)(6) ........................... 788,876(7) 5.9%
</TABLE>
- ----------
(1) Consists of shares held by DLJMB, DLJ Offshore Partners, C.V.
("Offshore"), DLJ Merchant Banking Funding, Inc. ("Funding") and DLJ
International Partners, C.V. ("International"), each of which is
affiliated with the Initial Purchaser. See "Certain Relationships and
Related Transactions" and "Plan of Distribution." The address of each of
DLJMB and Funding is 277 Park Avenue, New York, New York 10172. The
address of each of Offshore and International is John B. Gorsivaweg 6,
Willemstad, Curacao, Netherland Antilles. As a general partner of DLJMB,
Offshore and International, DLJMB, Inc. may be deemed to beneficially own
indirectly all of the shares held by DLJMB, Offshore and International,
and as the parent of each of DLJ Merchant Banking, Inc. and Funding,
Donaldson, Lufkin & Jenrette, Inc. may be deemed to beneficially own
indirectly all of the shares held by DLJMB, Offshore, International and
Funding. Donaldson, Lufkin & Jenrette, Inc. is a majority owned
subsidiary of The Equitable Companies Incorporated. The address of DLJ
Merchant Banking, Inc. and Donaldson, Lufkin & Jenrette, Inc. is 277 Park
Avenue, New York, New York 10172.
(2) Rust Industrial is a wholly owned subsidiary of Rust International, Inc.
("RII") which is majority owned by WMI. As a result, WMI and RII may be
deemed to beneficially own all of the shares held by Rust Industrial. The
address for each of WMI and RII is 3003 Butterfield Road, Oakbrook,
Illinois 60521.
50
<PAGE>
(3) As the general partner of Carlisle, Carlisle Group, L.P. ("Carlisle
Group") may be deemed to beneficially own indirectly all of the shares
held by Carlisle. As the general partner of Carlisle Group, Carlisle
Enterprises, LLC may be deemed to beneficially own indirectly all of the
shares held by Carlisle. The address of Carlisle Group and Carlisle
Enterprises, LLC is 7777 Fay Avenue, La Jolla, California 92037.
(4) Does not include (i) 47,500 shares issuable upon the exercise of
currently exercisable options held by Carlisle Group and (ii) up to
871,250 shares issuable upon exercise of options held by Carlisle Group,
which options are not currently exercisable and will not be exercisable
within 60 days of the date of this Prospectus.
(5) Messrs. Jaffe and Wyss are officers of DLJ Merchant Banking, Inc., an
affiliate of DLJMB and the Initial Purchaser. Share data shown for such
individuals excludes shares shown as held by DLJMB and related investors,
as to which such individuals disclaim beneficial ownership.
(6) Mr. Carlisle is a managing partner of Carlisle Enterprises, LLC, the sole
general partner of the sole general partner of Carlisle. Share data shown
for Mr. Carlisle excludes shares shown as held by Carlisle, as to which
Mr. Carlisle disclaims beneficial ownership.
(7) Does not include shares which may be purchased upon exercise of Director
Options or options awarded pursuant to the Company's employee benefit
plans, none of which are vested or will be exercisable within 60 days of
the date of the Prospectus.
51
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to the Shareholders Agreement, Holdings' board consists of seven
members: five nominated by DLJMB, one nominated by Carlisle and one nominated
by Rust Industrial. The Shareholders Agreement also provides for certain
restrictions on transfers of Holdings' common stock. In addition, the
Shareholders Agreement provides for certain rights of first refusal in favor of
DLJMB, certain rights and obligations on the part of shareholders to
participate in transfers of shares by DLJMB and preemptive rights for DLJMB,
Carlisle and Rust Industrial under certain circumstances. The Shareholders
Agreement further provides that DLJMB, Carlisle and Rust Industrial each have
the right, subject to certain conditions, to request that Holdings register
securities that they own under the Securities Act, and to participate in other
registrations of Holdings' and the Company's securities, in each case at
Holdings' expense.
The Shareholders Agreement provides for certain advisory relationships and
the payment of management advisory fees. For five years after the date of the
agreement, DLJSC is engaged as the exclusive financial and investment banking
advisor for Holdings, on customary terms. Pursuant to the Shareholders
Agreement, DLJMB, Inc., the sole general partner of DLJMB, and Carlisle Group,
the sole general partner of Carlisle, each receive an annual advisory fee of
$250,000 from Holdings. DLJSC received customary fees in connection with the
underwriting, purchase and placement of the Notes.
Holdings has entered into a Stock Option Agreement (the "Option") with
Carlisle Group. The Option gives Carlisle Group the right to acquire up to
918,750 shares of the common stock of Holdings for $1.00 per share. The exact
number of shares that may be acquired pursuant to the Option depends upon
Holdings' financial performance, equity financings by Holdings and other
factors. Carlisle Group's rights under the Option vest progressively throughout
the term of the Option. The Option will terminate on or, under certain
circumstances, before September 30, 2006.
DLJ Capital, the Syndication Agent and a lender under the Bank Facility,
is an affiliate of DLJMB and the Initial Purchaser. For a description of the
Bank Facility, see "Description of Bank Facility." The proceeds from the sale
of the Notes were used to repay indebtedness under the Bank Facility, $1.6
million of which was owed to DLJ Capital. In connection with an amendment to
the existing Bank Facility, the Company paid customary fees to DLJ Capital, as
the Syndication Agent and as a Lender under the Bank Facility.
In connection with the Acquisition, WMI and the Company entered into a
transition services agreement. Pursuant to such agreement, WMI pays the Company
a fee for transition services of $725,000 quarterly. The first such payment was
made on December 31, 1996 and such payments will continue through September 30,
1999. In addition, the Company provides computer support to WMI Industrial
Cleaning Services, Inc., a subsidiary of WMI and receives a payment of $62,500
per month for such service.
In March 1997, certain officers and employees of the Company purchased a
total of 878,364 newly-issued shares of Holdings' common stock for $1 per share
and 42,832 shares of 14.5% Preferred Stock for $25 per share. In connection
with such purchases, Holdings extended recourse loans to executive officers in
the aggregate amount of $341,000. Each of the loans matures in March 2002
(subject to prepayment in the event any shares are disposed of prior to such
time), with interest payable at the rate of 7.03% per annum. The loans are
secured by a pledge of the shares purchased.
WMI provides trash hauling services to the Company for which the Company
paid WMI approximately $90,000 in 1997.
52
<PAGE>
DESCRIPTION OF BANK FACILITY
Although all of the material elements of the Credit Agreement are stated
herein, the following summary does not purport to be complete and is qualified
in its entirety by the Credit Agreement, copies of which may be obtained upon
request from the Company.
The Company entered into a credit agreement (the "Credit Agreement")
relating to the Bank Facility, with DLJ Capital, as Syndication Agent, and
BofA, as Administrative Agent, on September 30, 1996, which Credit Agreement
was amended on November 26, 1997 and February 20, 1998. As so amended, the Bank
Facility includes $60.0 million of senior secured credit facilities. A six-year
$30.0 million senior secured revolving loan facility (the "Revolving Facility")
is available to the Company for working capital and other general corporate
purposes. Borrowings under the Revolving Facility are governed by a borrowing
base equal to 85% of eligible accounts receivable. A $15.0 million sub-facility
of the Revolving Facility is available for the issuance of letters of credit.
The issuance of letters of credit constitutes usage under the Revolving
Facility and reduces availability of the Revolving Facility dollar for dollar.
Interest on loans under the Revolving Facility is determined by a
leverage-based pricing grid. A commitment fee is payable on the unused portion
of the Revolving Facility at a rate also determined by a leverage-based pricing
grid.
In addition, the Bank Facility includes a term facility (the "Term
Facility"). The Term Facility was fully drawn at the closing of the bank
facility (the "Bank Closing") in the amount of $160.0 million to partially fund
the Acquisition. $130.0 million of such Term Facility was repaid with the
proceeds of the Old Note Offering, leaving $30.0 of loans outstanding under the
Term Facility. Interest on loans under the Term Facility is determined by a
leverage-based pricing grid. The portion of the Term Facility that remained
outstanding after such repayment had an average life of 3.05 years at the Bank
Closing Date. The Term Facility amortizes quarterly in amounts aggregating $1.5
million in 1998, $5.0 million in 1999, $6.0 million in 2000, $8.5 million in
2001 and $9.0 million in 2002, with a final maturity of September 30, 2002.
Loans outstanding under the Bank Facility are required to be prepaid from
100% of the net proceeds from debt issuances, 100% of the net proceeds from
certain asset sales that are not reinvested in the Company's business within a
specified period, 50% of the net proceeds from certain issuances of equity
securities and 75% of the Company's consolidated annual excess cash flow.
The Bank Facility is secured by (i) a first priority perfected lien on all
material tangible and intangible assets of the Company and its U.S.
subsidiaries, (ii) a first priority pledge of all notes evidencing intercompany
indebtedness owed to the Company or its U.S. subsidiaries and (iii) a first
priority pledge of 100% of the capital stock of the Company and all of its U.S.
subsidiaries and 65% of the capital stock of all of its non-U.S. subsidiaries.
The Bank Facility is also supported by guarantees from Holdings and all U.S.
subsidiaries of the Company.
The Credit Agreement contains the following financial covenants, which are
computed quarterly on a rolling four-quarter basis: (i) maximum leverage
(ranging from 6.10:1 as of September 30, 1998, decreasing thereafter to 4.50:1
on December 31, 2001 and thereafter); (ii) minimum interest coverage (ranging
from 1.70:1 as of September 30, 1998, increasing thereafter up to 2.10:1 at
December 31, 2001 and thereafter); (iii) minimum fixed charge coverage (ranging
from 0.90:1 as of September 30, 1998, increasing thereafter up to 1.10:1 at
December 31, 2001 and thereafter); (iv) minimum net worth (equal to $20 million
plus an amount equal to 50% of cumulative positive net income from January 1,
1998 to the end of the fiscal quarter most recently ended on or prior to such
date of determination); and (v) maximum capital expenditures (not in excess of
$10.0 million in any fiscal year, with the ability to carry forward up to $5.0
million to the next succeeding fiscal year to the extent the amount of capital
expenditures permitted to be made in any fiscal year exceeds the amount
actually made in such fiscal year, in addition to an aggregate amount not in
excess of $5.0 million in any fiscal year used to acquire industrial
scaffolding, with the ability to carry forward up to $2.5 million to the next
succeeding fiscal year to the extent the amount of capital expenditures
permitted to be made in any fiscal year to acquire industrial scaffolding
exceeds the amount actually made in such fiscal year). In addition, the Credit
Agreement restricts the Company's ability, among other things, to (i) incur
debt, sale-leasebacks and contingent
53
<PAGE>
liabilities; (ii) pay dividends, make distributions or repurchase stock; (iii)
incur liens; (iv) sell assets other than in the ordinary course of business;
(v) make investments or acquisitions; (vi) consummate mergers, consolidations
or combinations; or (vii) engage in transactions with affiliates. As of
December 31, 1997 the Company was not in compliance with certain covenants
under the Credit Agreement. The Company sought and obtained waivers of such
non-compliance from the lenders under the Bank Facility.
The Company obtained an amendment to the Bank Facility which became
effective upon the closing of the Old Note Offering, substantially all of the
net proceeds of which Old Note Offering were used to repay loans outstanding
under the Bank Facility. Under such amendment, the terms and required levels
under the financial covenants were reset at levels that are more consistent
with the Company's capital structure following the Old Note Offering and its
current and expected financial performance and certain other amendments to the
Bank Facility were effected.
54
<PAGE>
DESCRIPTION OF PREFERRED STOCK
The Company is authorized to issue 1,250,000 shares of the 14.5% Senior
Exchangeable Preferred Stock due 2008, par value $0.01, of which 1,042,460 are
issued and outstanding. The following is a summary of the principal terms of
the 14.5% Preferred Stock, which is governed by the Certificate of
Designations, Preferences and Rights relating thereto (the "Certificate of
Designations").
Each share of 14.5% Preferred Stock has an initial liquidation preference
of $25.00 per share, plus accrued and unpaid dividends. The 14.5% Preferred
Stock ranks senior to all classes or series of equity securities of the
Company. The holders of the 14.5% Preferred Stock are entitled to receive
dividends, when, as and if declared by the Board at the rate of 14.5% per
annum. Dividends on the 14.5% Preferred Stock accrete to the liquidation value
of the 14.5% Preferred Stock until the later of (i) September 30, 2001 (the
"Fifth Anniversary") and (ii) the first date on which dividends on the 14.5%
Preferred Stock would be permitted to be paid in cash pursuant to the terms of
the Company's then outstanding indebtedness (such later date, the "Cash Pay
Date"). The Company is restricted from declaring dividends on other securities
and from redeeming or repurchasing certain junior securities unless full
cumulative dividends have been paid on the 14.5% Preferred Stock.
In the event that Holdings or any affiliate of the Company sells equity
securities and contributes the proceeds to the Company (an "Equity Offering")
prior to September 30, 1999, the Company may, at its option, redeem not less
than all of the outstanding 14.5% Preferred Stock at a price of 114.5% of the
liquidation value; provided that the aggregate redemption price of all the
outstanding shares of 14.5% Preferred Stock do not exceed the net proceeds
received by the Company from such sale. After September 30, 2001, the Company
may, at its option, redeem any or all outstanding shares of 14.5% Preferred
Stock at a price of 107.25% of the liquidation value in 2001 declining annually
ratably to 100% in 2004 and thereafter. In the event of a Change of Control (as
defined in the Certificate of Designations), the Company is required to make an
offer to redeem all shares of 14.5% Preferred Stock at a redemption price equal
to 101% of the liquidation value. In addition, the Company is required to
redeem all shares of 14.5% Preferred Stock on March 31, 2008 at a price equal
to the liquidation value at such date.
The holders of 14.5% Preferred Stock voting as a class are entitled to
elect two directors if and whenever (i) six consecutive quarterly dividends
after the Fifth Anniversary have not been paid in full, (ii) the Company has
not redeemed the 14.5% Preferred Stock on March 31, 2008, (iii) the Company has
not offered to redeem the 14.5% Preferred Stock in a timely manner following a
change of control event, (iv) dividends have been paid on other securities or
junior securities have been redeemed or repurchased while full cumulative
dividends have not been paid on the 14.5% Preferred Stock or (v) the Company's
Certificate of Incorporation has been amended in a manner adverse to the
holders of 14.5% Preferred Stock without such holder's consent.
EXCHANGE DEBENTURES
Subject to certain conditions, the Company may, at its option, issue 14.5%
Junior Subordinated Exchange Debentures due 2008 ("Exchange Debentures") in
exchange for any or all outstanding shares of 14.5% Preferred Stock, at an
exchange ratio of $1.00 of liquidation value of 14.5% Preferred Stock for $1.00
principal amount of Exchange Debentures. On and after the date of any exchange,
dividends will cease to accrue on the 14.5% Preferred Stock and all rights of
holders of the 14.5% Preferred Stock shall cease.
The Exchange Debentures, if issued, will be issued pursuant to an
indenture (the "Exchange Indenture") and will be limited in amount to the
aggregate liquidation value of the 14.5% Preferred Stock outstanding at the
time of the exchange. The Exchange Debentures will mature on March 31, 2008.
The Exchange Debentures will pay interest at an effective annual rate of 14.5%,
payable quarterly. Prior to the Cash Pay Date, interest will be payable in
additional Exchange Debentures.
The Exchange Debentures will be general unsecured obligations of the
Company and will be subordinated in right of payment to the prior payment of
all indebtedness of the Company that is not expressly made pari passu with or
junior to the Exchange Debentures.
55
<PAGE>
In the event of an Equity Offering prior to September 30, 1999, the
Company would be allowed, at its option, to redeem any or all outstanding
Exchange Debentures, at a purchase price equal to 114.5% of the principal
amount thereof, plus accrued and unpaid interest thereon. After September 30,
2001, the Company would be allowed, at its option, to redeem any or all
outstanding Exchange Debentures at a price of 107.25%, in 2001, of the
principal amount thereof, plus accrued and unpaid interest, declining annually
ratably to 100% in 2004 and thereafter. In the event of a Change of Control,
the Company would be required to make an offer to redeem all of the Exchange
Debentures at a redemption price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest thereon.
The Exchange Indenture would contain covenants that, among other things,
would limit the ability of the Company to make certain payments and to merge,
consolidate or sell substantially all of its assets.
56
<PAGE>
DESCRIPTION OF NOTES
GENERAL
The Old Notes were issued and the Exchange Notes will be issued under an
indenture, dated as of February 25, 1998 (the "Indenture") by and between the
Company and U.S. Trust Company of Texas, N.A., as trustee under the Indenture
(the "Trustee"). The Notes are subject to the terms stated in the Indenture and
to the terms made part of the Indenture by reference to the Trust Indenture Act
of 1939, as amended (the "Trust Indenture Act"). Holders of the Notes are
referred to the Indenture and the Trust Indenture Act for a statement of those
terms. Although all of the material elements of the Notes and the Indenture are
stated herein, the statements and definitions of terms under this caption
relating to the Notes and the Indenture described below are summaries and do
not purport to be complete. Such summaries make use of certain terms defined in
the Indenture and are qualified in their entirety by express reference to the
Indenture. Copies of the proposed form of the Indenture and Registration Rights
Agreement are available as set forth under "--Additional Information." Certain
terms used herein are defined below under "--Certain Definitions."
The terms of the Exchange Notes and the Old Notes are substantially
identical in all material respects, except that the offer of the Exchange Notes
will have been registered under the Securities Act and therefore, (ii) the
Exchange Notes will not be subject to certain transfer restrictions and
registration rights and related provisions for an increase in interest rate
payable on the Old Notes under certain circumstances if the Company defaults
with respect to its registration requirements under the Registration Rights
Agreement applicable to the Old Notes.
The Notes represent general senior unsecured obligations of the Company
and rank pari passu with all existing and future senior unsecured Indebtedness
and other obligations of the Company. The Notes are effectively subordinated to
all existing and future liabilities of the Company's subsidiaries, including
trade payables. As of March 31, 1998, the Company's subsidiaries had no
outstanding Indebtedness other than intercompany Indebtedness and certain
capital lease obligations. In addition, the Notes are effectively subordinated
to existing and future senior secured Indebtedness, including the Bank
Facility, which is secured by a pledge of substantially all of the assets of
the Company and its subsidiaries and is also guaranteed by the Company's U.S.
subsidiaries. As of March 31, 1998, $31.0 million of Indebtedness was
outstanding under the Bank Facility. In addition, as of March 31, 1998, the
Company had $16.2 million in unused senior secured borrowing capacity under the
Bank Facility. Further, as of March 31, 1998, the Company had outstanding
approximately $161.0 million in aggregate principal amount of senior
Indebtedness, including approximately $31.0 million of secured Indebtedness.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $130.0 million,
mature on February 15, 2008, and bear interest at 10 1/4% per annum from the
Issue Date or from the most recent interest payment date to which interest has
been paid or provided for. Interest on the Notes will be payable semi-annually
in arrears on February 15 and August 15 of each year, commencing August 15,
1998, to the Persons in whose names such Notes are registered at the close of
business on the February 1 or August 1 immediately preceding such interest
payment date. Interest will be calculated on the basis of a 360-day year
consisting of twelve 30-day months.
The Notes may be presented or surrendered for payment of principal,
premium, if any, interest and Liquidated Damages, if any, and for registration
of transfer or exchange, at the office or agency of the Company within the City
and State of New York, maintained for such purpose. In addition, in the event
the Notes do not remain in book-entry form, interest may be paid, at the option
of the Company, by check mailed to the registered holders of the Notes at the
respective addresses as set forth on the Note Register. Until otherwise
designated by the Company, the Company's office or agency in New York will be
the office of the Trustee maintained for such purpose. The Notes will be issued
only in fully registered form, without coupons, in denominations of $1,000 and
integral multiples thereof. No service charge will be made for any registration
of transfer or exchange or redemption of Notes, but the Company or Trustee may
require in certain circumstances payment of a sum sufficient to cover any tax
or other governmental charge payable in connection therewith.
OPTIONAL REDEMPTION
Except as provided in the next paragraph, the Notes are not redeemable at
the option of the Company prior to February 15, 2003. On or after such date,
the Notes will be redeemable at the option
57
<PAGE>
of the Company, in whole at any time or in part from time to time, at the
following prices (expressed in percentages of the principal amount), if
redeemed during the 12 months beginning February 15 of the years indicated
below, in each case together with interest accrued to the redemption date
(subject to the right of holders of record on the relevant record date to
receive interest due on the relevant interest payment date) plus Liquidated
Damages, if any:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- --------------------------------- -------------
<S> <C>
2003 ......................... 105.125%
2004 ......................... 103.417%
2005 ......................... 101.708%
2006 and thereafter .......... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time during the first 36 months
after the Issue Date, the Company may, at its option, redeem up to a maximum of
35% of the aggregate principal amount of the Notes with the net cash proceeds
of one or more Qualified Equity Offerings at a redemption price equal to 110
1/4% of the principal amount thereof, plus accrued and unpaid interest thereon
to the redemption date plus Liquidated Damages, if any; provided, that each
such redemption shall occur within 90 days of the closing of the related
Qualified Equity Offering.
If fewer than all the Notes are redeemed, selection for redemption will be
made by the Trustee in accordance with the principal stock exchange, if any, on
which the Notes are listed, or, if the Notes are not so listed, on a pro rata
basis, by lot or by any other means which the Trustee determines to be fair and
appropriate.
MANDATORY REDEMPTION
Except as set forth below under "--Change of Control" and "--Certain
Covenants--Limitation on Asset Sales," the Company is not required to make
mandatory redemption or sinking fund payments with respect to the Notes.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder will have the
right to require the Company to repurchase all of such holder's Notes in whole
or in part (the "Change of Control Offer") at a purchase price (the "Change of
Control Purchase Price") in cash equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest thereon, if any, to the Change
of Control Payment Date (as defined below), plus Liquidated Damages, if any, on
the terms described below.
Within 30 days following any Change of Control, the Company or the Trustee
(at the expense of the Company) will mail a notice to each holder and to the
Trustee stating, among other things, (i) that a Change of Control has occurred
and a Change of Control Offer is being made as provided for in the Indenture,
and that, although holders are not required to tender their Notes, all Notes
that are timely tendered will be accepted for payment; (ii) the Change of
Control Purchase Price and the repurchase date, which will be no earlier than
30 days and no later than 60 days after the date such notice is mailed (the
"Change of Control Payment Date"); (iii) that any Note accepted for payment
pursuant to the Change of Control Offer (and duly paid for on the Change of
Control Payment Date) will cease to accrue interest after the Change of Control
Payment Date; and (iv) the instructions and any other information necessary to
enable holders to tender their Notes and have such Notes purchased pursuant to
the Change of Control Offer. The Company will comply with any applicable tender
offer rules (including, without limitation, any applicable requirements of Rule
14e-1 under the Exchange Act) in the event that the Change of Control Offer is
triggered under the circumstances described herein.
The existence of the holders' rights to require, subject to certain
conditions, the Company to repurchase Notes upon a Change of Control may deter
a third party from acquiring the Company in a transaction that constitutes a
Change of Control. The source of funds for the repurchase of Notes upon a
Change of Control will be the Company's cash or cash generated from operations
or other sources, including borrowings or sales of assets; however, a "Change
in Control" (as defined in the Bank Facility)
58
<PAGE>
constitutes an event of default thereunder that alleviates the lenders from any
obligation to make loans and allows them to accelerate the Indebtedness
outstanding thereunder. There can be no assurance that sufficient funds will be
available at the time of any Change of Control to repay all amounts owing under
such other Indebtedness or to make the required payments of the Notes. In the
event that a Change of Control Offer occurs at a time when the Company does not
have sufficient available funds to pay the Change of Control Purchase Price for
all Notes timely tendered pursuant to such offer or at a time when the Company
is prohibited from purchasing the Notes (and the Company is unable either to
obtain the consent of the holders of the relevant Indebtedness or to repay such
Indebtedness), an Event of Default would occur under the Indenture. In
addition, one of the events that constitutes a Change of Control under the
Indenture is a sale, conveyance, transfer or lease of all or substantially all
of the assets of the Company or the Company and the Subsidiaries, taken as a
whole. The Indenture will be governed by New York law, and there is no
established quantitative definition under New York law of "substantially all"
of the assets of a corporation. Accordingly, if the Company or its Subsidiaries
were to engage in a transaction in which it or they disposed of less than all
of the assets of the Company or the Company and its Subsidiaries taken as a
whole, as applicable, a question or interpretation could arise as to whether
such disposition was of "substantially all" of its assets and whether the
Company was required to make a Change of Control Offer.
The Company is not required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and repurchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the holders to require the
Company to repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar restructuring. The provisions of the Indenture may
not afford holders protection in the event of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction affecting the
Company that may adversely affect holders because (i) such transactions may not
involve a shift in voting power or beneficial ownership or, even if they do,
may not involve a shift of the magnitude required under the definition of
Change of Control to require the Company to make a Change of Control Offer or
(ii) such transactions may include an actual shift in voting power or
beneficial ownership to a Permitted Holder which is excluded under the
definition of Change of Control from the amount of shares involved in
determining whether or not the transaction involves a shift of the magnitude
required to trigger the provisions. A transaction involving the management of
the Company or its Affiliates, or a transaction involving a recapitalization of
the Company, will result in a Change of Control only if it is the type of
transaction specified in such definition.
CERTAIN COVENANTS
Set forth below are certain covenants contained in the Indenture.
Transactions with Affiliates. Subsequent to the Issue Date, the Company
will not, and will not permit any Subsidiary to, directly or indirectly, enter
into or permit to exist any transaction or series of related transactions
(including, but not limited to, the purchase, sale or exchange of Property, the
making of any Investment, the giving of any guarantee or the rendering of any
service with any Affiliate of the Company, other than transactions between or
among the Company, and any Subsidiaries) unless (i) such transaction or series
of related transactions is on terms no less favorable to the Company or such
Subsidiary than those that could be obtained in a comparable arm's length
transaction with a Person that is not such an Affiliate and (ii) (a) with
respect to a transaction or series of related transactions that has a Fair
Market Value in excess of $500,000 but less than $5.0 million, the Company
delivers an Officer's Certificate to the Trustee certifying that such
transaction or series of related transactions complies with clause (i) above;
(b) with respect to a transaction or series of related transactions that has a
Fair Market Value equal to or in excess of $5.0 million but less than $10.0
million, the transaction or series of related transactions is approved by a
majority of the Board of Directors of the Company (including a majority of the
disinterested directors), which approval is set forth in a Board Resolution
certifying that such
59
<PAGE>
transaction or series of transactions complies with clause (i) above; or (c)
with respect to a transaction or series of related transactions that has a Fair
Market Value equal to or in excess of $10.0 million, the Company shall have
received an opinion as to the fairness to the Company or such Subsidiary from a
financial point of view issued by an investment banking firm of national
standing. The foregoing provisions shall not be applicable to (i) reasonable
and customary compensation, indemnification and other benefits paid or made
available to an officer, director or employee of the Company or a Subsidiary
for services rendered in such person's capacity as an officer, director or
employee (including reimbursement or advancement of reasonable out-of-pocket
expenses and provisions of directors' and officers' liability insurance) or
agreements providing therefor, (ii) transactions between the Company or its
Subsidiaries on the one hand, and the Initial Purchaser or its Affiliates on
the other hand, involving the provision of financial, consulting or
underwriting services by the Initial Purchaser or its Affiliates; provided that
the fees payable to the Initial Purchaser or its Affiliates do not exceed the
usual and customary fees of the Initial Purchaser and its Affiliates for
similar services, (iii) any payments made, or transactions entered into, by the
Company or its Subsidiaries pursuant to or in accordance with the Shareholders
Agreement, the Acquisition Agreements or the Bank Facility or (iv) the making
of any Restricted Payment otherwise permitted by the Indenture.
Limitation on Restricted Payments. The Company will not, and will not
permit any Subsidiary to, make any Restricted Payment, unless at the time of
and after giving pro forma effect to the proposed Restricted Payment, (a) no
Default shall have occurred and be continuing (or would result therefrom), (b)
the Company could incur at least $1.00 of additional Indebtedness under the
tests described in the first sentence under the caption "--Certain
Covenants--Limitation on Indebtedness" and (c) the aggregate amount of all
Restricted Payments declared or made on or after the Issue Date by the Company
or any Subsidiary shall not exceed the sum of (i) 50% (or if such Consolidated
Net Income shall be a deficit, minus 100% of such deficit) of the aggregate
Consolidated Net Income accrued during the period beginning on the first day of
the fiscal quarter in which the Issue Date falls and ending on the last day of
the fiscal quarter ending immediately prior to the date of such proposed
Restricted Payment, plus (ii) an amount equal to the aggregate Qualified
Proceeds received by the Company, subsequent to the Issue Date, from
contributions to the Company's capital or the issuance or sale (other than to a
Subsidiary) of shares of its Capital Stock (excluding Redeemable Stock, but
including Capital Stock issued upon the exercise of options, warrants or rights
to purchase Capital Stock (other than Redeemable Stock) of the Company) and the
liability (expressed as a positive number) as expressed on the face of a
balance sheet in accordance with GAAP in respect of any Indebtedness of the
Company or any of its Subsidiaries, or the carrying value of Redeemable Stock,
which has been converted into, exchanged for or satisfied by the issuance of
shares of Capital Stock (other than Redeemable Stock) of the Company,
subsequent to the Issue Date, plus (iii) 100% of the net reduction in
Restricted Investments, subsequent to the Issue Date, in any Person, resulting
from payments of interest on Indebtedness, dividends, repayments of loans or
advances, or other transfers of Property (but only to the extent such interest,
dividends, repayments or other transfers of Property are not included in the
calculation of Consolidated Net Income), in each case to the Company or any
Subsidiary from any Person (including, without limitation, from Unrestricted
Subsidiaries) or from redesignations of Unrestricted Subsidiaries as
Subsidiaries (valued in each case as provided in the definition of
"Investments"), not to exceed in the case of any Person the amount of
Restricted Investments previously made by the Company or any Subsidiary in such
Person and in each such case which was treated as a Restricted Payment.
The foregoing provisions will not prevent (A) the payment of any dividend
on Capital Stock of any class within 60 days after the date of its declaration
if at the date of declaration such payment would be permitted by the Indenture;
(B) any Restricted Payment made in exchange for Capital Stock of the Company
(other than Redeemable Stock), or out of the Qualified Proceeds from the
substantially concurrent issuance or sale (other than to a Subsidiary) of
Capital Stock of the Company (other than Redeemable Stock), provided that the
Qualified Proceeds from such sale are excluded from computations under clause
(c) (ii) above to the extent that such proceeds are applied to purchase or
redeem such Capital Stock or Subordinated Indebtedness; (C) so long as no
Default shall have occurred and be continuing or should occur as a consequence
thereof, any repurchase, redemption payment, defeasance, acquisition or other
retirement for value of Subordinated Indebtedness of the Company or a
Subsidiary
60
<PAGE>
solely in exchange for, or out of the Qualified Proceeds from the substantially
concurrent sale of, new Subordinated Indebtedness of the Company or a
Subsidiary, so long as such Subordinated Indebtedness is permitted under the
covenant described under "--Limitation on Indebtedness" and (x) is subordinated
to the Notes at least to the same extent as the Subordinated Indebtedness so
exchanged, purchased or redeemed, (y) has a stated maturity later than the
stated maturity of the Subordinated Indebtedness so exchanged, purchased or
redeemed and (z) has an Average Life at the time incurred that is greater than
the remaining Average Life of the Subordinated Indebtedness so exchanged,
purchased or redeemed; (D) payments to Holdings to fund payments made or to be
made by Holdings for the benefit of the Company or any Subsidiary of the
Company, including, without limitation, the payment of management and other
professional fees, whether pursuant to the Shareholders Agreement or otherwise,
and the payment of taxes; (E) the repurchase, redemption or other acquisition
or retirement for value of any Equity Interests of Holdings, the Company or any
Subsidiary of the Company held by any future, present or former employee,
consultant or director of the Company (or any of its Subsidiaries) pursuant to
any management equity subscription agreement or stock option plan or agreement
or any other management or employee benefit plan or agreement in effect as of
the Issue Date; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not exceed
(x) $1.5 million in any calendar year (with unused amounts in any calendar year
being carried over for two succeeding calendar years subject to a maximum
(without giving effect to clause (y) below) of $3.0 million in any calendar
year) plus (y) the aggregate cash proceeds received by the Company during such
calendar year from any issuance of Equity Interests by the Company to members
of management of the Company or its Subsidiaries; (F) repurchases of Equity
Interests deemed to occur upon exercise of stock options if such Equity
Interests represent a portion of the exercise price of such options; (G)
payments in accordance with or pursuant to the terms of any Permitted
Refinancing Indebtedness or any Permitted Subsidiary Refinancing Indebtedness;
(H) payments to redeem, or to avoid the issuance of, fractional shares of
Capital Stock of the Company; (I) the payment of dividends by a Subsidiary on
any class of common stock of such Subsidiary if such dividend is paid pro rata
to all holders of such class of common stock; (J) the repurchase of any class
of common stock of a Subsidiary if such repurchase is made pro rata with
respect to such class of common stock; and (K) other Restricted Payments not to
exceed $3.0 million. Restricted Payments permitted to be made as described in
the first sentence of this paragraph will be excluded in calculating the amount
of Restricted Payments thereafter.
For purposes of this covenant, if a particular Restricted Payment involves
a non-cash payment, including a distribution of assets, then such Restricted
Payment shall be deemed to be an amount equal to the cash portion of such
Restricted Payment, if any, plus an amount equal to the Fair Market Value of
the non-cash portion of such Restricted Payment.
Limitation on Indebtedness. The Company will not, and will not permit any
Subsidiary to, directly or indirectly, incur any Indebtedness (including
Acquired Indebtedness), unless after giving pro forma effect to the incurrence
of such Indebtedness, the Consolidated Interest Coverage Ratio for the
Determination Period preceding the Transaction Date is at least 2.0 to 1.0 if
such Indebtedness is incurred prior to February 15, 2000 and at least 2.25 to
1.0 if such Indebtedness is incurred thereafter. Notwithstanding the foregoing,
the Company or any Subsidiary may incur Permitted Indebtedness. Any
Indebtedness of a Person existing at the time at which such Person becomes a
Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall
be deemed to be incurred by such Subsidiary at the time at which it becomes a
Subsidiary.
Limitations on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not permit any Subsidiary,
directly or indirectly, to create, enter into any agreement with any Person or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind which by its terms restricts the ability
of any Subsidiary to (a) pay dividends, in cash or otherwise, or make any other
distributions on its Capital Stock to the Company or any Subsidiary, (b) pay
any Indebtedness owed to the Company or any Subsidiary, (c) make loans or
advances to the Company or any Subsidiary or (d) transfer any of its Property
or assets to the Company or any Subsidiary except any encumbrance or
restriction contained in any agreement or instrument:
61
<PAGE>
(i) existing on the Issue Date;
(ii) relating to any Property or assets acquired after the Issue Date, so
long as such encumbrance or restriction relates only to the Property or assets
so acquired and is not and are not created in anticipation of such acquisition;
(iii) relating to any Acquired Indebtedness of any Subsidiary at the date
on which such Subsidiary was acquired by the Company or any Subsidiary (other
than Indebtedness incurred in anticipation of such acquisition);
(iv) effecting a refinancing of Indebtedness incurred pursuant to an
agreement referred to in the foregoing clauses (i) through (iii), so long as
the encumbrances and restrictions contained in any such refinancing agreement
are no more restrictive than the encumbrances and restrictions contained in
such agreements;
(v) constituting customary provisions restricting subletting or assignment
of any lease of the Company or any Subsidiary or provisions in license
agreements or similar agreements that restrict the assignment of such agreement
or any rights thereunder;
(vi) constituting restrictions on the sale or other disposition of any
Property securing Indebtedness as a result of a Permitted Lien on such
Property;
(vii) constituting any temporary encumbrance or restriction with respect
to a Subsidiary pursuant to an agreement that has been entered into for the
sale or disposition of all or substantially all of the Capital Stock of, or
Property and assets of, such Subsidiary; or
(viii) arising pursuant to applicable law.
Limitation on Asset Sales. The Company will not engage in, and will not
permit any Subsidiary to engage in, any Asset Sale unless (a) except in the
case of (i) an Asset Sale resulting from the requisition of title to, seizure
or forfeiture of any Property or assets or any actual or constructive total
loss or an agreed or compromised total loss or (ii) a Bargain Purchase
Contract, the Company or such Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the Fair Market
Value of the Property; (b) at least 75% of such consideration consists of Cash
Proceeds (or the assumption of Indebtedness of the Company or such Subsidiary
relating to the Capital Stock or Property or asset that was the subject of such
Asset Sale and the unconditional release of the Company or such Subsidiary from
such Indebtedness); and (c) the Company delivers to the Trustee an Officer's
Certificate certifying that such Asset Sale complies with clauses (a) and (b).
The Company or such Subsidiary, as the case may be, may apply the Net Available
Proceeds from each Asset Sale (x) to the acquisition of Replacement Assets, or
(y) to repurchase or repay Senior Debt.
Any Net Available Proceeds from any Asset Sale that are not used to so
acquire Replacement Assets or to repurchase or repay Senior Debt within 270
days after consummation of the relevant Asset Sale shall constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $10.0 million,
the Company shall within 60 days thereafter make a pro rata offer (an "Asset
Sale Offer") to purchase from all holders an aggregate principal amount of
Notes equal to the Excess Proceeds, at a price in cash (the "Asset Sale Offer
Purchase Price") equal to 100% of the outstanding principal thereof plus
accrued interest, if any, to the purchase date, plus Liquidated Damages, if
any, in accordance with the procedures set forth in the Indenture. Upon
completion of such Asset Sale Offer, the amount of Excess Proceeds shall be
reset to zero and the Company may use any remaining amount for general
corporate purposes.
The Company will comply with any applicable tender offer rules (including,
without limitation, any applicable requirements of Rule 14e-1 under the
Exchange Act) in the event that an Asset Sale Offer is required under the
circumstances described herein.
Limitation on Sale and Lease-Back Transactions. The Company will not, and
will not permit any Subsidiary to, directly or indirectly, enter into, assume,
guarantee or otherwise become liable with respect to any Sale and Lease-Back
Transaction unless (i) the proceeds from such Sale and Lease-Back Transaction
are at least equal to the Fair Market Value of such Property being transferred
and (ii) the
62
<PAGE>
Company or such Subsidiary would have been permitted to enter into such
transaction under the covenants described in "--Certain Covenants--Limitation
on Indebtedness" and "--Certain Covenants--Limitation on Liens," and "--Certain
Covenants--Limitation on Subsidiary Indebtedness and Preferred Stock."
Limitation on Liens. The Company will not, and will not permit any
Subsidiary to, directly or indirectly, create, affirm, incur, assume or suffer
to exist any Liens of any kind other than Permitted Liens on or with respect to
any Property or assets of the Company or such Subsidiary or any interest
therein or any income or profits therefrom, whether owned at the Issue Date or
thereafter acquired, without effectively providing that the Notes shall be
secured equally and ratably with (or prior to) the Indebtedness so secured for
so long as such obligations are so secured.
Subsidiary Guarantees. (a) The Indenture provides that the Company will
not permit any Subsidiary to guarantee the payment of any Indebtedness of the
Company or any Indebtedness of any other Subsidiary, in each case except for
Indebtedness described in clause (b) of the definition of "Permitted
Indebtedness" (in each case, the "Guaranteed Indebtedness") unless (i) if such
Subsidiary is not a Guarantor, such Subsidiary simultaneously executes and
delivers a supplemental indenture to the Indenture providing for a Subsidiary
Guarantee of payment of the Notes by such Subsidiary, (ii) if the Notes or the
Subsidiary Guarantee (if any) of such Subsidiary are subordinated in right of
payment to the Guaranteed Indebtedness, the Subsidiary Guarantee under the
supplemental indenture shall be subordinated to such Subsidiary's guarantee
with respect to the Guaranteed Indebtedness substantially to the same extent as
the Notes or the Subsidiary Guarantee are subordinated to the Guaranteed
Indebtedness under the Indenture, (iii) if the Guaranteed Indebtedness is by
its express terms subordinated in right of payment to the Notes or the
Subsidiary Guarantee (if any) of such Subsidiary, any such guarantee of such
Subsidiary with respect to the Guaranteed Indebtedness shall be subordinated in
right of payment to such Subsidiary's Subsidiary Guarantee with respect to the
Notes substantially to the same extent as the Guaranteed Indebtedness is
subordinated to the Notes or the Subsidiary Guarantee (if any) of such
Subsidiary, (iv) such Subsidiary waives and will and not in any manner
whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Subsidiary as a result of any payment by such Subsidiary under its
Subsidiary Guarantee, and (v) such Subsidiary shall deliver to the Trustee an
opinion of counsel to the effect that (A) such Subsidiary Guarantee of the
Notes has been duly executed and authorized and (B) such Subsidiary Guarantee
of the Notes constitutes a valid, binding and enforceable obligation of such
Subsidiary, except insofar as enforcement thereof may be limited by bankruptcy,
insolvency or similar laws (including, without limitation, all laws relating to
fraudulent transfers) and except insofar as enforcement thereof is subject to
general principles of equity.
(b) Notwithstanding the foregoing and the other provisions of the
Indenture, any Subsidiary Guarantee by a Subsidiary of the Notes shall provide
by its terms that it shall be automatically and unconditionally released and
discharged upon (i) any sale, exchange or transfer, to any Person not an
Affiliate of the Company, of all of the Company's Capital Stock in, or all or
substantially all the assets of, such Subsidiary (which sale, exchange or
transfer is not prohibited by the Indenture) or (ii) the release or discharge
of the guarantee which resulted in the creation of such Subsidiary Guarantee,
except a discharge or release by or as a result of payment under such
guarantee.
Unrestricted Subsidiaries. The Indenture provides that the Company may
designate a subsidiary (including a newly formed or newly acquired subsidiary)
of the Company or any of its Subsidiaries as an Unrestricted Subsidiary;
provided that at the time of such designation such Subsidiary (i) has no
Indebtedness other than Non-Recourse Indebtedness; (ii) is not party to any
agreement, contract, arrangement or understanding with the Company or any
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Subsidiary than those that might be obtained at the time from Persons who are
not Affiliates of the Company; (iii) is a Person with respect to which neither
the Company nor any of its Subsidiaries has any direct or indirect obligation
(a) to subscribe for additional Equity Interests or (b) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels, of operating
63
<PAGE>
results; and (iv) has not guaranteed or otherwise directly or indirectly
provided credit support for any Indebtedness of the Company or any of its
Subsidiaries. Notwithstanding any provisions of this covenant, all subsidiaries
of an Unrestricted Subsidiary will be Unrestricted Subsidiaries.
The Indenture further provides that the Company will not, and will not
permit any of its Subsidiaries to, take any action or enter into any
transaction or series of transactions that would result in a Person (other than
a newly formed subsidiary having no outstanding Indebtedness (other than
Indebtedness to the Company or a Subsidiary) at the date of determination)
becoming a Subsidiary (whether through an acquisition, the redesignation of an
Unrestricted Subsidiary or otherwise) unless, after giving effect to such
action, transaction or series of transactions on a pro forma basis, (i) the
Company could incur at least $1.00 of additional Indebtedness pursuant to the
first sentence of "--Certain Covenants--Limitation on Indebtedness" and (ii) no
Default or Event of Default would occur.
Subject to the preceding paragraphs, an Unrestricted Subsidiary may be
redesignated as a Subsidiary. The designation of a subsidiary as an
Unrestricted Subsidiary or the designation of an Unrestricted Subsidiary as a
Subsidiary in compliance with the preceding paragraphs shall be made by the
Board of Directors pursuant to a Board Resolution delivered to the Trustee and
shall be effective as of the date specified in such Board Resolution, which
shall not be prior to the date such Board Resolution is delivered to the
Trustee. Any Unrestricted Subsidiary shall become a Subsidiary if it incurs any
Indebtedness other than Non-Recourse Indebtedness. If at any time Indebtedness
of an Unrestricted Subsidiary which was Non-Recourse Indebtedness no longer so
qualifies, such Indebtedness shall be deemed to have been incurred when such
Non-Recourse Indebtedness becomes Indebtedness.
Limitations on Line of Business. The Indenture provides that neither the
Company nor any of its Subsidiaries will directly or indirectly engage to any
substantial extent in any line or lines of business activity other than a
Related Business.
Reports. The Indenture provides that, from and after the earlier of (i)
the date of the commencement of the Exchange Offer or the effectiveness of the
Shelf Registration Statement referred to herein and (ii) September 30, 1998 in
either case, whether or not the Company is subject to Section 13(a) or 15(d) of
the Exchange Act, or any successor provision thereto, the Company shall file
with the Commission the annual reports, quarterly reports and other documents
which the Company would have been required to file with the Commission pursuant
to such Section 13(a) or 15(d) or any successor provision thereto if the
Company were subject thereto, such documents to be filed with the Commission on
or prior to the respective dates (the "Required Filing Dates") by which the
Company would have been required to file them. The Company shall also (whether
or not it is required to file reports with the Commission), within 30 days of
each Required Filing Date, transmit by mail to all holders of Notes, as their
names and addresses appear in the applicable Security Register, without cost to
such holders or Persons, and file with the Trustee, (i) all quarterly and
annual financial information that is substantially equivalent to that which
would be required to be contained in a filing with the Commission on Forms 10-Q
and 10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Result of
Operations" section and, with respect to the annual information only, a report
thereon by the Company's certified independent accountants and (ii) all reports
that are substantially equivalent to those that would be required to be filed
with the Commission on Form 8-K if the Company were required to file such
reports.
CONSOLIDATION, MERGER, CONVEYANCE, LEASE OR TRANSFER
The Company will not, in any transaction or series of transactions,
consolidate with or merge into any other Person (other than a merger of a
Subsidiary into the Company in which the Company is the continuing corporation
or a merger for purposes of reincorporation in another State of the United
States or the District of Columbia or a merger with a Person that owns 100% of
the Capital Stock of the Company), or sell, convey, assign, transfer, lease or
otherwise dispose of all or substantially all of the Property and assets of the
Company and the Subsidiaries, taken as a whole, to any Person, unless:
(i) either (a) the Company shall be the continuing corporation or (b) the
corporation (if other than the Company) formed by such consolidation or into
which the Company is merged, or the Person which
64
<PAGE>
acquires, by sale, assignment, conveyance, transfer, lease or disposition, all
or substantially all of the Property and assets of the Company and the
Subsidiaries, taken as a whole (such corporation or Person, the "Surviving
Entity"), shall be a corporation organized and validly existing under the laws
of the United States of America, any political subdivision thereof or any state
thereof or the District of Columbia, and shall expressly assume, by a
supplemental indenture, the due and punctual payment of the principal of (and
premium, if any) and interest (and Liquidated Damages, if any) on all the Notes
and the performance of the Company's covenants and obligations under the
Indenture;
(ii) immediately before and after giving effect to such transaction or
series of transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions), no Event of Default or
Default shall have occurred and be continuing or would result therefrom; and
(iii) immediately after giving effect to any such transaction or series of
transactions on a pro forma basis as if such transaction or series of
transactions had occurred on the first day of the Determination Period, the
Company (or the Surviving Entity if the Company is not continuing) would be
permitted to incur $1.00 of additional Indebtedness pursuant to the test
described in the first sentence under the caption "--Certain
Covenants--Limitation on Indebtedness."
The provision of clause (iii) shall not apply to (a) a merger between the
Company and a wholly owned Subsidiary of a wholly owned Subsidiary of Holdings
created for the purpose of holding the Capital Stock of the Company, (b) a
merger between the Company and a wholly owned Subsidiary or (c) a merger
between the Company and an Affiliate incorporated solely for the purpose of
reincorporating the Company in another State of the United States or the
District of Columbia so long as, in each case, the amount of Indebtedness of
the Company and its Subsidiaries is not increased thereby.
In connection with any consolidation, merger, continuance, transfer of
assets or other transactions contemplated by this provision, the Company shall
deliver, or cause to be delivered, to the Trustee, in form and substance
reasonably satisfactory to the Trustee, an Officer's Certificate and an opinion
of counsel, each stating that such consolidation, merger, continuance, sale,
assignment, conveyance or transfer and the supplemental indenture in respect
thereto comply with the provisions of the Indenture and that all conditions
precedent in the Indenture relating to such transactions have been complied
with.
Upon any transaction or series of transactions that are of the type
described in, and are effected in accordance with, the foregoing paragraphs,
the Surviving Entity shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under the Indenture and the Notes with
the same effect as if such Surviving Entity had been named as the Company in
the Indenture; and when a Surviving Person duly assumes all of the obligations
and covenants of the Company pursuant to the Indenture and the Notes, except in
the case of a lease, the predecessor Person shall be relieved of all such
obligations.
EVENTS OF DEFAULT
Each of the following is an "Event of Default" under the Indenture:
(a) default in the payment of interest on any Note issued pursuant to the
Indenture when the same becomes due and payable, and the continuance of such
default for a period of 30 days;
(b) default in the payment of the principal of (or premium, if any, or
Liquidated Damages, if any, on) any Note issued pursuant to the Indenture at
its Maturity, whether upon optional redemption, required repurchase (including
pursuant to a Change of Control Offer or an Asset Sale Offer) or otherwise or
the failure to make an offer to purchase any such Note as required;
(c) the Company fails to comply with any of its covenants or agreements
contained in "--Change of Control," "--Certain Covenants--Limitation on
Restricted Payments," "--Certain Covenants--Limitation on Asset Sales,"
"--Certain Covenants--Limitation on Indebtedness" or "--Consolidation, Merger,
Conveyance, Lease or Transfer";
65
<PAGE>
(d) default in the performance, or breach, of any covenant or warranty of
the Company in the Indenture (other than a covenant or warranty addressed in
clause (a), (b) or (c) above) and continuance of such Default or breach for a
period of 30 days after written notice thereof has been given to the Company by
the Trustee or to the Company and the Trustee by holders of at least 25% of the
aggregate principal amount at Stated Maturity of the outstanding Notes;
(e) Indebtedness of the Company or any Subsidiary is not paid when due
within the applicable grace period, if any, or is accelerated by the holders
thereof and, in either case, the principal amount of such unpaid or accelerated
Indebtedness exceeds $5.0 million;
(f) the entry by a court of competent jurisdiction of one or more final
judgments against the Company or any Subsidiary in an uninsured or
unindemnified aggregate amount in excess of $5.0 million which is not
discharged, waived, appealed, stayed, bonded or satisfied for a period of 60
consecutive days;
(g) the entry by a court having jurisdiction in the premises of (i) a
decree or order for relief in respect of the Company or any Significant
Subsidiary in an involuntary case or proceeding under U.S. bankruptcy laws, as
now or hereafter constituted, or any other applicable Federal, state, or
foreign bankruptcy, insolvency, or other similar law or (ii) a decree or order
adjudging the Company or any Significant Subsidiary as bankrupt or insolvent,
or approving as properly filed a petition seeking reorganization, arrangement,
adjustment or composition of or in respect of the Company or any Significant
Subsidiary under U.S. bankruptcy laws, as now or hereafter constituted, or any
other applicable Federal, state or foreign bankruptcy, insolvency, or similar
law, or appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Significant
Subsidiary or of any substantial part of the Property or assets of the Company
or any Significant Subsidiary, or ordering the winding up or liquidation of the
affairs of the Company or any Significant Subsidiary, and the continuance of
any such decree or order for relief or any such other decree or order unstayed
and in effect for a period of 60 consecutive days; or
(h) (i) the commencement by the Company or any Significant Subsidiary of a
voluntary case or proceeding under U.S. bankruptcy laws, as now or hereafter
constituted, or any other applicable Federal, state or foreign bankruptcy,
insolvency or other similar law or of any other case or proceeding to be
adjudicated as bankrupt or insolvent; or (ii) the consent by the Company or any
Significant Subsidiary to the entry of a decree or order for relief in respect
of the Company or any Significant Subsidiary in an involuntary case or
proceeding under U.S. bankruptcy laws, as now or hereafter constituted, or any
other applicable Federal, state, or foreign bankruptcy, insolvency or other
similar law or to the commencement of any bankruptcy or insolvency case or
proceeding against the Company or any Significant Subsidiary; or (iii) the
filing by the Company or any Significant Subsidiary of a petition or answer or
consent seeking reorganization or relief under U.S. bankruptcy laws, as now or
hereafter constituted, or any other applicable Federal, state or foreign
bankruptcy, insolvency or other similar law; or (iv) the consent by the Company
or any Significant Subsidiary to the filing of such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or similar official of the Company or any
Significant Subsidiary or of any substantial part of the Property or assets of
the Company or any Significant Subsidiary or of any substantial part of the
Property or assets of the Company or any Significant Subsidiary, or the making
by the Company or any Significant Subsidiary of an assignment for the benefit
of creditors; or (v) the admission by the Company or any Significant Subsidiary
in writing of its inability to pay its debts generally as they become due; or
(vi) the taking of corporate action by the Company or any Significant
Subsidiary in furtherance of any such action.
If any Event of Default (other than an Event of Default specified in
clause (g) or (h) above) occurs and is continuing, then and in every such case
the Trustee or the holders of not less than 25% of the outstanding aggregate
principal amount at Stated Maturity of the Notes, may declare the principal
amount at Stated Maturity, premium, if any, and any accrued and unpaid interest
on all such Notes then outstanding to be immediately due and payable by a
notice in writing to the Company (and to the Trustee if given by holders of
such Notes), and upon any such declaration all amounts payable in respect of
the Notes will become and be immediately due and payable. If any Event of
Default specified in clause (g) or (h) above occurs, the principal amount at
Stated Maturity, premium, if any, and any accrued and unpaid
66
<PAGE>
interest on the Notes then outstanding shall become immediately due and payable
without any declaration or other act on the part of the Trustee or any holder
of such Notes. In the event of a declaration of acceleration because an Event
of Default set forth in clause (e) above has occurred and is continuing, such
declaration of acceleration shall be automatically rescinded and annulled if
the event of default triggering such Event of Default pursuant to clause (e)
shall be remedied or cured or waived by the holders of the relevant
Indebtedness within 30 days after such event of default; provided that no
judgment or decree for the payment of the money due on the Notes has been
obtained by the Trustee as provided in the Indenture. Under certain
circumstances, the holders of a majority in principal amount at Stated Maturity
of the outstanding Notes by notice to the Company and the Trustee may rescind
an acceleration and its consequences.
The holders of a majority in aggregate principal amount at Stated Maturity
of the Notes then outstanding by notice to the Trustee may on behalf of the
holders of all such Notes waive any existing Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, premium, if any, on, Liquidated Damages, if any, on or the
principal of, such Notes. Subject to the provisions of the Indenture relating
to the duties of the Trustee, the Trustee is under no obligation to exercise
any of its rights or powers under the Indenture at the request, order or
direction of any of the holders, unless such holders have offered to such
Trustee reasonable security or indemnity. Subject to the provisions of the
Indenture and applicable law, the holders of a majority in aggregate principal
amount at Stated Maturity of the Notes at the time outstanding have the right
to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred
upon the Trustee.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required within
five Business Days after becoming aware of any Default or Event of Default, to
deliver to the Trustee a statement describing such Default or Event of Default,
its status and what action the Company is taking or proposes to take with
respect thereto.
AMENDMENT, SUPPLEMENT AND WAIVER
The Company and the Trustee may, at any time and from time to time,
without notice to or consent of any holder, enter into one or more indentures
supplemental to the Indenture (a) to evidence the succession of another Person
to the Company and the assumption by such successor of the covenants and
Obligations of the Company under the Indenture and contained in the Notes, (b)
to add to the covenants of the Company, for the benefit of the holders, or to
surrender any right or power conferred upon the Company by the Indenture, (c)
to add any additional Events of Default, (d) to provide for uncertificated
Notes in addition to or in place of certificated Notes, (e) to evidence and
provide for the acceptance of appointment under the Indenture by the successor
Trustee, (f) to secure the Notes, (g) to provide for any guarantee of the Notes
by any Subsidiary, and (h) to cure any ambiguity, to correct or supplement any
provision in the Indenture which may be inconsistent with any other provision
therein or to add any other provisions with respect to matters or questions
arising under the Indenture; provided that such actions will not adversely
affect the interests of the holders in any material respect.
With the consent of the holders of not less than a majority in principal
amount at Stated Maturity of the outstanding Notes (including consents obtained
in connection with a tender offer or exchange offer for the Notes), the Company
and the Trustee may enter into one or more indentures supplemental to the
Indenture for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of the Indenture or of modifying in any
manner the rights of the holders; provided, however, that no such supplemental
indenture will, without the consent of the holders of not less than two-thirds
in principal amount at Stated Maturity of the Notes, modify the Obligations of
the Company to make offers to purchase Notes upon a Change of Control or from
the proceeds of Asset Sales; provided, further, that no such supplemental
indenture will, without the consent of the holder of each outstanding Note
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, or reduce the principal amount thereof
(or premium, if any, or Liquidated Damages, if any), or the interest thereon
that would be due and payable upon Maturity thereof, or change the place of
payment where, or the coin or currency in which, any Note or any premium,
Liquidated Damages or interest
67
<PAGE>
thereon is payable, or impair the right to institute suit for the enforcement
of any such payment on or after the Stated Maturity thereof, (b) reduce the
percentage in principal amount at Stated Maturity of the Outstanding Notes, the
consent of whose Holders is necessary for any such supplemental indenture or
required for any waiver of compliance with certain provisions of the Indenture,
or certain Defaults thereunder, (c) subordinate in right of payment, or
otherwise subordinate, the Notes to any other Indebtedness or (d) modify any of
the provisions of this paragraph (except to increase any percentage set forth
herein).
The holders of not less than a majority in principal amount at Stated
Maturity of the outstanding Notes may on behalf of the holders of all the Notes
waive any past Default or Event of Default under the Indenture and its
consequences, except a Default or Event of Default (a) in the payment of the
principal of (or premium, if any) or interest (or Liquidated Damages, if any)
on any Note or (b) in respect of a covenant or provision hereof which under the
proviso to the prior paragraph cannot be modified or amended without the
consent of the holder of each outstanding Note affected.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any Guarantor, as such, shall have any liability for any obligations of the
Company or any Guarantor under the Notes, the Subsidiary Guarantees, the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
SATISFACTION AND DISCHARGE OF THE INDENTURE; DEFEASANCE
The Company may terminate its obligations under the Notes and the
Indenture when (i) either (A) all outstanding Notes have been delivered to the
Trustee for cancellation or (B) all such Notes not therefore delivered to the
Trustee for cancellation have become due and payable, will become due and
payable within one year or are to be called for redemption within one year
under irrevocable arrangements satisfactory to the Trustee for the giving of
notice of redemption by the Trustee in the name and at the expense of the
Company, and the Company has irrevocably deposited or caused to be deposited
with the Trustee funds in an amount sufficient to pay and discharge the entire
indebtedness on the Notes not theretofore delivered to the Trustee for
cancellation, for principal of (premium, if any, and Liquidated Damages, if
any, on) and interest to the date of deposit or Maturity or date of redemption;
(ii) the Company has paid or caused to be paid all sums then due and payable by
the Company under the Indenture; and (iii) the Company has delivered an
Officers' Certificate and an opinion of counsel relating to compliance with the
conditions set forth in the Indenture.
The Company, at its election, shall (a) be deemed to have paid and
discharged its debt on the Notes and the Indenture shall cease to be of further
effect as to all outstanding Notes (except as to (i) rights of registration of
transfer, substitution and exchange of Notes, (ii) the Company's right of
optional redemption, (iii) rights of holders to receive payments of principal
of, premium, if any, interest and Liquidated Damages, if any, on the Notes (but
not the Change of Control Purchase Price or the Asset Sale Offer Purchase
Price) and any rights of the holders with respect to such amounts, (iv) the
rights, obligations and immunities of the Trustee under the Indenture, and (v)
certain other specified provisions in the Indenture) or (b) cease to be under
any obligation to comply with certain restrictive covenants that are described
in the Indenture, after the irrevocable deposit by the Company with the
Trustee, in trust for the benefit of the holders, at any time prior to the
Stated Maturity of the Notes, of (A) money in an amount, (B) U.S. Government
Obligations which through the payment of interest and principal will provide,
not later than one Business Day before the due date of payment in respect of
such Notes, money in an amount, or (C) a combination thereof sufficient to pay
and discharge the principal of, premium, if any on, interest and Liquidated
Damages, if any, on, such Notes then outstanding on the dates on which any such
payments are due in accordance with the terms of the Indenture and of such
Notes. Such defeasance or covenant defeasance shall be deemed to occur only if
certain conditions are satisfied, including, among other things, delivery by
the Company to the Trustee of an opinion of outside counsel
68
<PAGE>
acceptable to the Trustee to the effect that (i) such deposit, defeasance and
discharge will not be deemed, or result in, a taxable event for federal income
tax purposes with respect to the holders; and (ii) the Company's deposit will
not result in the trust or such Trustee being subject to regulation under the
Investment Company Act of 1940.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any capitalized terms used herein for which no
definition is provided.
"Acquired Indebtedness" means, with respect to any specified Person,
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a subsidiary of such specified Person, including
Indebtedness incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a subsidiary of such specified Person,
but excluding Indebtedness which is extinguished, retired or repaid in
connection with such other Person merging with or into or becoming a subsidiary
of such specified Person.
"Acquisition Agreements" means (i) that certain Amended and Restated
Transaction Agreement, dated as of September 18, 1996, among DLJ Merchant
Banking Partners, L.P., DLJ International Partners, C.V., DLJ Offshore
Partners, C.V., DLJ Merchant Banking Funding, Inc., Carlisle Enterprises, L.P.,
DLJ Brand Holdings, Inc., Brand Scaffold Services, Inc., Brand Scaffold
Builders, Inc., Brand Scaffold Rental & Erection, Inc., 702569 Alberta Ltd.,
Rust International Inc., Rust Industrial Services Inc., Rust Scaffold Services
Inc., Rust Scaffold Builders Inc. and Rust Scaffold Rental & Erection Inc., as
amended, restated, supplemented or otherwise modified from time to time and
(ii) each other agreement (other than the Shareholders Agreement) entered into
by, between or among any one or more of the foregoing and one or more other
person, as the case may be, pursuant to or in connection with the transactions
contemplated by such Amended and Restated Transaction Agreement, each as
amended, restated, supplemented or otherwise modified from time to time.
"Affiliate" of any specified Person means another Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
that beneficial ownership of 20% or more of the Voting Stock of a Person shall
be deemed to be control.
"Asset Sale" means any direct or indirect sale, conveyance, transfer,
lease or other disposition (including, without limitation, by way of merger or
consolidation or by means of a Sale and Lease-Back Transaction) by the Company
or any Subsidiary to any Person other than the Company or a Subsidiary of (i)
any Capital Stock of any Subsidiary (except for directors' qualifying shares or
certain minority interests sold to other Persons solely due to local law
requirements that there be more than one stockholder, but which are not in
excess of what is required for such purpose), or (ii) any other Property or
assets of the Company or any Subsidiary, in the case of either clause (i) or
(ii), whether in a single transaction or a series of related transactions (A)
that have a Fair Value in excess of $500,000 or (B) for net proceeds in excess
of $500,000. Notwithstanding the foregoing, the following shall not constitute
Asset Sales: (i) sales of obsolete, worn out, lost, damaged or shortage
equipment in the ordinary course of business or other assets that, in the
Company's reasonable judgment, are no longer used or useful in the conduct of
the business of the Company and its Subsidiaries), (ii) any scaffolding rental
contract or other lease of Property or other assets entered into by the Company
or any Subsidiary in the ordinary course of business, other than any Bargain
Purchase Contract, (iii) a Restricted Payment or Restricted Investment
permitted under "--Certain Covenants--Limitation on Restricted Payments," (iv)
a Change of Control, (v) a consolidation, merger, continuance or the
disposition of all or substantially all of the assets of the Company and the
Subsidiaries, taken as a whole in compliance with the provision of the
Indenture described in "--Consolidation, Merger, Conveyance, Lease or
Transfer," (vi) any trade or exchange by the Company or any Subsidiary of
Property or assets for Replacement Assets owned or held
69
<PAGE>
by another Person, provided that (x) the Fair Value of the Property or assets
traded or exchanged by the Company or such Subsidiary (including cash or cash
equivalents to be delivered by the Company or such Subsidiary) is reasonably
equivalent to the Fair Value of the Replacement Assets (together with cash or
cash equivalents to be received by the Company or such Subsidiary) or other
assets. An Asset Sale shall include the requisition of title to, seizure of or
forfeiture of any Property or assets, or any actual or constructive total loss
or an agreed or compromised total loss of any Property or assets.
"Attributable Indebtedness" in respect of a Sale and Lease-Back
Transaction means, at any date of determination, the present value (discounted
at the interest rate borne by the Notes, compounded annually) of the total
obligations of the lessee for rental payments during the remaining term of the
lease (or to the first date on which the lessee is permitted to terminate such
lease without the payment of a penalty) included in such Sale and Lease-Back
Transaction (including any period for which such lease has been extended).
"Average Life" means, as of any date, with respect to any debt security,
the quotient obtained by dividing (i) the sum of the products of (x) the number
of years from such date to the date of each scheduled principal payment
(including any sinking fund or mandatory redemption payment requirements) of
such debt security multiplied in each case by (y) the amount of such principal
payment by (ii) the sum of all such principal payments.
"Bank Facility" means all financing provided to, or Indebtedness incurred
by, the Company pursuant to that certain Credit Agreement, dated as of
September 30, 1996, among Brand Scaffold Services, Inc., as the borrower,
various financial institutions, as the lenders, DLJ Capital Funding, Inc., as
the syndication agent, Bank of America Illinois, as the letter of credit
issuer, and Bank of America National Trust & Savings Association, as the
administrative agent, including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith, and in
each case as amended by that certain First Amendment to the Credit Agreement,
dated as of November 21, 1996, and by that certain Second Amendment to the
Credit Agreement, dated as of February 19, 1998, and as further amended,
modified, renewed, refunded, replaced, refinanced from time to time, including
any agreement extending the maturity of or refinancing or refunding all or any
portion of the Indebtedness thereunder or increasing the amount that may be
borrowed under such agreement or any successor agreement, whether or not among
the same parties.
"Bargain Purchase Contract" means a scaffolding rental contract or lease
that provides for acquisition of Property by the other party to such agreement
during or at the end of the term thereof for less than Fair Market Value
thereof at the time such right to acquire such Property is granted.
"Capital Lease Obligation" means, at any time as to any Person with
respect to any Property leased by such Person as lessee, the amount of the
liability with respect to such lease that would be required at such time to be
capitalized and accounted for as a capital lease on the balance sheet of such
Person prepared in accordance with GAAP.
"Capital Stock" in any Person means any and all shares, interests,
partnership interests, participations or other equivalents in the equity
interest (however designated) in such Person and any rights (other than debt
securities convertible into an equity interest), warrants or options to acquire
any equity interest in such Person.
"Cash Equivalents" means (i) Government Securities, (ii) any certificate
of deposit maturing not more than 365 days after the date of acquisition issued
by, or time deposit of, an Eligible Institution or any lender under the Bank
Facility, (ii) commercial paper maturing not more than 365 days after the date
of acquisition of an issuer (other than an Affiliate of the Company) with a
rating, at the time as of which any investment therein is made, or "A-3" (or
higher) according to S&P or "P-2" (or higher) according to Moody's or carrying
an equivalent rating by a nationally recognized rating agency if both of the
two named rating agencies cease publishing ratings of investments, (iv) any
bankers acceptances or money market deposit accounts issued by an Eligible
Institution and (v) any fund investing exclusively in investments of the types
described in clauses (i) through (iv) above.
70
<PAGE>
"Cash Proceeds" means, with respect to any Asset Sale by any Person, the
aggregate consideration received for such Asset Sale by such Person in the form
of cash or cash equivalents (including any amounts of insurance or other
proceeds received in connection with an Asset Sale of the type described in the
last sentence of the definition thereof), including payments in respect of
deferred payment obligations when received in the form of cash or cash
equivalents (except to the extent that such obligations are financed or sold
with recourse to such Person or any subsidiary thereof).
"Change of Control" means (i) a determination by the Company that any
Person or group (as defined in Section 13 (d) (3) or 14(d) (2) of the Exchange
Act) has become the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act) of more than 50% of the Voting Stock of the Company other than
Permitted Holders; (ii) the Company is merged with or into or consolidated with
another corporation and immediately after giving effect to the merger or
consolidation, more than 50% of the outstanding voting securities entitled to
vote generally in the election of directors or persons who serve similar
functions of the surviving or resulting entity are then beneficially owned
(within the meaning of Rule 13d-3 of the Exchange Act) in the aggregate by
Persons other than (x) the stockholders of the Company immediately prior to
such merger or consolidation, or (y) if the record date has been set to
determine the stockholders of the Company entitled to vote on such merger or
consolidation, the stockholders of the Company as of such a record date; (iii)
the Company, either individually or in conjunction with one or more
Subsidiaries, sells, conveys, transfers or leases, or the Subsidiaries sell,
convey, transfer or lease, all or substantially all of the assets of the
Company or the Company and the Subsidiaries, taken as a whole (either in one
transaction or a series of related transactions), including Capital Stock of
the Subsidiaries, to any Person (other than a Subsidiary); (iv) the liquidation
or dissolution of the Company; or (v) the first day on which a majority of the
individuals who constitute the Board of Directors of the Company are not
Continuing Directors.
"Consolidated Interest Coverage Ratio" means as of the date of the
transaction giving rise to the need to calculate the Consolidated Interest
Coverage Ratio (the "Transaction Date"), the ratio of the aggregate amount of
EBITDA to aggregate Consolidated Interest Expense of the Company and its
consolidated Subsidiaries for the four fiscal quarters for which financial
information in respect thereof is available immediately prior to the applicable
Transaction Date (the "Determination Period"); provided that if the Company or
any of its consolidated Subsidiaries is a party to any Interest Swap Obligation
that would have the effect of changing the interest rate on any Indebtedness of
the Company or any of its consolidated Subsidiaries for such four-quarter
period (or a portion thereof), the resulting rate shall be used for such
four-quarter period or portion thereof; provided, further, that in the event
that the Company or any of its Subsidiaries incurs, assumes, guarantees,
redeems or repays any Indebtedness (other than Indebtedness under the Revolving
Loan) subsequent to the commencement of the Determination Period but on or
prior to the Transaction Date, then the Consolidated Interest Coverage Ratio
shall be calculated giving pro forma effect to such incurrence, assumption,
guarantee, redemption or repayment of Indebtedness, as if the same had occurred
at the beginning of the Determination Period; provided, further, that if the
transaction giving rise to the need to calculate the Consolidated Interest
Coverage Ratio would have the effect of increasing or decreasing EBITDA in the
future and if such increase or decrease is readily quantifiable and is
attributable to such transaction, EBITDA shall be calculated on a pro forma
basis as if such transaction had occurred on the first day of the Determination
Period and if, during the Determination Period, (x) the Company or any of its
consolidated Subsidiaries shall have engaged in any Asset Sale, EBITDA for such
period shall be reduced by an amount equal to the EBITDA (if positive), or
increased by an amount equal to the EBITDA (if negative), directly attributable
to the assets which are the subject of such Asset Sale for such period
calculated on a pro forma basis as if such Asset Sale and any related
retirement of Indebtedness had occurred on the first day of such period or (y)
after the Issue Date, the Company or any of its consolidated Subsidiaries shall
have acquired any material assets or business, whether through the acquisition
of the Capital Stock of such business or otherwise, other than in the ordinary
course of business, EBITDA and Consolidated Interest Expense shall be
calculated on a pro forma basis as if such acquisition had occurred on the
first day of such period.
"Consolidated Interest Expense" means, with respect to any Person for any
period, without duplication (A) the sum of (i) the aggregate amount of cash and
non-cash interest expense (including
71
<PAGE>
capitalized interest) of such Person and its subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP in respect of
Indebtedness (including, without limitation, (w) net costs associated with
Interest Swap Obligations (including any amortization of discounts), (x) the
interest portion of any deferred payment obligation calculated in accordance
with the effective interest method, (y) all accrued interest and (z) all
commissions, discounts and other fees and charges owed with respect to letters
of credit, bankers acceptances or similar facilities) paid or accrued, or
scheduled to be paid or accrued, during such period; (ii) dividends on
Redeemable Stock of such Person (and Preferred Stock or Redeemable Stock of its
subsidiaries if paid to a Person other than such Person or its subsidiaries)
declared and payable in cash; (iii) the portion of any rental obligation of
such Person or its subsidiaries in respect of any Capital Lease Obligation
allocable to interest expense in accordance with GAAP; (iv) the portion of any
rental obligation of such Person or its subsidiaries in respect of any Sale and
Lease-Back Transaction allocable to interest expense (determined as if such
were treated as a Capital Lease Obligation); and (v) to the extent any debt of
any other Person is guaranteed by such Person or any of its subsidiaries, the
aggregate amount of interest paid, accrued or scheduled to be paid or accrued,
by such other Person during such period attributable to any such debt, less (B)
to the extent included in (A) above, amortization or write-off of deferred
financing costs of such Person and its subsidiaries during such period and any
charge related or any premium or penalty paid in connection with redeeming or
retiring any Indebtedness of such Person and its subsidiaries prior to its
stated maturity, in the case of both (A) and (B) above, after elimination of
intercompany accounts among such Person and its subsidiaries and as determined
in accordance with GAAP. For purposes of clause (ii) above, dividend
requirements attributable to any Preferred Stock or Redeemable Stock shall be
deemed to be an amount equal to the amount of dividend requirements on such
Preferred Stock or Redeemable Stock times a fraction, the numerator of which is
the amount of such dividend requirements, and the denominator of which is one
minus the applicable combined federal, state, local and foreign income tax rate
of the Company and its Subsidiaries (expressed as a decimal), on a consolidated
basis, for the fiscal year immediately preceding the date of the transaction
giving rise to the need to calculate Consolidated Interest Expense.
"Consolidated Net Income" of any Person means, for any period, the
aggregate net income (or net loss, as the case may be) of such Person and its
subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that there shall be excluded therefrom, without
duplication, (i) any net income of any Unrestricted Subsidiary, except that the
Company's or any Subsidiary's interest in the net income of such Unrestricted
Subsidiary for such period shall be included in such Consolidated Net Income up
to the aggregate amount of cash or cash equivalents actually distributed by
such Unrestricted Subsidiary during such period to the Company or a Subsidiary
as a dividend or other distribution, (ii) gains and losses, net of taxes, from
Asset Sales or reserves relating thereto, (iii) the net income of any Person
that is not a subsidiary or that is accounted for by the equity method of
accounting which shall be included only to the extent of the amount of
dividends or distributions paid to such Person or its subsidiaries, (iv) items
classified as extraordinary, unusual or non-recurring (other than the tax
benefit, if any, of the utilization of net operating loss carryforwards or
alternative minimum tax credits), (v) the net income of any Person acquired by
such specified Person or any of its subsidiaries in a pooling-of-interests
transaction for any period prior to the date of such acquisition, (vi) any gain
or loss, net of taxes, realized on the termination of any employee pension
benefit plan, (vii) the net income of any subsidiary of such specified Person
to the extent that the transfer to that Person of that income is not at the
time permitted, directly or indirectly, by any means (including by dividend,
distribution, advance or loan or otherwise), or by operation of the terms of
its charter or any agreement with a Person other than with such specified
Person, instrument held by a Person other than by such specified Person,
judgment, decree, order, statute, law, rule or governmental regulations
applicable to such subsidiary or its stockholders, except for any dividends or
distributions actually paid by such subsidiary to such Person, (viii) the
portion of the WMI Payments not included in net income, (ix) gains or losses
associated with non-cash compensations items, including, without limitation,
the vesting of options to purchase shares of Capital Stock of the Company or
Holdings, (x) amortization of fees incurred in connection with any financing by
the Company, (xi) one-time write-offs of intangibles related to the
transactions comprising or incidental to the Offering, (xii) gains or losses
associated with the cumulative effect of a change in accounting principles and
(xiii) with regard to a non-Subsidiary, any aggregate net income (or loss) in
excess of such Person's or such subsidiary's pro rata share of such
non-Subsidiary's net income (or loss).
72
<PAGE>
"Consolidated Net Worth" of any Person means, as of any date, the sum of
the Capital Stock and additional paid-in capital plus retained earnings (or
minus accumulated deficit) of such Person and its subsidiaries on a
consolidated basis at such date, each item determined in accordance with GAAP,
less amounts attributable to Redeemable Stock of such Person or any of its
subsidiaries.
"Continuing Director" means an individual who (i) is a member of the Board
of Directors of the Company and (ii) either (A) was a member of the Board of
Directors of the Company on the Issue Date or (B) whose nomination for election
or election to the Board of Directors of the Company was approved by vote of at
least a majority of the directors then still in office who were either
directors on the Issue Date or whose election or nomination for election was
previously so approved.
"Currency Hedge Obligations" means, at any time as to any Person, the
obligations of such Person at such time which were incurred in the ordinary
course of business pursuant to any foreign currency exchange agreement, option
or future contract or other similar agreement or arrangement designed to
protect against or manage such Person's or any of its subsidiaries' exposure to
fluctuations in foreign currency exchange rates.
"Default" means any event, act or condition the occurrence of which is, or
after notice or the passage of time or both would be, an Event of Default.
"Determination Period" has the meaning specified under the definition of
"Consolidated Interest Coverage Ratio."
"EBITDA" means, with respect to any Person for any period, the
Consolidated Net Income of such Person for such period, plus (minus) to the
extent reflected in the income statement of such Person for such period from
which Consolidated Net Income is determined, without duplication, (i)
Consolidated Interest Expense, (ii) income tax expense, (iii) depreciation
expense, (iv) amortization expense, (v) any charge related to any premium or
penalty paid in connection with redeeming or retiring any Indebtedness prior to
its stated maturity, (vi) prior to January 1, 1999, the product of (A) the Pro
Forma Cost Reductions and (B) a fraction the numerator of which is the number
of days between the transaction date giving rise to this calculation and
January 1, 1998, inclusive, and the denominator of which is 365, (vii) the
one-time write-off of merger expenses incurred in connection with any
acquisition consummated after the Issue Date, (viii) the one-time write-off of
severance costs associated with the cost reduction program implemented by the
Company in the fourth quarter of 1997, (ix) Non-Cash Claims and (x) any other
non-cash charges (revenues) to the extent deducted from (or added to)
Consolidated Net Income except for any non-cash charges (revenues) that
represent accruals of, or reserves for, cash disbursements to be made in any
future accounting period.
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus not less than $100.0 million or its equivalent in
foreign currency, whose short-term debt is rated "A-3" or higher according to
Standard & Poor's Ratings Group ("S&P") or "P-2" or higher according to Moody's
Investor Services, Inc. ("Moody's") or carrying an equivalent rating by a
nationally recognized rating agency if both of the two named rating agencies
cease publishing ratings of investments.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Fair Market Value" means, with respect to consideration received or to be
received pursuant to any transaction by any Person, the fair market value of
such consideration as determined in good faith by the Board of Directors of the
Company.
"Fair Value" means, with respect to any asset or Property, the price which
could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction.
"GAAP" means, at any date, United States generally accepted accounting
principles, consistently applied, as set forth in the opinions of the
Accounting Principles Board of the American Institute of Certified Public
Accountants ("AICPA") and statements of the Financial Accounting Standards
Board, or
73
<PAGE>
in such other statements by such other entity as may be designated by the
AICPA, that are applicable to the circumstances as of the date of
determination; provided, however, that all calculations made for purposes of
determining compliance with the provisions set forth in the Indenture shall
utilize GAAP in effect at the Issue Date.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the Untied States of America is
pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantor" means any Subsidiary that shall have guaranteed, pursuant to a
supplemental indenture and the requirements therefor set forth in the
Indenture, the payment of all principal of, and interest and premium, if any,
and Liquidated Damages, if any, on the Notes and all other amounts payable
under the Notes or the Indenture, which guarantee shall be subordinate to all
Senior Debt and pari passu with or senior to all other Indebtedness of such
Subsidiary.
"Holdings" means DLJ Brand Holdings, Inc., a Delaware corporation.
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, suffer to exist, incur (by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or obligation on the balance sheet of
such Person (and "incurrence," "incurred," "incurrable" and "incurring" shall
have meanings correlative to the foregoing); provided that a change in GAAP
that results in an obligation of such Person that exists at such time becoming
Indebtedness shall not be deemed an incurrence of such Indebtedness.
Indebtedness of a Person which is outstanding at the time it becomes a
Subsidiary shall be deemed to have been incurred at the time at which it
becomes a Subsidiary.
"Indebtedness" as applied to any Person means, at any time, without
duplication, whether recourse is to all or a portion of the assets of such
Person, and whether or not contingent, (i) any obligation of such Person for
borrowed money; (ii) any obligation of such Person evidenced by bonds,
debentures, notes or other similar instruments, including, without limitation,
any such obligations incurred in connection with acquisition of Property,
assets or businesses, excluding accounts payable made in the ordinary course of
business which are not more than 90 days overdue or which are being contested
in good faith and by appropriate proceedings; (iii) any obligation of such
Person for all or any part of the purchase price of Property or for the cost of
Property constructed or of improvements thereto (including any obligation under
or in connection with any letter of credit related thereto), other than
accounts payable incurred in respect of Property and services purchased in the
ordinary course of business which are no more than 90 days overdue or which are
being contested in good faith and by appropriate proceedings; (iv) any
obligation of such Person upon which interest charges are customarily paid
(other than accounts payable incurred in the ordinary course of business which
are not more than 90 days overdue or which are being contested in good faith
and by appropriate proceedings); (v) any obligation of such Person under
conditional sale or other title retention agreements relating to purchased
Property; (vi) any obligation of such Person issued or assumed as the deferred
purchase price of Property (other than accounts payable incurred in the
ordinary course of business which are no more than 90 days overdue or which are
being contested in good faith and by appropriate proceedings); (vii) any
Capital Lease Obligation or Attributable Indebtedness pursuant to any Sale and
Lease-Back Transaction of such Person; (viii) any obligation of any other
Person secured by (or for which the obligee thereof has an existing right,
contingent or otherwise, to be secured by) any Lien on Property owned or
acquired, whether or not any obligation secured thereby has been assumed, by
such Person; (ix) any obligation of such Person in respect of any letter of
credit supporting any obligation of any other Person; (x) the maximum fixed
repurchase price of any Redeemable Stock of such Person (or if such Person is a
subsidiary, any Preferred Stock of such Person); (xi) the notional amount of
any Interest Swap Obligation or Currency Hedge Obligation of such Person at the
time of determination; and (xii) any obligation which is in economic
74
<PAGE>
effect a guarantee, regardless of its characterization (other than an
endorsement in the ordinary course of business), with respect to any
Indebtedness of another Person, to the extent guaranteed. For purposes of the
preceding sentence, the maximum fixed repurchase price of any Redeemable Stock
or subsidiary Preferred Stock that does not have a fixed repurchase price shall
be calculated in accordance with the terms of such Redeemable Stock or
subsidiary Preferred Stock as if such Redeemable Stock or subsidiary Preferred
Stock were repurchased on any date on which Indebtedness shall be required to
be determined pursuant to the Indenture; provided, however, that if such
Redeemable Stock or subsidiary Preferred Stock is not then permitted to be
repurchased, the repurchase price shall be the book value of such Redeemable
Stock or subsidiary Preferred Stock. The amount of Indebtedness of any Person
at any date shall be the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability of any guarantees at
such date; provided that for purposes of calculating the amount of any
non-interest bearing or other discount security, such Indebtedness shall be
deemed to be the principal amount thereof that would be shown on the balance
sheet of the issuer dated such date prepared in accordance with GAAP but that
such security shall be deemed to have been incurred only on the date of the
original issuance thereof.
"Interest Swap Obligation" means, with respect to any Person, the
obligation of such Person pursuant to any interest rate swap agreement,
interest rate cap, collar or floor agreement or other similar agreement or
arrangement designed to protect against or manage such Person's or any of its
subsidiaries' exposure to fluctuations in interest rates.
"Investment" means, with respect to any Person, any direct, indirect or
contingent investment in another Person, whether by means of a share purchase,
capital contribution, loan, advance (other than advances to employees for
moving and travel expenses, drawing accounts and similar expenditures in the
ordinary course of business) or similar credit extension constituting
Indebtedness of such other Person, and any guarantee of Indebtedness of any
other Person; provided that the term "Investment" shall not include any
transaction involving the purchase or other acquisition (including by way of
merger) of Property (including Capital Stock) by the Company or any Subsidiary
in exchange for Capital Stock (other than Redeemable Stock) of the Company. The
amount of any Person's Investment shall be the original cost of such Investment
to such Person, plus the cost of all additions thereto paid by such Person, and
minus the amount of any portion of such Investment repaid to such Person in
cash as a repayment of principal or a return of capital, as the case may be,
but without any other adjustments for increases or decreases in value, or
write-ups, writedowns, or write-offs with respect to such Investment. In
determining the amount of any Investment involving a transfer of any Property
or assets other than cash, such Property or assets shall be valued at its Fair
Value at the time of such transfer as determined in good faith by the board of
directors (or comparable body) of the Person making such transfer. The Company
shall be deemed to make an "Investment" in the amount of the Fair Value of the
Assets of a Subsidiary at the time such Subsidiary is designated an
Unrestricted Subsidiary.
"Issue Date" means the date on which the Old Notes are first authenticated
and delivered under the Indenture.
"Lien" means any mortgage, pledge, hypothecation, charge, assignment,
deposit arrangement, encumbrance, security interest, lien (statutory or other),
or preference, priority or other security or similar agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation,
any agreement to give or grant a Lien or any lease, conditional sale or other
title retention agreement having substantially the same economic effect as any
of the foregoing).
"Maturity" means the date on which the principal of a Note becomes due and
payable as provided therein or in the Indenture, whether at the Stated Maturity
or the Change of Control Payment Date or purchase date established pursuant to
the terms of the Indenture for an Asset Sale Offer or by declaration of
acceleration, call for redemption or otherwise.
"Net Available Proceeds" means, (a) as to any Asset Sale (other than a
Bargain Purchase Contract), the Cash Proceeds therefrom, net of all legal and
title expenses, commissions and other fees and expenses incurred, and all
Federal, state, foreign, recording and local taxes payable as a consequence of
such Asset Sale, net of all payments made to any Person other than the Company
or a Subsidiary on any
75
<PAGE>
Indebtedness which is secured by such assets, in accordance with the terms of
any Lien upon or with respect to such assets, or which must by its terms, or in
order to obtain a necessary consent to such Asset Sale, or by applicable law,
be repaid out of the proceeds from such Asset Sale and, as for any Asset Sale
by a Subsidiary, net of the equity interest in such Cash Proceeds of any holder
of Capital Stock of such Subsidiary (other than the Company, any other
Subsidiary or any Affiliate of the Company or any such other Subsidiary) and
(b) as to any Bargain Purchase Contract, an amount equal to (i) that portion of
the rental or other payment stream arising under a Bargain Purchase Contract
that represents an amount in excess of the Fair Market Value of the rental or
other payments with respect to the pertinent Property or other asset and (ii)
the Cash Proceeds from the sale of such Property or other asset, net of the
amount set forth in clause (a) above, in each case as and when received.
"Non-Cash Claims" means the non-cash portion of general liability, auto
liability, worker's compensation or post-retirement health insurance and
related benefits expense.
"Non-Recourse Indebtedness" means Indebtedness or that portion of
Indebtedness of an Unrestricted Subsidiary as to which (a) neither the Company
nor any other Subsidiary (other than an Unrestricted Subsidiary) (i) provides
credit support including any undertaking, agreement or instrument which would
constitute Indebtedness or (ii) is directly or indirectly liable for such
Indebtedness and (b) no default with respect to such Indebtedness (including
any rights which the holders thereof may have to take enforcement action
against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or
both) any holder of any other Indebtedness of the Company or its other
Subsidiaries to declare a default on such other Indebtedness or cause the
payment thereof to be accelerated or payable prior to its stated maturity.
"Obligations" means, with respect to any Indebtedness, any obligation
thereunder, including, without limitation, principal, premium and interest
(including post petition interest thereon), penalties, fees, costs, expenses,
indemnifications, reimbursements, damages and other liabilities.
"Officer's Certificate" means a certificate signed by the Chairman of the
Board, a Vice Chairman of the Board, the President, the Chief Executive
Officer, the Chief Operating Officer, or a Vice President, the Chief Financial
Officer, the Chief Accounting Officer, the Controller, the Treasurer, an
Assistant Treasurer, the Secretary or an Assistant Secretary of the Company or
a Subsidiary and delivered to the Trustee, which shall comply with the
Indenture.
"Permitted Holders" means DLJ Merchant Banking Partners, L.P. and Carlisle
Enterprises, L.P., and their respective Affiliates.
"Permitted Indebtedness" means (a) Indebtedness of the Company under the
Notes; (b) Indebtedness (and any guarantee thereof) under one or more credit or
revolving credit facilities with a bank or syndicate of banks or financial
institutions or other lenders, including the Bank Facility, as such may be
amended, modified, revised, extended, replaced, or refunded from time to time,
in an aggregate principal amount at any one time outstanding not to exceed
$80.0 million, less any amounts derived from Asset Sales and applied to the
required permanent reduction of Senior Debt under such credit facilities as
contemplated by the "Limitation on Asset Sales" covenant; (c) Indebtedness of
the Company or any Subsidiary under Interest Swap Obligations; provided that
(i) such Interest Swap Obligations are related to payment obligations on
Indebtedness otherwise permitted under the covenants described in "--Certain
Covenants--Limitation on Indebtedness" and (ii) the notional principal amount
of such Interest Swap Obligations does not exceed the principal amount of the
Indebtedness to which such Interest Swap Obligations relate; (d) Indebtedness
of the Company or any Subsidiary under Currency Hedge Obligations; provided
that (i) such Currency Hedge Obligations are related to payment obligations on
Indebtedness otherwise permitted under the covenants described in "--Certain
Covenants--Limitation on Indebtedness" or to the foreign currency cash flows
reasonably expected to be generated by the Company and the Subsidiaries and
(ii) the notional principal amount of such Currency Hedge Obligations does not
exceed the principal amount of the Indebtedness and the amount of the foreign
currency cash flows to which such Currency Hedge Obligations relate; (e)
Indebtedness of the Company or any Subsidiary outstanding on the Issue Date;
(f) Indebtedness of the Company or any Subsidiary in respect of bid performance
bonds, surety bonds, appeal bonds and letters of credit or similar arrangements
issued
76
<PAGE>
for the account of the Company or any Subsidiary, in each case in the ordinary
course of business and other than for an obligation for money borrowed; (g)
Indebtedness of the Company to a Subsidiary and Indebtedness of a Subsidiary to
the Company; provided that upon any subsequent issuance or transfer of any
Capital Stock or any other event which results in any such Subsidiary ceasing
to be a Subsidiary, as the case may be, or any other subsequent transfer of any
such Indebtedness (except to the Company or a Subsidiary), such Indebtedness
shall be deemed, in each case, to be incurred and shall be treated as an
incurrence for purposes of the "Limitation on Indebtedness" covenants at the
time the Subsidiary in question ceased to be a Subsidiary or such Indebtedness
is so transferred; (h) Subordinated Indebtedness of the Company to an
Unrestricted Subsidiary for money borrowed; (i) Indebtedness of the Company in
connection with a purchase of the Notes pursuant to a Change of Control Offer;
provided that the aggregate principal amount of such Indebtedness does not
exceed 101% of the aggregate principal amount at Stated Maturity of the Notes
purchased pursuant to such Change of Control Offer; provided, further, that
such Indebtedness (A) has an Average Life equal to or greater than the
remaining Average Life of the Notes and (B) does not mature prior to one day
following the Stated Maturity of the Notes; (j) Permitted Refinancing
Indebtedness; (l) Acquired Indebtedness not to exceed an aggregate of $5.0
million at any one time outstanding; (m) Permitted Subsidiary Refinancing
Indebtedness; and (n) additional Indebtedness in an aggregate principal amount
not in excess of $10.0 million at any one time outstanding. So as to avoid
duplication in determining the amount of Permitted Indebtedness under any
clause of this definition, guarantees permitted to be incurred pursuant to the
Indenture of, or obligations permitted to be incurred pursuant to the Indenture
in respect of letters of credit supporting, Indebtedness otherwise included in
the determination of such amount shall not also be included.
"Permitted Investments" means (a) certificates of deposit, bankers
acceptances, time deposits, Eurocurrency deposits and similar types of
Investments routinely offered by commercial banks with final maturities of one
year or less issued by commercial banks organized in the United States having
capital and surplus in excess of $300.0 million; (b) commercial paper issued by
any corporation, if such commercial paper has credit ratings of at least "A-l"
or its equivalent by S&P and at least "P-I" or its equivalent by Moody's; (c)
U.S. Government Obligations with a maturity of five years or less; (d)
repurchase obligations for instruments of the type described in clause (c) with
any bank meeting the qualifications specified in clause (a) above; (e) shares
of money market mutual or similar funds having assets in excess of $100.0
million; (f) payroll advances in the ordinary course of business; (g) other
advances and loans to officers and employees of the Company or any Subsidiary,
so long as the aggregate principal amount of such advances and loans does not
exceed $1.0 million at any one time outstanding; (h) Investments represented by
that portion of the proceeds from Asset Sales that is not required to be Cash
Proceeds by the covenant described in "--Certain Covenants--Limitation on Asset
Sales"; (i) Investments made by the Company in its Subsidiaries (or any Person
that will be a Subsidiary or is merged with or into the Company or a Subsidiary
of the Company as a result of such Investment) or by a Subsidiary in the
Company or in one or more Subsidiaries (or any Person that will be a Subsidiary
as a result of such Investment); (j) Investments in stock, obligations or
securities received in settlement of debts owing to the Company or any
Subsidiary as a result of bankruptcy or insolvency proceedings or upon the
foreclosure, perfection or enforcement of any Lien in favor of the Company or
any Subsidiary, in each case as to debt owing to the Company or any Subsidiary
that arose in the ordinary course of business of the Company or any such
Subsidiary; (k) certificates of deposit, bankers acceptances, time deposits,
Eurocurrency deposits and similar types of Investments routinely offered by
commercial banks organized in the United States with final maturities of one
year or less and in an aggregate amount not to exceed $5.0 million at any one
time outstanding with a commercial bank organized in the United States having
capital and surplus in excess of $50.0 million; (l) Canadian and other foreign
bank deposits and cash equivalents in jurisdictions where the Company or its
Subsidiaries are then actively conducting business; (m) Interest Swap
Obligations with respect to any Indebtedness that is permitted by the terms of
the Indenture to be outstanding; (n) Currency Hedge Obligations; provided that
such Currency Hedge Obligations constitute Permitted Indebtedness permitted by
clause (d) of the definition thereof; and (o) Investments in prepaid expenses,
negotiable instruments held for collection and lease, utility, worker's
compensation and performance and other similar deposits in the ordinary course
of business.
77
<PAGE>
"Permitted Liens" means (a) Liens in existence on the Issue Date; (b)
Liens created for the benefit of the Notes; (c) Liens on Property of a Person
existing at the time such Person is merged or consolidated with or into the
Company or a Subsidiary (and not incurred as a result of, or in anticipation
of, such transaction); provided that any such Lien relates solely to such
Property; (d) Liens on Property existing at the time of the acquisition thereof
(and not incurred as a result of, or in anticipation of such transaction);
provided that any such Lien relates solely to such Property; (e) Liens incurred
or pledges and deposits made in connection with worker's compensation,
unemployment insurance and other social security benefits, statutory
obligations, bid, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business; (f)
Liens imposed by law or arising by operation of law, including, without
limitation, landlords', mechanics', carriers', warehousemen's, materialmen's,
suppliers' and vendors' Liens and Liens for master's and crew's wages and other
similar maritime Liens, and incurred in the ordinary course of business for
sums not delinquent or being contested in good faith, if such reserves or other
appropriate provisions, if any, as shall be required by GAAP shall have been
made with respect thereof; (g) zoning restrictions, easements, licenses,
covenants, reservations, restrictions on the use of real property and defects,
irregularities and deficiencies in title to real property that do not,
individually or in the aggregate, materially affect the ability of the Company
or any Subsidiary to conduct its business presently conducted; (h) Liens for
taxes or assessments or other governmental charges or levies not yet due and
payable, or the validity of which is being contested by the Company or a
Subsidiary in good faith and by appropriate proceedings upon stay of execution
or the enforcement thereof and for which adequate reserves in accordance with
GAAP or other appropriate provision has been made; (i) Liens to secure
Indebtedness incurred for the purpose of financing all or a part of the
purchase price or construction cost of Property acquired or constructed after
the Issue Date; provided that (1) the principal amount of Indebtedness secured
by such Liens shall not exceed 100% of the lesser of cost or Fair Market Value
of the Property so acquired or constructed plus transaction costs related
thereto, (2) such Liens shall not encumber any other assets or Property of the
Company or any Subsidiary (other than the proceeds thereof and accessions and
upgrades thereto) and (3) such Liens shall attach to such Property no later
than 120 days after the date of the completion of the construction or
acquisition of such Property; (j) Liens securing Capital Lease Obligations; (k)
Liens to secure any extension, renewal, refinancing or refunding (or successive
extensions, renewals, refinancings or refundings), in whole or in part, of any
Indebtedness secured by Liens referred to in the foregoing clauses (a), (c) and
(d); provided, further, that such Lien does not extend to any other Property of
the Company or any Subsidiary and the principal amount of the Indebtedness
secured by such Lien is not increased; (l) any rental or lease; (m) leases or
subleases of real property to other Persons; (n) Liens securing Permitted
Indebtedness described in clause (b) of the definition thereof; (o) judgment
liens not giving rise to an Event of Default so long as any appropriate legal
proceedings which may have been initiated for the review of such judgment shall
not have been finally terminated or the period within which such proceeding may
be initiated shall not have expired; (p) rights of off-set of banks and other
Persons; (q) Liens in favor of the Company or any Guarantor; (r) Liens existing
on the Property of an Unrestricted Subsidiary at the time it becomes a
Subsidiary; (s) Liens securing Indebtedness under one or more credit or
revolving credit facilities with a bank or syndicate of banks or financial
institutions or other lenders or securing any permitted refinancing of any such
Indebtedness; and (t) other Liens not to exceed an aggregate of $1.5 million at
any one time outstanding.
"Permitted Refinancing Indebtedness" means Indebtedness of the Company or
any Subsidiary, incurred in exchange for, or the net proceeds of which are used
to renew, extend, refinance, refund or repurchase, outstanding Indebtedness of
the Company or such Subsidiary; provided that (i) if the Indebtedness being
renewed, extended, refinanced, refunded or repurchased is pari passu with or
subordinated in right of payment (without regard to its being secured) to the
Notes, then such new Indebtedness is pari passu with or subordinated in right
of payment (without regard to its being secured) to, as the case may be, the
Notes at least to the same extent as the Indebtedness being renewed, extended,
refinanced, refunded or repurchased, (ii) such new Indebtedness is scheduled to
mature at the same time or later than the Indebtedness being renewed, extended,
refinanced, refunded or repurchased, (iii) such new Indebtedness has an Average
Life at the time such Indebtedness is incurred that is equal to or greater than
the Average Life of the Indebtedness being renewed, extended, refinanced,
refunded or repurchased, and (iv) such new Indebtedness is in aggregate
principal amount (or, if such Indebtedness is issued at a
78
<PAGE>
price less than the principal amount thereof, the aggregate amount of gross
proceeds therefrom is) equal to or less than the aggregate principal amount
then outstanding of the Indebtedness being renewed, extended, refinanced,
refunded or repurchased (or if the Indebtedness being renewed, extended,
refinanced, refunded or repurchased was issued at a price less than the
principal amount thereof, then not in excess of the amount of liability in
respect thereof determined in accordance with GAAP) plus the amount of
reasonable fees, expenses, and premium, if any, incurred by the Company or such
Subsidiary in connection therewith.
"Permitted Subsidiary Refinancing Indebtedness" means Indebtedness of any
Subsidiary, incurred in exchange for, or the net proceeds of which are used to
renew, extend, refinance, refund or repurchase, outstanding Indebtedness of
such Subsidiary which outstanding Indebtedness was incurred in accordance with,
or is otherwise permitted by, the terms of clauses (e), (f) or (g) of the
definition of Permitted Indebtedness; provided that (i) such new Indebtedness
is scheduled to mature at the same time or later than the Indebtedness being
renewed, extended, refinanced, refunded or repurchased, (ii) such new
Indebtedness has an Average Life at the time such Indebtedness is incurred that
is equal to or greater than the Average Life of the Indebtedness being renewed,
extended, refinanced, refunded or repurchased, and (iii) such new Indebtedness
is in an aggregate principal amount (or, if such Indebtedness is issued at a
price less than the principal amount thereof, the aggregate amount of gross
proceeds therefrom is) equal to or less than the aggregate principal amount
then outstanding of the Indebtedness being renewed, extended, refinanced,
refunded or repurchased (or if the Indebtedness being renewed, extended,
refinanced, refunded or repurchased was issued at a price less than the
principal amount thereof, then not in excess of the amount of liability in
respect thereof determined in accordance with GAAP) plus the amount of
reasonable fees, expenses, and premium, if any, incurred by the Company or such
Subsidiary in connection therewith.
"Person" means any individual, corporation, limited liability company,
partnership, limited partnership, limited liability partnership, joint venture,
incorporated or unincorporated association, joint stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof or other entity of any kind.
"Preferred Stock" of any Person means Capital Stock of such Person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends and/or as to the distribution of assets upon any voluntary or
involuntary liquidation, dissolution or winding up of such Person, to shares of
Capital Stock of at least one other class of such Person.
"Pro Forma Cost Reductions" means the pro forma effect of the cost
reduction program implemented by the Company in the fourth quarter of 1997,
including (i) eliminating 63 administrative and support positions and
consolidating certain administrative functions, (ii) restructuring and
renegotiating benefits programs, (iii) renegotiating the Company's insurance
premiums to reflect continued improvements in its safety record, (iv)
negotiating company-wide procurement contracts in order to take advantage of
volume pricing and (v) implementing a new management information system to
improve inventory utilization and reduce equipment transportation expenses.
"Property" means, with respect to any Person, any interest of such Person
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible, excluding Capital Stock in any other Person.
"Qualified Equity Offering" means an offering of Capital Stock (other than
Redeemable Stock) of the Company for cash, whether pursuant to an effective
registration statement under the Securities Act or pursuant to an exemption
from registration under the Securities Act.
"Qualified Proceeds" means any of the following or any combination of the
following: (i) cash, (ii) Cash Equivalents, (iii) assets that are used or
useful in a Related Business and (iv) the Capital Stock of any Person engaged
in a Related Business, if, in connection with the receipt by the Company or any
Subsidiary of the Company of such Capital Stock, (a) such Person becomes a
Subsidiary of the Company or any Subsidiary of the Company or (b) such Person
is merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or any
Subsidiary of the Company.
79
<PAGE>
"Redeemable Stock" means, with respect to any Person, any equity security
that by its terms or otherwise is required to be redeemed, or is redeemable at
the option of the holder thereof, at any time prior to one day following the
Stated Maturity of the Notes or is exchangeable into Indebtedness of such
Person or any of its subsidiaries.
"Related Business" means the scaffolding rental, erection and
dismantlement business or any business related to the provision of industrial
maintenance services and activities incidental to any of the foregoing and any
business related or ancillary to any of the foregoing.
"Replacement Asset" means a Property or asset that is used or is useful in
a Related Business.
"Restricted Investment" means any Investment in any Person, including an
Unrestricted Subsidiary or the designation of a Subsidiary as an Unrestricted
Subsidiary, other than a Permitted Investment.
"Restricted Payment" means to (i) declare or pay any dividend on, or make
any distribution in respect of, or purchase, redeem, retire or otherwise
acquire for value, any Capital Stock of the Company or any Affiliate of the
Company, or warrants, rights or options to acquire such Capital Stock, other
than (x) dividends payable solely in the Capital Stock (other than Redeemable
Stock) of the Company or such Affiliate, as the case may be, or in warrants,
rights or options to acquire such Capital Stock and (y) dividends or
distributions by a Subsidiary to the Company or to a Subsidiary; (ii) make any
principal payment on, or redeem, repurchase, defease (including an in-substance
or legal defeasance) or otherwise acquire or retire for value (including
pursuant to mandatory repurchase covenants), prior to any scheduled principal
payment, scheduled sinking fund payment or other stated maturity, Indebtedness
of the Company or any Subsidiary which is subordinated (whether pursuant to its
terms or by operation of law) in right of payment to the Notes; or (iii) make
any Restricted Investment in any Person.
"Sale and Lease-Back Transaction" means, with respect to any Person, any
direct or indirect arrangement pursuant to which Property is sold or
transferred by such Person or a subsidiary of such Person and is thereafter
leased back from the purchaser or transferee thereof by such Person or one of
its subsidiaries.
"Senior Debt" means any Indebtedness incurred by the Company other than
Subordinated Indebtedness.
"Shareholders Agreement" means that certain Amended and Restated
Shareholders Agreement, dated as of September 30, 1996, among DLJ Merchant
Banking Partners, L.P., DLJ International Partners, C.V., DLJ Offshore
Partners, C.V., DLJ Merchant Banking Funding, Inc., Carlisle-Brand Investors,
L.P., Rust Industrial Services Inc., DLJ Brand Holdings, Inc., Brand Scaffold
Services, Inc. and certain individuals party thereto, as amended, supplemented
or otherwise modified from time to time.
"Significant Subsidiary" means a Subsidiary that is a "significant
subsidiary" as defined in Rule 1-02(w) of Regulation S-X under the Securities
Act and the Exchange Act.
"Stated Maturity" when used with respect to a Note or any installment of
interest thereon, means the date specified in such Note as the fixed date on
which the principal of such Note or such installment of interest is due and
payable.
"Subordinated Indebtedness" means any Indebtedness of the Company that is
subordinated in right of payment to the Notes, as the case may be, and does not
mature prior to one year following the Stated Maturity of the Notes.
"Subsidiary" or "subsidiary" means, (i) with respect to any Person other
than the Company, (x) any corporation more than 50% of the outstanding Voting
Stock of which is owned, directly or indirectly, by such Person, or by one or
more other subsidiaries of such Person, or by such Person and one or more other
subsidiaries of such Person, (y) any general partnership, joint venture or
similar entity, more than 50% of the outstanding partnership or similar
interest of which is owned, directly or indirectly, by such Person, or by one
or more other subsidiaries of such Person, or by such Person and one or more
other subsidiaries of such Person and any limited partnership of which such
Person or any subsidiary of such Person is a general partner; and (ii) with
respect to the Company, a subsidiary of the Company other than an Unrestricted
Subsidiary.
80
<PAGE>
"Transaction Date" has the meaning specified within the definition of
Consolidated Interest Coverage Ratio.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged; (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America, which, in either case
under clauses (i) or (ii) above, are not callable or redeemable at the option
of the issuers thereof; or (iii) depository receipts issued by a bank or trust
company as custodian with respect to any such U.S. Government Obligations or a
specific payment of interest on or principal of any such U.S. Government
Obligation held by such custodian for the account of the holder of a Depository
receipt; provided that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the holder of such
Depository receipt from any amount received by the custodian in respect of the
U.S. Government Obligation evidenced by such Depository receipt.
"Unrestricted Subsidiary" means any subsidiary of the Company that the
Company has classified as an Unrestricted Subsidiary and that has not been
reclassified as a Subsidiary pursuant to the terms of the Indenture.
"Voting Stock" means with respect to any Person, securities of any class
or classes of Capital Stock in such Person entitling the holder thereof
(whether at all times or at the times that such class of Capital Stock has
voting power by reason of the happening of any contingency) to vote in the
election of members of the board of directors or comparable body of such
Person.
"WMI Payments" means all payments received by the Company pursuant to that
certain Transitional Services Agreement, dated as of September 30, 1996, by and
among Brand Scafford Services, Inc., WMI Technologies Inc., Rust International
Inc. and Rust Industrial Services, Inc., as amended, supplemented or otherwise
modified from time to time.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The holders of a majority in principal amount of the then outstanding
Notes will have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent person in the
conduct of such person's own affairs. Subject to such provisions, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request of any holder of Notes, unless such holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to Brand Scaffold
Services, Inc., 15450 South Outer Highway 40, #270, Chesterfield, Missouri
63017, Attention: Chief Financial Officer.
BOOK-ENTRY; DELIVERY; FORM AND TRANSFER
Each of the Old Notes was issued in the form of one or more fully
registered Old Notes in global form ("Old Global Notes"). All Exchange Notes
issued in the Exchange Offer for Old Notes represented by
81
<PAGE>
Old Global Notes will be represented by one or more Exchange Notes in global
form (the "Global Exchange Note," and together with the Old Global Notes, the
"Global Notes"), which will be deposited with, or on behalf of, the DTC and
registered in the name of DTC or its nominee.
Holders of Exchange Notes who elect to take physical delivery of their
certificates instead of holding their interest through the Global Exchange Note
(collectively referred to herein as the "Non-Global Holders") will be issued in
registered form a certificated Exchange Note ("Certificated Exchange Note").
Upon the transfer of any Certificated Exchange Note initially issued to a
Non-Global Holder, such Certificated Exchange Note will, unless the transferee
requests otherwise or the Global Exchange Note has previously been exchanged in
whole for Certificated Exchange Notes, be exchanged for an interest in the
Global Exchange Note.
Global Notes
Upon deposit of the Global Exchange Note, DTC will credit, on its
book-entry registration and transfer system interests in the Global Exchange
Note to the accounts of institutions that have accounts with DTC (including
Euroclear and Cedel) ("participants"). Ownership of beneficial interests in the
Global Exchange Note will be limited to participants or persons that may hold
interests through participants. Ownership of beneficial interests in the Global
Exchange Note will be shown on, and the transfer of that ownership will be
effected only through, records maintained by DTC (with respect to participants'
interests) for the Global Exchange Note, or by participants or persons that
hold interests through participants (with respect to beneficial interests of
persons other than participants). The laws of some jurisdictions may require
that certain purchasers of securities take physical delivery of such securities
in definitive form. Such limits and laws may impair the ability to transfer or
pledge beneficial interests in the Global Exchange Note.
So long as DTC, or its nominee, is the registered holder of any Global
Notes, DTC or such nominee, as the case may be, will be considered the sole
legal owner and holder of such Notes represented by such Global Notes for all
purposes under the Indenture and the Notes. Except as set forth below, owners
of beneficial interests in Global Notes will not be entitled to have such
Global Notes represented thereby registered in their names, will not receive or
be entitled to receive physical delivery of certificates representing Notes in
definitive, fully registered form bearing a legend containing the applicable
restrictions on transfers ("Definitive Notes") in exchange therefor and will
not be considered to be the owners or holders of such Global Notes represented
thereby for any purpose under the Notes or the Indenture. The Company
understands that under existing industry practice, in the event an owner of a
beneficial interest in a Global Note desires to take any action that DTC, as
the holder of such Global Note, is entitled to take, DTC would authorize the
participants to take such action, and that the participants would authorize
beneficial owners owning through such participants to take such action or would
otherwise act upon the instructions of beneficial owners owning through them.
Any payment of principal, interest or Liquidated Damages due on the Notes
on any interest payment date or at maturity will be made available by the
Company to the Trustee by such date. As soon as possible thereafter, the
Trustee will make such payments to DTC or its nominee, as the case may be, as
the registered owner of the Global Notes representing such Notes in accordance
with existing arrangements between the Trustee and DTC.
The Company expects that DTC or its nominee, upon receipt of any payment
of principal, interest or Liquidated Damages in respect of the Global Notes,
will credit immediately the accounts of the related participants with payments
in amounts proportionate to their respective beneficial interests in the
principal amount of such Global Note as shown on the records of DTC. The
Company also expects that payment by participants to owners of beneficial
interests in the Global Notes held through such participants will be governed
by standing instructions and customary practices, as is now the case with
securities held for the accounts of customers in bearer form or registered in
"street name," and will be the responsibility of such participants.
None of the Company, the Trustee, or any payment agent for the Global
Notes will have any responsibility or liability for any aspect of the records
relating to or payments made on account of
82
<PAGE>
beneficial ownership interests in any of the Global Notes or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests or for other aspects of the relationship between DTC and its
participants or the relationship between such participants and the owners of
beneficial interests in the Global Securities owning through such participants.
As long as the Notes are represented by a Global Note, DTC's nominee will
be the holder of the Notes and therefore will be the only entity that can
exercise a right to repayment or repurchase of the Notes. See "Description of
Notes--Change of Control." Notice by participants, or by owners of beneficial
interests in a Global Note held through such participants, of the exercise of
the option to elect repayment of beneficial interests in Notes represented by a
Global Note must be transmitted to DTC in accordance with its procedures on a
from required by DTC and provided to participants. In order to ensure that
DTC's nominee will timely exercise a right to repayment with respect to a
particular Note, the beneficial owner of such Note must instruct the broker or
other participant to exercise a right to repayment. Different firms have
cut-off times for accepting instructions from their customers and, accordingly,
each beneficial owner should consult the broker or other participant through
which it holds an interest in a Note in order to ascertain the cut-off time by
which such an instruction must be given in order for timely notice to be
delivered to DTC. The Company will not be liable for any delay in delivery of
notices of the exercise of the option to elect repayment.
Unless and until exchanged in whole or in part for Notes in definitive
form in accordance with the terms of the Notes, the Global Notes may not be
transferred except as a whole by DTC to a nominee of DTC, or by a nominee of
DTC to DTC or another nominee of DTC, or by DTC or any such nominee to a
successor of DTC or a nominee of each successor.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Notes among its participants, it is under
no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. Neither the Trustee nor the Company
will have any responsibility for the performance by DTC or its participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations. The Company and the Trustee may
conclusively rely on, and shall be protected in relying on, instructions from
DTC for all purposes.
Definitive Notes
Upon transfer of Old Notes in definitive, fully registered form bearing a
legend containing restrictions on transfers ("Definitive Old Notes") to a
Qualified Institutional Buyer, such Definitive Notes will be transferred to the
corresponding Old Global Note. Old Global Notes and the Global Exchange Note
shall be exchangeable for corresponding Definitive Old Notes and Certificated
Exchange Notes, respectively, registered in the name of persons other than DTC
or its nominee if (A) DTC (i) notifies the Company that it is unwilling or
unable to continue as DTC for any of the Global Notes or (ii) at any time
ceases to be a clearing agency registered under the Exchange Act, (B) there
shall have occurred and be continuing an Event of Default (as defined in the
Indenture) with respect to the Notes or (C) the Company executes and delivers
to the Trustee an order that the Global Notes shall be so exchangeable. Any
Definitive Notes will be issued only in fully registered form and shall be
issued without coupons in denominations of $1,000 and integral multiples
thereof. Any Definitive Notes issued in exchange for a Global Note will be
registered in such names and in such denominations as DTC shall request.
The Clearing System
DTC has advised the Company as follows: DTC is a limited-purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities of participants and to facilitate the clearance and settlement of
securities transactions among its participants in such securities through
electronic book-entry changes in accounts of participants, thereby eliminating
the need for physical movement of securities certificates. DTC's participants
include securities brokers
83
<PAGE>
and dealers (which may include the Initial Purchaser), banks, trust companies,
clearing corporations and certain other organizations. Access to DTC's
book-entry system is also available to others such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship
with a participant, whether directly or indirectly.
Settlement
Investors holding their Notes through DTC will follow settlement practices
applicable to United States corporate debt obligations. The Indenture requires
that payments in respect of Notes (including principal, premium, interest and
Liquidated Damages) be made by wire transfer of same-day funds to the accounts
specified by the holders thereof or, if no such account is specified, by
mailing a check to each such holder's registered address.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company has filed the Registration Statement of which this Prospectus
is a part, and will commence the Exchange Offer, pursuant to the Registration
Rights Agreement.
If (i) the Exchange Offer is not permitted by applicable law or Commission
policy or (ii) any holder of Notes which are Transfer Restricted Securities
notifies the Company prior to the 20th business day following the consummation
of the Exchange Offer that (a) it is prohibited by law or Commission policy
from participating in the Exchange Offer, (b) it may not resell the Notes
acquired by it in the Exchange Offer to the public without delivering a
prospectus, and the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales by it, or (c) it is
a broker-dealer and holds Notes acquired directly from the Company or any of
the Company's affiliates, the Company will file with the Commission a Shelf
Registration Statement to register for public resale the Transfer Restricted
Securities held by any such holder who provides, the Company with certain
information for inclusion in the Shelf Registration Statement.
For the purposes of the Registration Rights Agreement, "Transfer
Restricted Securities" means each Note until the earliest on the date of which
(i) such Note is exchanged in the Exchange Offer and entitled to be resold to
the public by the holder thereof without complying with the prospectus delivery
requirements of the Securities Act, (ii) such Note has been disposed of in
accordance with the Shelf Registration Statement, (iii) such Note is disposed
of by a broker-dealer pursuant to the "Plan of Distribution" (including
delivery of the Prospectus) or (iv) such Note is distributed to the public
pursuant to Rule 144 under the Securities Act.
The Registration Rights Agreement provides that (i) if the Company fails
to file a registration statement with respect to an offer to exchange (the
"Exchange Offer Registration Statement") with the Commission on or prior to the
180th day after the date of original issuance of the Old Notes, (ii) if the
Exchange Offer Registration Statement is not declared effective by the
Commission on or prior to the 240th day after the date of original issuance of
the Old Notes, (iii) if the Exchange Offer is not consummated on or before the
30th business day after the Exchange Offer Registration Statement is declared
effective, (iv) if obligated to file a Shelf Registration Statement and the
Company fails to file the Shelf Registration Statement with the Commission on
or prior to the 30th day after such filing obligation arises, (v) if obligated
to file a Shelf Registration Statement and the Shelf Registration Statement is
not declared effective on or prior to the 60th day after the obligation to file
a Shelf Registration Statement arises, or (vi) if the Exchange Offer
Registration Statement or the Shelf Registration Statement, as the case may be,
is declared effective but thereafter ceases to be effective or useable in
connection with resales of the Transfer Restricted Securities, for such time of
non-effectiveness or non-usability (each, a "Registration Default"), the
Company agrees to pay to each Holder of Transfer Restricted Securities affected
thereby liquidated damages ("Liquidated Damages") in an amount equal to $0.05
per week per $1,000 in principal amount of Transfer Restricted Securities held
by such Holder for each week or portion thereof that the Registration Default
continues for the first 90-day period immediately following the occurrence of
such Registration Default. The amount of the Liquidated Damages shall increase
by an additional $0.05 per week per $1,000 in principal amount of Transfer
Restricted Securities with respect to each subsequent 90-day period until all
Registration Defaults have been cured, up to a maximum amount
84
<PAGE>
of Liquidated Damages of $0.50 per week per $1,000 in principal amount of
Transfer Restricted Securities. The Company shall not be required to pay
Liquidated Damages for more than one Registration Default at any given time.
Following the cure of all Registration Defaults, the accrual of Liquidated
Damages will cease.
All accrued Liquidated Damages shall be paid by the Company to holders
entitled thereto by wire transfer to the accounts specified by them or by
mailing checks to their registered addresses if no such accounts have been
specified.
Holders of Old Notes will be required to make certain representations to
the Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information
to be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Old Notes included
in the Shelf Registration Statement and benefit from the provisions regarding
Liquidated Damages set forth above.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of Exchange Notes
received in exchange for Old Notes where such Old Notes were acquired as a
result of market-making activities or other trading activities. The Company has
agreed that, for a period of 180 days after the Expiration Date, it will make
this Prospectus, as amended or supplemented, available to any Participating
Broker-Dealer for use in connection with any such resale. In addition, until
, 1998 (90 days after the date of this Prospectus), all dealers
effecting transactions in the Exchange Notes may be required to deliver a
prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes
by Participating Broker-Dealers. Exchange Notes received by Participating
Broker-Dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market,
in negotiated transactions, through the writing of options on the Exchange
Notes or a combination of such methods of resale, at market prices prevailing
at the time of resale, at prices related to such prevailing market prices or
negotiated prices. Any such resale may be made directly to purchasers or to or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such Participating Broker-Dealer or the
purchasers of any such Exchange Notes. Any Participating Broker-Dealer that
resells Exchange Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such Exchange Notes may be deemed to be an "underwriter" within the meaning
of the Securities Act and any profit on any such resale of Exchange Notes and
any commission or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a Participating Broker-Dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any Participating Broker-Dealer that requests
such documents in the Letter of Transmittal. The Company has agreed to pay all
expenses incident to the Exchange Offer (including the reasonable expenses of
one counsel for the holders of the Notes) other than commissions or concessions
of any brokers or dealers and will indemnify the holders of the Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Exchange Notes offered hereby will be passed upon for
the Company by Davis Polk & Wardwell.
85
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements of Brand as of December 31, 1996 and
1997 and for the three months ended December 31, 1996 and the year ended
December 31, 1997, and the consolidated statements of operations, stockholder's
equity and cash flows of Rust for the year ended December 31, 1995 and the nine
months ended September 30, 1996 included in this Prospectus, have been audited
by Arthur Andersen LLP, independent public accountants, as stated in their
reports appearing herein.
AVAILABLE INFORMATION
The Company has filed the Registration Statement on Form S-1 (of which
this Prospectus is a part) with the Commission under the Securities Act with
respect to the Exchange Notes. This Prospectus does not contain all the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
The Registration Statement and the exhibits and schedules forming a part
thereof can be inspected and copies obtained at the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a web site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.
86
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS FOR RUST SCAFFOLD SERVICES INC. AND SUBSIDIARIES:
Report of Independent Public Accountants ............................................ F-2
Consolidated Statements of Operations for the Year Ended December 31, 1995 and
the Nine Months Ended September 30, 1996 ........................................... F-3
Consolidated Statements of Cash Flows for the Year Ended December 31, 1995 and
the Nine Months Ended September 30, 1996 ........................................... F-4
Consolidated Statements of Stockholder's Equity for the Year Ended December 31,
1995 and the Nine Months Ended September 30, 1996 .................................. F-5
Notes to Consolidated Financial Statements .......................................... F-6
CONSOLIDATED FINANCIAL STATEMENTS FOR BRAND SCAFFOLD SERVICES, INC. AND SUBSIDIARIES:
Report of Independent Public Accountants ............................................ F-10
Consolidated Statements of Operations for the Three Months Ended December 31,
1996, the Year Ended December 31, 1997, and the Six Months Ended June 30, 1997
(unaudited) and 1998 (unaudited) ................................................... F-11
Consolidated Balance Sheets as of December 31, 1996, 1997, and June 30, 1998
(unaudited) ........................................................................ F-12
Consolidated Statements of Cash Flows for the Three Months Ended December 31,
1996, the Year Ended December 31, 1997, and the Six Months Ended June 30, 1997
(unaudited) and 1998 (unaudited) ................................................... F-14
Consolidated Statements of Stockholder's Equity (Deficit) for the Three Months
Ended December 31, 1996, the Year Ended December 31, 1997, and the Six Months
Ended June 30, 1998 (unaudited) .................................................... F-15
Notes to Consolidated Financial Statements .......................................... F-16
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Rust Scaffold Services Inc.:
We have audited the accompanying consolidated statements of operations,
stockholder's equity and cash flows of Rust Scaffold Services Inc. and
Subsidiaries (a Delaware corporation) for the year ended December 31, 1995 and
the nine months ended September 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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 results of operations and cash flows of Rust
Scaffold Services, Inc. and subsidiaries for the year ended December 31, 1995,
and the nine months ended September 30, 1996, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 19, 1997
F-2
<PAGE>
RUST SCAFFOLD SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(000'S OMITTED)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
------------------- -------------------
<S> <C> <C>
Revenue ..................................... $193,829 $124,769
Operating expenses .......................... 138,968 89,073
-------- --------
Gross profit ................................ 54,861 35,696
Selling and administrative expenses ......... 25,807 15,825
-------- --------
Operating income ......................... 29,054 19,871
Interest expense ............................ 9,444 7,872
Interest income ............................. (1,012) (482)
Other expense, net .......................... 853 708
-------- --------
Pretax income ............................ 19,769 11,773
Provision for income taxes .................. 8,300 4,813
-------- --------
Net income .................................. $ 11,469 $ 6,960
======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-3
<PAGE>
RUST SCAFFOLD SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000'S OMITTED)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
------------------- -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................ $ 11,469 $ 6,960
Adjustments to reconcile net income to net cash provided by
operating activities --
Deferred tax provision .................................. 4,348 2,427
Depreciation and amortization ........................... 8,602 6,669
Changes in operating assets and liabilities --
Trade accounts receivable, net ......................... 3,979 4,416
Costs and estimated earnings in excess of billings on
uncompleted contracts ................................ (1,398) 1,701
Notes receivable ....................................... 2,306 4,797
Scaffolding ............................................ 4,484 2,846
Accounts payable ....................................... 660 (727)
Accrued expenses ....................................... 1,795 2,173
Billings in excess of costs and estimated earnings on
uncompleted contracts ................................ 261 (504)
Other .................................................. (919) (2,280)
--------- ---------
Net cash provided by operating activities ............ 35,587 28,478
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ....................... (13,550) (5,770)
Proceeds from sales of property and equipment other than
scaffolding ............................................. 101 64
--------- ---------
Net cash used for investing activities ............... (13,449) (5,706)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments to Rust Industrial Services Inc., net ........... (20,440) (26,962)
--------- ---------
Net cash used for financing activities ............... (20,440) (26,962)
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ............................................... 1,698 (4,190)
CASH AND CASH EQUIVALENTS, beginning of year ............... 2,618 4,316
--------- ---------
CASH AND CASH EQUIVALENTS, end of year ..................... $ 4,316 $ 126
========= =========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-4
<PAGE>
RUST SCAFFOLD SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(000'S OMITTED)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
------------------- -------------------
<S> <C> <C>
STOCKHOLDER'S EQUITY -- NET INVESTMENT BY RUST
INDUSTRIAL SERVICES INC., beginning balance ............ $ 150,005 $ 141,374
Comprehensive Income:
Net income ........................................... 11,469 6,960
Translation adjustment ............................... 340 26
--------- ---------
Comprehensive income ................................ 11,809 6,986
Payments to Rust Industrial Services Inc., net ......... (20,440) (26,962)
--------- ---------
STOCKHOLDER'S EQUITY -- NET INVESTMENT
BY RUST INDUSTRIAL SERVICES INC.,
ending balance ......................................... $ 141,374 $ 121,398
========= =========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-5
<PAGE>
RUST SCAFFOLD SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000'S OMITTED)
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
Rust Scaffold Services Inc. and its Subsidiaries ("RSS" or the "Company")
was a Delaware Corporation and was 100% owned by Rust Industrial Services, Inc.
("RIS") which is 100% owned by Rust International Inc. ("RII"). RII is a 60%
owned subsidiary of Waste Management Inc. ("WMI") and a 40% owned subsidiary of
Wheelabrator Technologies Inc. ("WTI"). On September 30, 1996, a company (the
"Newco") formed by DLJ Merchant Banking Partners, L.P. ("DLJMB") and on behalf
of DLJMB one or more of its affiliates or other related entities and Carlisle
Brand Investors, L.P. (the "Investors") acquired the outstanding securities of
the Company. The purchase price of the business was approximately $190 million,
which RIS was paid through a combination of cash, notes payable, preferred
stock and a 19.9% interest in Newco. Newco operates under the name DLJ Brand
Holdings, Inc. ("Holdings").
The Company provided scaffolding services primarily to refining, chemical,
petrochemical and utility industries, and to a lesser extent, pulp and paper
plants, nuclear facilities and general commercial clients. In most cases, the
Company's scaffolding services were provided in connection with periodic,
routine cleaning and maintenance of refineries, chemical plants and utilities,
and such services were also performed in connection with new construction
projects, plants, nuclear facilities and general commercial clients. The
Company provided personnel to erect, modify, move and dismantle scaffolding
structures, transport scaffolding to project sites and supervised and managed
such activities. In addition, the Company rents, and in some cases, sold
scaffolding. The Company maintained a substantial inventory of scaffolding at
several locations in various cities in the United States and Canada.
The Company's services were not rendered to or dependent on any single
customer within the industrial or commercial markets and therefore the Company
did not believe that a material concentration of credit risk existed, except
that one customer accounted for 14% and 21% of revenue for the year ended
December 31, 1995 and nine months ended September 30, 1996, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
As a result of the Company's relationship with WMI and RII, the financial
position and results of operations are not necessarily indicative of what they
would have been had these relationships not existed. Additionally, these
financial statements are not necessarily indicative of the future operations or
future financial position of the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements are prepared on a consolidated basis
and include those assets, liabilities, revenues and expenses directly
attributable to the operations of the Company. All significant intercompany
balances and transactions have been eliminated. The consolidated statements of
income reflect substantially all of the Company's costs associated with the
normal cost of business. These costs include direct expenses and certain
overhead and other expenses incurred by WMI and RII on the Company's behalf.
The expenses allocated to the Company and the method of allocation are further
discussed in Note 3, "Transactions with Affiliates."
F-6
<PAGE>
RUST SCAFFOLD SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Revenue Recognition
The Company recognizes contract revenue on the percentage-of-completion
basis with losses recognized in full when identified. Changes in project
performance and conditions, estimated profitability and final contract
settlements may result in future revisions to costs and income. Substantially
all of the Company's contracts are completed in less than six months. Other
revenues are recognized when the services are performed.
Foreign Currency
The assets and liabilities of the Company's foreign subsidiaries, Rust
Scaffold Services of Canada, LTD. and JLG Scaffolding, Inc., are translated at
the rates of exchange in effect on the balance sheet date while income
statement accounts are translated at the average exchange rate in effect during
the period. The resulting translation adjustments are charged or credited
directly to the Net Investment by Rust Industrial Services Inc. account, as
settlement of such intercompany balance is not planned or anticipated in the
foreseeable future.
Cash and Cash Equivalents
The Company considers all short-term deposits purchased with original
maturities of three months or less to be cash equivalents.
Property and Equipment
Property and equipment (including major repairs and improvements) are
capitalized and stated at cost. Items of an ordinary maintenance or repair
nature are charged directly to operations. The cost of property and equipment
is depreciated over the estimated useful lives on the straight-line method as
follows:
<TABLE>
<S> <C>
Buildings ............................ 10 to 40 years
Scaffolding equipment ................ 7 to 25 years
Vehicles and other equipment ......... 3 to 20 years
Leasehold improvements ............... Life of the applicable lease or life of the
improvement, whichever is shorter
</TABLE>
Depreciation expense for the year ended December 31, 1995 and nine months
ended September 30, 1996 is $7,759 and $5,958, respectively.
Intangible Assets
Intangible assets relating to acquired businesses consist primarily of the
cost of purchased businesses in excess of the market value of net assets
acquired ("goodwill") and other covenants. Goodwill is amortized on a
straight-line basis over a period not exceeding 40 years. Amortization expense
related to intangibles in 1995 and the nine months ended September 30, 1996
amounted to approximately $843 and $711, respectively.
Impairment of Long-Lived Assets
During 1995, the Financial Accounting Standards Board (FASB) issued
Financial Accounting Standard No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("FAS 121"). When
such events or circumstances indicate the carrying value of an asset may be
impaired, the Company recognizes an impairment loss.
Additionally, the Company measures the realizability of goodwill by the
ability of the acquired business to generate current and expected future
operating income in excess of annual amortization. If such realizability is in
doubt, an adjustment is made to reduce the carrying value of the goodwill.
F-7
<PAGE>
RUST SCAFFOLD SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Management has not recognized and does not believe any material impairment
losses exist for the year ended December 31, 1995 or the nine months ended
September 30, 1996.
Income Taxes
The Company is included in the federal income tax return of RII. The
deferred tax liabilities in the accompanying balance sheets are calculated as
if the Company filed a separate tax return. Income taxes are paid by RII on
behalf of the Company, and charges for taxes currently payable are allocated to
the Company.
Operating Leases
The Company leases various operating and office facilities for various
terms. Rents charged to costs and expenses in the statements of income amount
to approximately $1,435 for 1995 and $927 for the nine months ended September
30, 1996.
3. TRANSACTIONS WITH AFFILIATES
WMI, RII and RIS have furnished the services of financial, administrative,
legal and certain other corporate staff personnel to the Company. Additionally,
RII provides certain retirement and post-retirement benefits to eligible
employees of the Company. The costs of such services and benefits are allocated
to the Company ratably on the basis of its revenues. The Company believes that
the charges for such services and benefits have been calculated on a reasonable
basis and that the total amount of costs recognized in the statements of income
approximate what its actual costs would have been as a stand alone entity. In
1995 and during the nine months ended September 30, 1996, certain RSS employees
participated in a 401(k) Plan and a stock option plan administered by WMI. Such
charges for these services and benefits were $1,633 and $1,057 in 1995 and the
nine months ended September 30, 1996, respectively, and are included in selling
and administrative expenses in the statements of income.
RIS allocates a portion of its interest expense to the Company based on
the ratio which cumulative net cash advances to the Company bears to RIS's
cumulative net cash advances to all of its subsidiaries and the value of net
tangible assets. Management believes that the allocation of interest expense is
representative of financing costs attributable to the Company and that the
methodology used to allocate interest expense is reasonable. Intercompany
interest expense of $9,444 and $7,872 was allocated to RSS in 1995 and the nine
months ended September 30, 1996, respectively.
RIS also provides worker's compensation and medical insurance coverage to
the Company. The Company is allocated charges, which management deems
reasonable, for such coverage and at any point in time is fully insured by RIS.
The Company paid and provided expense in the amounts of $10,064 and $5,897 for
such coverage in the year ended December 31, 1995 and the nine months ended
September 30, 1996, respectively.
4. INCOME TAXES
The domestic operations of the Company were included in the consolidated
federal income tax return of RII. The Canadian operations of the Company are
included in the tax returns of Rust Scaffold Services of Canada, LTD. and JLG
Scaffolding, Inc. Income taxes relating to the Company were paid by RII. No tax
sharing agreement existed between the Company and RII. Income taxes have been
provided in accordance with Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes" ("FAS 109"). In accordance with FAS 109, deferred
income taxes are provided when tax laws and financial accounting standards
differ with respect to the amount of income calculated in a given year and the
bases of assets and liabilities. Deferred income taxes are not provided on
undistributed earnings of foreign affiliates because those earnings are
considered to be permanently invested. If the reinvested earnings were to be
remitted, the U.S. income taxes under current law would be immaterial.
F-8
<PAGE>
RUST SCAFFOLD SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Following is a summary of the Company's income tax provision:
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
1995 SEPTEMBER 30, 1996
-------- -------------------
<S> <C> <C>
Currently payable:
Federal ................ $3,422 $1,615
State .................. 530 243
------ ------
3,952 1,858
Deferred:
Federal ................ 3,131 2,110
State .................. 467 317
------ ------
3,598 2,427
Foreign ................. 750 528
------ ------
Total provision ......... $8,300 $4,813
====== ======
</TABLE>
The reconciliation of the statutory federal income tax rate to the
effective income tax rate for the year ended December 31, 1995 and the nine
months ended September 30, 1996 is as follows:
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
1995 SEPTEMBER 30, 1996
----------- -------------------
<S> <C> <C>
Statutory federal income tax
rate ........................ 35.00% 35.00%
State and local taxes, net of
federal benefit ............. 3.25 3.09
Amortization of intangible
assets relating to acquired
businesses .................. 0.80 1.05
Other ....................... 2.93 1.74
----- -----
Effective tax rate .......... 41.98% 40.88%
===== =====
</TABLE>
5. STOCKHOLDER'S EQUITY -- NET INVESTMENT BY RIS
The Company participates in a centralized cash management program
administered by RIS. Cash collected from U.S. operations is remitted to RIS and
advances are made by RIS, as needed, to cover the Company's operating expenses
and capital requirements. Cash remittances and advances have been recorded to
the "Stockholder's Equity -- Net Investment by Rust Industrial Services Inc."
account in the accompanying Consolidated Statements of Stockholder's Equity.
6. COMMITMENTS AND CONTINGENCIES
In the ordinary course of conducting its business, the Company becomes
involved in various pending claims and lawsuits. These primarily relate to
employee matters. The outcome of these matters is not presently determinable,
but in the opinion of management, based on the advice of legal counsel, the
resolution of these matters is not anticipated to have a material adverse
effect on the financial position or results of operations of the Company.
F-9
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Brand Scaffold Services, Inc.:
We have audited the accompanying consolidated balance sheets of Brand
Scaffold Services, Inc. and Subsidiaries (a Delaware corporation) as of
December 31, 1996 and 1997 and the related statements of operations,
stockholder's equity (deficit) and cash flows for the three months ended
December 31, 1996 and the year ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with 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 Brand Scaffold Services,
Inc. and Subsidiaries as of December 31, 1996 and 1997, and the results of
their operations and their cash flows for the three months ended December 31,
1996 and the year ended December 31, 1997 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
St. Louis, Missouri
March 17, 1998
F-10
<PAGE>
BRAND SCAFFOLD SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(000'S OMITTED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1996 1997 1997 1998
-------------- -------------- ------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenue ........................................... $44,412 $160,660 $ 82,103 $100,655
Operating expenses ................................ 34,170 122,638 60,741 76,655
------- -------- -------- --------
Gross profit ..................................... 10,242 38,022 21,362 24,000
Selling and administrative expenses ............... 4,743 25,840 11,329 12,269
Nonrecurring start-up expenses .................... -- 2,498 1,239 --
------- -------- -------- --------
Operating income ................................. 5,499 9,684 8,794 11,731
Interest expense .................................. 4,504 15,422 7,576 8,359
Interest income ................................... (195) (397) (240) (104)
------- -------- -------- --------
Pretax income (loss) ............................. 1,190 (5,341) 1,458 3,476
Provision for income tax .......................... 525 -- -- --
------- -------- -------- --------
Income (loss) before extraordinary loss .......... 665 (5,341) 1,458 3,476
Extraordinary loss on debt extinguishment, net of
tax of $0 ........................................ -- -- -- 4,329
------- -------- -------- --------
Net income (loss) ................................ 665 (5,341) 1,458 (853)
Less accretion of preferred stock dividends ....... (906) (4,172) (3,093) (2,300)
------- -------- -------- --------
Net income (loss) applicable to common stock ..... $ (241) $ (9,513) $ (1,635) $ (3,153)
======= ======== ======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-11
<PAGE>
BRAND SCAFFOLD SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(000'S OMITTED EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997 JUNE 30, 1998
------------------- ------------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................. $ 4,881 $ 2,217 $ 6,104
Trade accounts receivable, net of allowance for doubtful
accounts of $925 in 1996, $1,000 in 1997, and $1,092 in
June, 1998. ............................................. 22,581 23,672 28,786
Costs and estimated earnings in excess of billings on
uncompleted contracts ................................... 2,254 2,145 2,047
Notes receivable, current portion ......................... 837 388 406
Note receivable from WMI, current portion ................. 2,200 2,700 2,800
Other current assets ...................................... 1,949 2,374 2,609
-------- -------- --------
Total current assets .................................... 34,702 33,496 42,752
PROPERTY AND EQUIPMENT:
Land ...................................................... 1,633 1,633 1,633
Buildings ................................................. 1,890 2,097 2,097
Vehicles and other equipment .............................. 3,576 5,383 6,631
Scaffolding equipment ..................................... 151,289 160,576 167,190
Leasehold improvements .................................... 497 790 802
-------- -------- --------
Total property and equipment, at cost ..................... 158,885 170,479 178,353
Less -- Accumulated depreciation and amortization ......... 2,684 14,938 21,152
-------- -------- --------
Total property and equipment, net ....................... 156,201 155,541 157,201
-------- -------- --------
OTHER ASSETS:
Deferred financing costs, net ............................. 6,544 5,575 5,664
Note receivable from WMI, net of current portion .......... 4,875 2,175 725
Notes receivable, net of current portion .................. 1,944 756 599
-------- -------- --------
Total other assets ...................................... 13,363 8,506 6,988
-------- -------- --------
TOTAL ASSETS ............................................... $204,266 $197,543 $206,941
======== ======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-12
<PAGE>
BRAND SCAFFOLD SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(000'S OMITTED EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997 JUNE 30, 1998
------------------- ------------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDER'S
EQUITY (DEFICIT)
CURRENT LIABILITIES:
Revolving loan .................................................. $ -- $ 4,500 $ --
Current maturities of long term debt ............................ 8,250 9,500 3,500
Accounts payable ................................................ 2,562 4,186 3,938
Accrued expenses --
Payroll and related accruals .................................. 5,291 3,945 3,672
Workers compensation and health benefit liabilities ........... 795 3,717 5,584
Other ......................................................... 4,512 2,696 6,643
Billings in excess of costs and estimated earnings on
uncompleted contracts ......................................... 636 745 663
--------- --------- ---------
Total current liabilities .................................... 22,046 29,289 24,000
--------- --------- ---------
LONG-TERM DEBT ................................................... 149,750 140,250 156,000
--------- --------- ---------
DEFERRED INCOME TAXES ............................................ 2,317 2,040 1,995
--------- --------- ---------
COMMITMENTS AND CONTINGENCIES ....................................
14.5% SENIOR EXCHANGEABLE PREFERRED STOCK,
$0.01 par value, 1,250,000 shares authorized, 1,042,460
issued and outstanding .......................................... 25,906 31,140 33,439
--------- --------- ---------
STOCKHOLDER'S EQUITY (DEFICIT):
Common Stock, $0.01 par value, 100 shares authorized,
issued and outstanding ........................................ -- -- --
Paid-in capital ................................................. 17,604 18,477 18,477
Receivable from sale of Holdings' Common Stock .................. -- (336) (336)
Predecessor basis adjustment .................................... (13,038) (13,038) (13,038)
Cumulative translation adjustment ............................... (78) (525) (689)
Accumulated deficit ............................................. (241) (9,754) (12,907)
--------- --------- ---------
Total stockholder's equity (deficit) ............................ 4,247 (5,176) (8,493)
--------- --------- ---------
Total liabilities and stockholder's equity (deficit) ......... $ 204,266 $ 197,543 $ 206,941
========= ========= =========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-13
<PAGE>
BRAND SCAFFOLD SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000'S OMITTED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1996 1997 1997 1998
-------------- -------------- ------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) ........................................... $ 665 $ (5,341) $ 1,459 (853)
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities --
Deferred tax provision ..................................... 420 (167) -- --
Depreciation and amortization .............................. 3,567 13,294 6,358 6,788
Extraordinary loss ......................................... -- -- -- 4,329
Changes in operating assets and liabilities --
Trade accounts receivable, net ............................. 1,960 (1,513) (1,613) (5,114)
Costs and estimated earnings in excess of billings
on uncompleted contracts ................................. (1,643) 109 1,391 98
Notes receivable ........................................... 176 1,973 343 137
Scaffolding ................................................ 868 4,540 2,103 2,167
Accounts payable ........................................... 737 1,624 414 (249)
Accrued expenses ........................................... (1,182) (1,609) (2,473) 6,836
Billings in excess of costs and estimated earnings
on uncompleted contracts ................................. (562) 109 120 (82)
Other ...................................................... (40) (1,036) (2,202) (2,105)
-------- --------- -------- ------
Net cash provided by (used for) operating
activities ............................................. 4,966 11,983 5,900 11,952
-------- --------- -------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment .......................... (1,642) (14,733) (6,549) (9,868)
Receipts on note receivable from WMI ........................ 363 2,200 1,100 1,350
Proceeds from sales of property and equipment other
than scaffolding ........................................... (17) 37 36 4
-------- --------- -------- ------
Net cash used for investing activities .................. (1,296) (12,496) (5,413) (8,514)
-------- --------- -------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt ................................ -- -- -- 130,000
Payments of long-term debt .................................. (2,000) (8,250) (4,000) (120,250)
Borrowings/(Payments) of revolving loans .................... -- 4,500 -- (4,500)
Debt issuance financing costs ............................... -- -- -- (4,799)
Issuance of preferred stock ................................. -- 1,062 -- --
Capital contribution from Holdings .......................... -- 873 -- --
Receivable from sale of Holdings' common stock .............. -- (336) -- --
-------- --------- -------- --------
Net cash (used for) provided by financing
activities ............................................. (2,000) (2,151) (4,000) 451
-------- --------- -------- --------
INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS ................................................. 1,670 (2,664) (3,513) 3,887
CASH AND CASH EQUIVALENTS, beginning of
period ...................................................... 3,212 4,881 4,881 2,217
-------- --------- -------- --------
CASH AND CASH EQUIVALENTS, end of period ..................... $ 4,881 $ 2,217 $ 1,368 $ 6,104
======== ========= ======== ==========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid ............................................... $ 3,016 $ 14,138 $ 6,979 $ 3,786
Income taxes paid ........................................... -- 113 -- --
======== ========= ======== ==========
NONCASH TRANSACTIONS:
Paid in-kind accretion of preferred stock dividends ......... $ 906 $ 4,172 $ 3,093 $ 2,299
Receipt of scaffolding as payment in lieu of cash on
accounts receivable ........................................ -- 422 -- --
======== ========= ======== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-14
<PAGE>
BRAND SCAFFOLD SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(000'S OMITTED EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK RECEIVABLES
------------------ ADDITIONAL FROM SALE
PAID- OF HOLDING'S
SHARES DOLLARS IN CAPITAL COMMON STOCK
-------- --------- ------------ --------------
<S> <C> <C> <C> <C>
Balance, October 1, 1996 ...... 100 $ -- $17,604 $ --
Comprehensive Income:
Net income ...................
Translation Adjustment .......
Comprehensive income .........
Paid-in-kind accretion of
preferred dividends ..........
--- ---- ------- ------
Balance, December 31, 1996..... 100 -- 17,604 --
Comprehensive Income:
Net income (loss) ............
Translation Adjustment .......
Comprehensive income .........
Paid-in-kind accretion of
preferred dividends ..........
Capital contribution from
DLJ Brand Holdings, Inc. ..... 873
Issuance of prommissory
notes from officers and
employees .................... (336)
--- ---- ------- ------
Balance, December 31, 1997..... 100 -- 18,477 (336)
Comprehensive Income/Loss:
Net income (loss) ............
Translation Adjustment .......
Comprehensive income .........
Paid-in-kind accretion of
preferred dividends ..........
--- ---- ------- ------
Balance, June 30, 1998
(unaudited) .................. 100 $ -- $18,477 $ (336)
=== ==== ======= ======
<PAGE>
<CAPTION>
PREDECESSOR COMPRE- CUMULATIVE
BASIS HENSIVE ACCUMULATED TRANSLATION
ADJUSTMENT INCOME/LOSS DEFICIT ADJUSTMENT TOTAL
------------- ------------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance, October 1, 1996 ...... $ (13,038) $ -- $ -- $ 4,566
Comprehensive Income:
Net income ................... $ 665 665 665
Translation Adjustment ....... (78) (78) (78)
--------
Comprehensive income ......... $ 587
========
Paid-in-kind accretion of
preferred dividends .......... (906) (906)
--------- ------ --------
Balance, December 31, 1996..... (13,038) (241) (78) 4,247
Comprehensive Income:
Net income (loss) ............ $ (5,341) (5,341) (5,341)
Translation Adjustment ....... (447) (447) (447)
--------
Comprehensive income ......... $ (5,788)
========
Paid-in-kind accretion of
preferred dividends .......... (4,172) (4,172)
Capital contribution from
DLJ Brand Holdings, Inc. ..... 873
Issuance of prommissory
notes from officers and
employees .................... (336)
--------- --------- ------ --------
Balance, December 31, 1997..... (13,038) (9,754) (525) (5,176)
Comprehensive Income/Loss:
Net income (loss) ............ $ (853) (853) (853)
Translation Adjustment ....... (164) (164) (164)
--------
Comprehensive income ......... $ (1,017)
========
Paid-in-kind accretion of
preferred dividends .......... (2,300) (2,300)
--------- --------- ------ --------
Balance, June 30, 1998
(unaudited) .................. $ (13,038) $ (12,907) $ (689) $ (8,493)
========= ========= ====== ========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-15
<PAGE>
BRAND SCAFFOLD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The financial statements included herein for the periods ended June 30,
1997 and 1998 have been prepared by the Company without audit. In the opinion
of management, all adjustments have been made which are of a normal recurring
nature necessary to present fairly the Company's financial position as of June
30, 1997 and June 30, 1998 and the results of operations, changes in
stockholder's equity and cash flows for the three months then ended. Certain
information and footnote disclosures have been condensed or omitted for these
periods. The results for interim periods are not necessarily indicative of
results for the entire year.
1. ORGANIZATION AND BUSINESS
Brand Scaffold Services, Inc. (a Delaware corporation) and its
subsidiaries (the "Company") are 100% owned by DLJ Brand Holdings, Inc.
("Holdings"). Holdings is owned 65.5% by Donaldson, Lufkin & Jenrette, Inc.
("DLJ"), 9.3% by Carlisle Enterprises, L.P. ("Carlisle"), 18.6% by Rust
International Inc. ("Rust") through its wholly owned subsidiary Rust Industrial
Services Inc. ("RIS") and 6.5% by the directors, officers and employees of the
Company. Rust is a subsidiary of Waste Management, Inc. ("WMI").
The Company believes it operates in one segment. The Company provides
scaffolding services primarily to refining, chemical, petrochemical and utility
industries, and to a lesser extent, pulp and paper plants, nuclear facilities
and general commercial clients. Scaffolding services are typically provided in
connection with periodic, routine cleaning and maintenance of refineries,
chemical plants and utilities, as well as for new construction projects. The
Company provides personnel to erect and dismantle scaffolding structures,
transport scaffolding to project sites and supervise and manage such
activities. In addition, the Company rents and occasionally sells scaffolding
that is classified as property and equipment on the consolidated balance sheet.
The Company maintains a substantial inventory of scaffolding in the United
States and Canada.
The Company's services are not rendered to or dependent on any single
customer within the industrial or commercial markets and therefore the Company
does not believe that a material concentration of credit risk exists, except
that one customer accounted for 18.0% and 16.9% of revenues for the three
months ended December 31, 1996, and for the year ended December 31, 1997,
respectively.
2. PURCHASE TRANSACTION
On September 30, 1996, the Company, a newly formed entity created by the
merchant banking group of DLJ, purchased the net assets of Rust Scaffold
Services, Inc. and its subsidiaries, which were direct and indirect
subsidiaries of Rust (the "Acquisition"). The purchase price approximated the
fair values of the net tangible assets acquired. The Company paid Rust the
following, at fair values (in thousands):
<TABLE>
<S> <C>
Cash ................................................................ $178,038
199,000 shares of senior exchangeable preferred stock (see Note 9) .. 4,975
2,487,500 shares of common stock of Holdings (see Note 11) .......... 2,487
Subordinated note (see Note 6) ...................................... 4,800
--------
$190,300
========
</TABLE>
To fund the Acquisition, on September 30, 1996, the Company entered into a
$190 million credit agreement (the "Credit Agreement") with Bank of America
Illinois and DLJ Capital Funding pursuant to which the Company borrowed $160
million. On November 21, 1996, in accordance with the Credit Agreement, such
borrowings were placed with various financial institutions. The Acquisition was
F-16
<PAGE>
BRAND SCAFFOLD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
accounted for using the purchase method. As a result, the assets and
liabilities of the Company were recorded at their approximate fair values as of
October 1, 1996. As part of the Acquisition, Rust retained liability for
certain tax, legal, environmental and other contingencies related to periods
prior to October 1, 1996.
The Company recorded a liability of approximately $1,200,000 on October 1,
1996, as part of the acquisition cost in connection with management's decision
to exit and relocate certain offices and to involuntarily terminate or relocate
certain employees. The Company substantially completed its restructuring
activities in 1997. Charges to the liability were $900,000 for the year ended
December 31, 1997. As of December 31, 1997, the balance of the liability was
$100,000.
As indicated above, on the date of the purchase, Rust retained a 19.9%
interest in the Company. Accordingly, a "Predecessor Basis Adjustment" of
$13,038,000 was recorded to the acquired assets and stockholder's equity
reflecting Rust's historical carrying value of its retained ownership interest
in the sold assets.
The following table presents pro forma information for the Company for the
year ended December 31, 1996 assuming the acquisition had taken place on
January 1, 1996 (in thousands).
<TABLE>
<CAPTION>
UNAUDITED
<S> <C>
Revenue ............. $169,181
Net Income .......... 3,352
</TABLE>
The pro forma amounts have been derived from the results for Rust Scaffold
Services, Inc. for the nine months ended September 30, 1996 and for the Company
for the three months ended December 31, 1996 plus certain adjustments: an
increase of interest expense of $3,470,000 and an increase in depreciation and
amortization of $4,218,000, as well as the related tax impact. These amounts
are not necessarily indicative of the results the Company would have achieved
for the full year had the Acquisition occurred on January 1, 1996.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements are prepared on a consolidated basis
and include those assets, liabilities, revenues and expenses directly
attributable to the operations of the Company. All significant intercompany
balances and transactions have been eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company recognizes contract revenue on the percentage-of-completion
basis with losses recognized in full when identified. Changes in project
performance and conditions, estimated profitability and final contract
settlements may result in future revisions to costs and income. Substantially
all of the Company's contracts are completed in less than six months. Other
revenues are recognized when the services are performed.
F-17
<PAGE>
BRAND SCAFFOLD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RENTAL AND SALES OF SCAFFOLDING
For the three months ended December 31, 1996 and the year ended December
31, 1997, revenues from the rental of scaffolding were $11,230,000 and
$40,847,000, respectively. For the six months ended June 30, 1997 and June 30,
1998, such revenues were $20,392,000 (unaudited) and $24,591,000 (unaudited),
respectively.
The Company periodically sells scaffolding to third parties, primarily to
its rental customers. The Company recognizes revenue for the proceeds of such
sales and records as operating expense the net book value of the scaffolding.
Net book value is determined, assuming the oldest scaffolding is sold first, as
the Company maintains inventory records on a group basis. Revenues and gross
profit from sales of scaffolding were $1,395,000 and $567,000, respectively,
for the three months ended December 31, 1996; $7,714,000 and $3,174,000,
respectively for the year ended December 31, 1997; $3,524,000 (unaudited) and
$1,421,000 (unaudited), respectively, for the six months ended June 30, 1997
and $3,304,000 (unaudited) and $1,137,000 (unaudited), respectively for the six
months ended June 30, 1998.
CASH AND CASH EQUIVALENTS
The Company considers all short-term deposits purchased with original
maturities of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment (including major repairs and improvements that
extend the useful life of the asset) are capitalized and stated at cost.
Ordinary maintenance and repairs of equipment are charged to expense. The cost
of property and equipment is depreciated over the estimated useful lives on the
straight-line method as follows:
<TABLE>
<S> <C>
Buildings ............................ 10 to 40 years
Vehicles and other equipment ......... 3 to 20 years
Scaffolding equipment ................ 3 to 25 years
Leasehold improvements ............... Life of the applicable lease or life of the
improvement, whichever is shorter
</TABLE>
For the three months ended December 31, 1996 and the year ended December
31, 1997, depreciation expense was $2,899,000 and $12,325,000, respectively.
For the six months ended June 30, 1997 and June 30, 1998, such expense was
$5,873,000 (unaudited) and $6,408,000 (unaudited), respectively.
DEFERRED FINANCING COSTS
In connection with the Acquisition, the Company deferred financing costs
totaling $7,212,000. Of this amount, $588,000 was allocated to borrowings for
the period October 1, 1996, to November 21, 1996, and was charged to expense
during that period. The remaining $6,624,000 was allocated to the borrowings
described in Note 6 and are being amortized over the life of the Credit
Agreement. In 1998, the Company recorded an extraordinary loss of $4.3 million
to write off deferred financing costs related to the early extinguishment of
debt (see Note 6). For the three months ended December 31, 1996 and the year
ended December 31, 1997, amortization of deferred financing costs, included in
interest expense, was $668,000 and $969,000, respectively. For the six months
ended June 30, 1997 and June 30, 1998, such amortization expense was $485,000
(unaudited) and $380,000 (unaudited), respectively. Accumulated amortization
was $969,000 and $1,637,000 as of December 31, 1996 and December 31, 1997,
respectively. In connection with the February 1998 issuance of senior notes,
the Company paid financing fees and expenses of $4.4 million, which were
deferred and are being amortized over 10 years. Of these fees, $3.9 million
related to commissions.
F-18
<PAGE>
BRAND SCAFFOLD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DERIVATIVE FINANCIAL INSTRUMENTS
Through February 1998, the Company used an interest rate collar to hedge
its exposure to interest rate fluctuations. The collar has the effect of
establishing a maximum and a minimum interest rate on a portion of the
Company's underlying variable rate debt obligations. The maximum and minimum
interest rates associated with the interest rate collar are 8.50% and 5.69%,
respectively, and the notional amount at December 31, 1997 was $75 million. In
1997, the existence of this hedge had no impact on the financial position,
results of operations or cash flows of the Company.
ASSET IMPAIRMENT
If facts and circumstances suggest that a long-lived asset may be
impaired, the carrying value is reviewed. If this review indicates that the
value of the asset will not be recoverable, as determined based on projected
undiscounted cash flows related to the asset over its remaining life, the
carrying value of the asset is reduced to its estimated fair value.
FOREIGN OPERATIONS
The assets and liabilities of the Company's wholly owned foreign
subsidiary, Brand Scaffold Services of Canada, Inc. are translated at the rates
of exchange in effect on the balance sheet date while income statement accounts
are translated at the average exchange rate in effect during the period. The
resulting translation adjustments are charged or credited to the cumulative
translation adjustment account. Revenues from the Canadian operation and
scaffolding equipment in Canada are less than 10% of the consolidated totals
for the Company.
RECLASSIFICATIONS
Certain reclassifications have been made to the December 31, 1996
financial statements to conform with the December 31, 1997 presentation.
4. NOTES RECEIVABLE
Notes receivable result from scaffolding sales. As of December 31, 1996
and December 31, 1997, approximately $2,781,000 and $991,000 of such notes
maturing in 3-5 years were outstanding with interest rates ranging from 9.75%
to 11.00% and 8% to 10.25%, respectively.
5. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Deferred income taxes
are not provided on undistributed earnings of the Company's foreign subsidiary
because those earnings are considered to be permanently invested. If the
reinvested earnings were to be remitted, the U. S. income taxes under current
law would be immaterial.
For the three months ended December 31, 1996, the Company's income tax
provision consisted of deferred domestic taxes of $420,000 and current foreign
taxes of $105,000. For the year ended December 31, 1997, such provision
consisted of a deferred domestic tax benefit of $287,000, current foreign tax
expense of $167,000 and deferred foreign tax expense of $120,000.
F-19
<PAGE>
BRAND SCAFFOLD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The reconciliation of the statutory federal income tax (benefit) expense
on the Company's pretax income (loss) to the actual provision for income taxes
for the three months ended December 31, 1996 and the year ended December 31,
1997, are as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997
-------------------- ------------------
<S> <C> <C>
Statutory federal income taxes ................ $417 $ (1,869)
State and local taxes, net of federal ......... 45 (174)
Foreign taxes ................................. 35 287
Valuation allowance ........................... -- 1,918
Other ......................................... 28 (162)
---- --------
Provision for income taxes ................... $525 $ --
==== ========
</TABLE>
The components of the net deferred tax liability as of December 31, 1996
and 1997, are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
----------- -------------
<S> <C> <C>
DEFERRED TAX ASSETS--
Accrued liabilities ..................... $ 2,061 $ 3,152
Property and equipment .................. 1,641 --
Net operating loss carryforward ......... 1,989 26,371
Valuation allowance ..................... (5,178) (7,096)
-------- ---------
Deferred tax assets .................... $ 513 $ 22,427
======== =========
DEFERRED TAX LIABILITIES--
Note receivable from WMI ................ $ (2,830) $ (1,950)
Property and equipment .................. -- (22,517)
-------- ---------
Deferred tax liabilities ............... $ (2,830) $ (24,467)
======== =========
</TABLE>
The Company is required to record a valuation allowance when it is more likely
than not that some portion or all of the deferred tax assets will not be
realized. As of December 31, 1997, a valuation allowance of $7,096,000 was
recorded, which increased $1,918,000 for the year ended December 31, 1997.
At December 31, 1996 and December 31, 1997, the Company had net operating
loss carryforwards for federal income tax purposes of $4,972,000 and
$65,928,000 which expire in 2012 and 2013, respectively.
<PAGE>
6. DEBT AND BORROWING ARRANGEMENTS
At December 31, 1996, December 31, 1997, and June 30, 1998 long term debt
consisted of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, DECEMBER 31, 1998
1996 1997 (UNAUDITED)
-------------- -------------- ------------
<S> <C> <C> <C>
Term Loans ..................... $158,000 $149,750 $ 29,500
10 1/4% Senior Notes ........... -- -- 130,000
Less Current Portion ......... 8,250 9,500 3,500
-------- -------- --------
Long-Term Debt ................. $149,750 $140,250 $156,000
======== ======== ========
</TABLE>
In 1996, in connection with the Acquisition, the Company entered into a
Credit Agreement which provides for Term Loan Commitments under Senior Secured
Credit facilities totaling $160 million, and a Revolving Loan Commitment
totaling $30 million. In February 1998, the Company issued $130 million of 10
1/4% Senior Notes due February 2008. The offering was underwritten by DLJ. The
proceeds of this offering were used to repay $120 million of the Term Loans
outstanding under the Credit Agreement. In
F-20
<PAGE>
BRAND SCAFFOLD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
addition, in February 1998, the Company amended the Credit Agreement to reduce
the total facility to $60 million. This amendment included revisions to certain
covenant requirements. In connection with the Credit Agreement, the Company
incurred administrative and commitment fees for the three months ended December
31, 1996 and for the year ended December 31, 1997, such costs, included in
interest expense, were $60,000 and $216,000, respectively. Long-term debt
outstanding as Term Loans as of June 30, 1998 (unaudited) are due in quarterly
installments which total in each year as follows (in thousands):
<TABLE>
<CAPTION>
1998
------------
(UNAUDITED)
<S> <C>
1998 (Nine Months) ......... $ 1,000
1999 ....................... 5,000
2000 ....................... 6,000
2001 ....................... 8,500
2002 ....................... 9,000
-------
$29,500
=======
</TABLE>
Interest rates are determinable under the Credit Agreement based upon
certain market "Base Rates" or LIBOR, plus an "Applicable Margin" of between
1.75% to 3.5%. The Applicable Margins for Tranche B and Tranche C loans are
fixed while those for Tranche A loans ($58,250,000 and $51,000,000 as of
December 31, 1996 and December 31, 1997, respectively) vary based, generally,
on earnings performance. The average interest rate under Term Loans in effect
during the three months ended December 31, 1996 and the year ended December 31,
1997 was 9.59% and 8.90%, respectively. Such rates at June 30, 1997 and June
30, 1998 were 8.8% (unaudited) and 8.9% (unaudited), respectively. Interest
expense on the Term Loans for the three months ended December 31, 1996 and for
the year ended December 31, 1997 was $3,836,000 and $13,984,000, respectively.
Revolving loan commitents equal an amount based upon an eligible borrowing
base, as defined, with a maximum available limit of $30 million. The loan
expires September 30, 2002, and interest rates are based on certain market
"Base Rate" or LIBOR plus a margin of between 1.75% and 3.5% (generally based
on earnings performance). At December 31, 1996 and December 31, 1997, the
available borrowing base (which is net of outstanding borrowings) was
$6,842,000 and $13,136,000, respectively. At June 30, 1997 and June 30, 1998,
such base was $13,944,000 (unaudited) and $14,024,000 (unaudited),
respectively. As of December 31, 1996 and December 31, 1997, amounts borrowed
under the revolving loan commitments were $0 and $4,500,000, respectively. As
of June 30, 1997 and June 30, 1998, such amounts were $0 (unaudited) and $0
(unaudited), respectively. Any borrowings under the revolving loan commitment
in excess of $10 million must be repaid once per year, in accordance with the
Credit Agreement. Interest expense on the revolving loan for the three months
ended December 31, 1996 and the year ended December 31, 1997, was $0 and
$119,000, respectively. For the six months ended June 30, 1997 and June 30,
1998, such interest expense was $18,000 (unaudited) and $7,000 (unaudited),
respectively.
Substantially all assets of the Company are pledged as collateral for the
facilities described above. In addition, the Company is required to comply with
various affirmative and negative covenants, including financial covenants
requiring certain levels of net worth to be maintained and the achievement of
certain financial ratios. The Company was not in compliance with certain
covenants under the Credit Agreement for the quarter ended December 31, 1997.
Waivers have been obtained from the lenders for such violations. The waivers
related to financial covenants contained in the Credit Agreement which, as of
December 31, 1997, required the Company to maintain (i) a Leverage Ratio (as
defined in the Credit Agreement) no greater than 4.60:1, (ii) an Interest
Coverage Ratio (as defined in the Credit Agreement) of at least 2.25:1 and
(iii) a Fixed Charge Coverage Ratio (as defined in the Credit Agreement) of at
least 1.15:1. The waivers became effective upon the execution by the Company
and the Required Lenders. In
F-21
<PAGE>
BRAND SCAFFOLD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
order to induce the Lenders to grant the waivers, (a) the Company certified
that the representations and warranties set forth in Article VI of the Credit
Agreement and in the Loan Documents were true and correct as of the date of the
waivers and (b) the Company represented and warranted that, after giving effect
to the waivers, no default or event of default had occurred or was continuing
as of the date of the waivers.
As part of the Acquisition, the Company issued a Subordinated Note (the
Subordinated Note) to Rust totaling $14.5 million due 2008. The Subordinated
Note was recorded at its fair value of $4.8 million, assuming an effective
interest rate of 18% per annum. On September 30, 1996, Holdings assumed all
obligations under the Subordinated Note by making a capital contribution to the
Company of $4.8 million, which is included in paid-in capital of the Company.
Because Holdings has no revenue generating activities, other than its ownership
of the Company, it is likely that the Company's cash flows will service all or
part of Holding's obligation under the Subordinated Note. Subject to certain
conditions, Holdings has the option of paying interest, calculated annually,
through the issuance of additional Subordinated Notes in lieu of cash.
Additionally, based on Holdings' financial performance, the Subordinated Note's
interest and principal payments may be delayed or accelerated. As a result of
interest accretion, Holding's carrying amount of the Subordinated Note is
approximately $5,965,000 and $5,055,000 as of December 31, 1997 and 1996,
respectively. No principal or interest cash payments have been made during
1997.
7. LEASE OBLIGATIONS
The Company leases a portion of its operating and office facilities under
operating leases. For the three months ended December 31, 1996 and the year
ended December 31, 1997, rent expense was approximately $271,000 and
$1,334,000, respectively. The non-cancelable rental obligations as of December
31, 1997, are as follows:
<TABLE>
<CAPTION>
1997
---------
<S> <C>
1998 ................ $1,529
1999 ................ 1,166
2000 ................ 831
2001 ................ 703
2002 ................ 508
Thereafter .......... 692
------
Total ............. $5,429
======
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
In the ordinary course of conducting its business, the Company becomes
involved in various pending claims and lawsuits. These primarily relate to
employee matters. The outcome of these matters is not presently determinable,
however, in the opinion of management, based on the advice of legal counsel,
the resolution of these matters is not anticipated to have a material adverse
effect on the financial position or results of operations of the Company.
The Company has available Letter of Credit Commitments in an amount not to
exceed $15 million, of which $3,651,000 and $6,751,000 was outstanding with
Bank of America at December 31, 1996 and December 31, 1997, respectively. At
June 30, 1997 and June 30, 1998, such amounts were $3,651,000 (unaudited) and
$7,101,000 (unaudited), respectively. For the three months ended December 31,
1996 and the year ended December 31, 1997, the Company paid fees related to
such commitments (included in interest expense) of $20,000 and $134,000,
respectively. For the three months ended June 30, 1997 and June 30, 1998, such
fees were $28,000 (unaudited) and $54,000 (unaudited), respectively.
F-22
<PAGE>
BRAND SCAFFOLD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. SENIOR EXCHANGEABLE PREFERRED STOCK
The Company has authorized 1,250,000 shares and has issued and outstanding
1,042,460 of Senior Exchangeable Preferred Stock (the "Senior Preferred
Stock"). The Senior Preferred Stock is mandatorily redeemable on September 30,
2007, at a redemption price equal to aggregate liquidation value plus unpaid
dividends. The liquidation value of each share of Senior Preferred Stock is $25
at issuance. Dividends are calculated quarterly on the liquidation value of
such shares at 14.5% annually. For the five- year period ended September 30,
2001, such dividends accrete on a compounded basis and increase the liquidation
value. Dividends are payable in cash subsequent to this date. For the three
months ended December 31, 1996 and the year ended December 31, 1997, dividends
of $906,250 and $4,172,000 were accreted. For the six months ended June 30,
1997 and June 30, 1998, such accreted amounts were $3,093,000 (unaudited) and
$2,300,000 (unaudited), respectively. As a result, the loss attributable to
common stockholders for the three months ended December 31, 1996 and the year
ended December 31, 1997 was $241,000 and $9,513,000, respectively. For the six
months ended June 30, 1997 and June 30, 1998, such income (loss) was
$(1,635,000) (unaudited) and $(3,153,000) (unaudited), respectively.
The Senior Preferred Stock carries no voting rights, but its holders have
certain defined rights upon certain events occurring. In the event of a change
in control of the Company, each holder of Senior Preferred Stock will have the
right to require the Company to repurchase its shares at 101% of the
liquidation value. The Company may redeem the Senior Preferred Stock at certain
premiums to the liquidation value at any time after September 30, 2001 or upon
the occurrence of an initial public offering of the Company's common stock
prior to September 30, 1999. Additionally, at the option of the Company, the
Senior Preferred Stock is exchangeable into 14.5% Subordinated Exchange
Debentures due 2007, under certain conditions.
10. STOCKHOLDER'S EQUITY
The Company has authorized, issued and outstanding 100 shares of $.01 par
common stock. All of the common stock of the Company is owned by Holdings.
11. PARENT COMPANY TRANSACTIONS
Holdings has authorized 15,000,000 shares and issued and outstanding
13,373,356 shares of $.01 par common stock.
As part of the Acquisition, on September 30, 1996, Holdings and Carlisle
agreed upon a grant of options to Carlisle (the "Carlisle Options") to acquire
918,750 shares of Holdings' common stock. The Carlisle Options fall into three
categories, each with different vesting terms: time based, performance based,
and path dependent (for which vesting is contingent upon certain measurements
of the value of the Company). Substantially all of the value of the Carlisle
Options was considered a cost of the Acquisition and pushed down to the
Company's financial statements.
In 1997, Holdings made a capital contribution to the Company of $873,356,
representing cash and notes received by the Company from the sale of Holdings'
common stock to certain directors, officers and employees of the Company. At
December 31, 1997, certain officers and employees of the Company have
outstanding promissory notes in the aggregate amount of $336,000, which were
issued to the Company as consideration for a portion of the above Holdings'
common stock. Such outstanding amounts were $336,000 (unaudited) at June 30,
1997 and June 30, 1998, respectively. The notes earn interest at 7.03% and
mature on 2002. These notes are secured by shares owned by such officers and
employees.
In 1997, the Board of Directors of Holdings approved a stock option plan
for key employees of the Company. During 1997, Holdings granted certain
employees options to acquire 957,000 shares of Holding's common stock. The
options were granted with an exercise price of $1.00 per share which
F-23
<PAGE>
BRAND SCAFFOLD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
management believes approximated the fair value of Holdings' common stock at
the date of grant. The options vest over a maximum of ten years or a minimum of
five years provided certain performance criteria are met. Unvested options are
subject to forfeiture, upon employee termination, as defined. Additionally, any
shares acquired upon exercise are subject to repurchase rights of the Company
upon termination of employment, as defined. Upon a change of control, as
defined, all unvested options will vest. In 1997, no options were canceled or
exercised. The Company adopted the disclosure-only option under SFAS 123
"Accounting for Stock Based Compensation" ("SFAS 123"). The Company accounts
for employee stock options under APB Opinion 25, as permitted under generally
accepted accounting principles. Accordingly, no compensation cost has been
recognized in the accompanying financial statements related to these options.
Had compensation cost for these options been determined consistent with SFAS
123, the Company's net loss would reflect the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
------------------
<S> <C>
Net loss
As reported ......... $ (5,341)
Pro forma ........... (5,384)
</TABLE>
The fair value of each option is estimated on the date of grant based
using the Black-Scholes option pricing model with the following
weighted-average assumptions: a risk-free interest rate of 6.5%; a 0% dividend
yield; an average expected life of seven years. The fair value of options
granted during 1997 was calculated to be $0.45 per option.
In accordance with the Shareholder's Agreement of Holdings, in the event
any shareholder desires to transfer any shares of Holdings to a third party
prior to September 30, 2001, such shareholders must first offer such shares to
the other shareholders. Also, certain shareholders engaged in a transfer of
shares to a third party have the right to compel the other shareholders to sell
a proportionate share of their holdings to the third party, as defined.
12. RELATED PARTY TRANSACTIONS
Certain shareholders of Holdings receive a quarterly Management Advisory
Fee in return for management, advisory and other services rendered. Such fees
totaled $125,000 and $500,000 for the three months ended December 31, 1996 and
the year ended December 31, 1997, respectively.
In connection with the Acquisition, the Company entered into a
Transitional Services Agreement with WMI and Rust. In consideration of certain
services to be rendered by the Company and the licenses and preferred customer
status granted by the Company, WMI shall pay to the Company $725,000 per
quarter through September 30, 1999 ($8.7 million in total). The Company
recorded $7,437,500 as a note receivable from WMI in purchase accounting. The
balance of $1,262,500 is being accounted for as a reduction to the Company's
operating expenses in the period the aforementioned services are provided. For
the three months ended December 31, 1996 and the year ended December 31, 1997,
the Company received $725,000 and $2,900,000 respectively in cash and reduced
its note receivable by $362,000 and $2,200,000 respectively. For the three
months ended December 31, 1996 and the year ended December 31, 1997, operating
expenses were reduced by $362,000 and $700,000, respectively. For the six
months ended June 30, 1997 and June 30, 1998, such reductions were $350,000
(unaudited) and $100,000 (unaudited), respectively.
13. EMPLOYEE BENEFIT PLAN
In 1997, the Company established the Brandshare 401(k) Savings Plan and
Profit Sharing Plan. Substantially all employees are eligible to participate in
the Plan. Participants may elect to defer 2% to
F-24
<PAGE>
BRAND SCAFFOLD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10% of their salary. The Company, at its sole discretion, may make matching
contributions to the Plan. For the year ended December 31, 1997 and the six
months ended June 30, 1998, the Company contributed $318,000 and $189,000
(unaudited) to the Plan.
14. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS--The carrying amounts approximate fair value.
NOTES RECEIVABLE--The fair value of notes receivable are based on
discounted future cash flows at current interest rates.
REVOLVING LOAN AND LONG-TERM DEBT--The carrying amounts of the Company's
borrowings under the Credit Agreement approximate their fair value because
such borrowings carry variable interest rates.
INTEREST RATE HEDGE--The fair values of interest rate collars are the
amounts at which they could be settled, based on estimates obtained from
dealers.
14.5% SENIOR EXCHANGEABLE PREFERRED STOCK--The liquidation amounts plus
accreted dividends approximate fair value.
The carrying amounts and fair values of the Company's financial
instruments at December 31, 1996 and 1997, are as follows:
<TABLE>
<CAPTION>
1996 1997
---------------------------- ----------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash and cash equivalents ......... $ 4,881 $ 4,881 $ 2,217 $ 2,217
Notes receivable .................. 2,781 3,021 1,144 1,192
Revolving loan .................... -- -- (4,500) (4,500)
Long-term debt .................... (158,000) (158,000) (149,750) (149,750)
Interest rate hedge ............... -- -- -- (298)
14.5% Senior Exchangeable Preferred
Stock ........................... 25,906 25,906 31,140 31,140
</TABLE>
15. ACCOUNTING STANDARD NOT YET IMPLEMENTED
In June 1998, the Financial Accounting Standards Board (FASB) adopted SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value and that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged item in
the income statement, and requires that a company must formally document,
designate, and assess the effectiveness of transactions that receive hedge
accounting. SFAS No. 133 is effective for fiscal years beginning after June 15,
1999. The Company has not yet quantified the impacts of adopting SFAS No. 133
on its consolidated financial statements nor has it determined the timing or
method of its adoption of SFAS No. 133. However, SFAS No. 133 could increase
volatility in earnings and other comprehensive income.
F-25
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR THE
ACCOMPANYING LETTER OF TRANSMITTAL, IN CONNECTION WITH THE OFFERING MADE
HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OTHER PERSON.
NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF
TRANSMITTAL NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN
THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF. NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF
TRANSMITTAL CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY
ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH AN OFFER OR SOLICITATION.
-----------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary ............................ 3
Risk Factors .................................. 13
Use of Proceeds ............................... 19
The Exchange Offer ............................ 19
Capitalization ................................ 28
Selected Consolidated Financial Data .......... 29
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................. 31
Business ...................................... 38
Management .................................... 44
Principal Stockholders ........................ 50
Certain Relationships and Related
Transactions ............................... 52
Description of Bank Facility .................. 53
Description of Preferred Stock ................ 55
Description of Notes .......................... 57
Plan of Distribution .......................... 85
Legal Matters ................................. 85
Independent Public Accountants ................ 86
Available Information ......................... 86
Index to Consolidated Financial
Statements ................................. F-1
</TABLE>
[GRAPHIC LOGO]
BRAND SCAFFOLD
SERVICES, INC.
OFFER TO EXCHANGE 10 1/4% SENIOR NOTES DUE 2008,
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OF ITS OUTSTANDING
10 1/4% SENIOR NOTES DUE 2008
--------------------------------------------------------------
PROSPECTUS
--------------------------------------------------------------
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[Alternate Front Cover]
PROSPECTUS
[LOGO] BRAND SCAFFOLD SERVICES, INC.
10 1/4% SENIOR NOTES DUE 2008
The 10 1/4% Senior Notes due 2008 (the "Exchange Notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
were issued in exchange for the 10 1/4% Senior Notes due 2008 (the "Old Notes,"
and together with the Exchange Notes, the "Notes") by Brand Scaffold Services,
Inc., a Delaware corporation (the "Company").
Interest on the Exchange Notes is payable in cash semiannually on February
15 and August 15 of each year, commencing on August 15, 1998. The Exchange
Notes will mature on February 15, 2008. The Exchange Notes will be redeemable,
in whole or in part, at the option of the Company, at any time on or after
February 15, 2003 at the redemption prices set forth herein plus accrued and
unpaid interest, and Liquidated Damages (as defined), if any, to the date of
redemption. In addition, prior to February 15, 2001, the Company may redeem up
to 35% of the principal amount of the Notes at a price equal to 110 1/4% of the
principal amount thereof, plus accrued and unpaid interest thereon and
Liquidated Damages (as defined), if any, to the date of redemption, with the
net cash proceeds of one or more Qualified Equity Offerings (as defined). Upon
the occurrence of a Change of Control (as defined), each holder of Exchange
Notes will have the right to require the Company to repurchase such holder's
Exchange Notes at 101% of the principal amount thereof, plus accrued and unpaid
interest thereon and Liquidated Damages, if any, to the repurchase date. See
"Description of Notes--Change of Control."
The Exchange Notes are general senior unsecured obligations of the Company
and rank pari passu with all existing and future senior unsecured indebtedness
and other obligations of the Company. The Exchange Notes are effectively
subordinated to all existing and future liabilities of the Company's
subsidiaries, including trade payables. As of June 30, 1998, the Company's
subsidiaries had no outstanding Indebtedness (as defined) other than
intercompany Indebtedness and certain capital lease obligations. In addition,
the Exchange Notes are effectively subordinated to existing and future senior
secured indebtedness, including the Bank Facility (as defined), which is
secured by a pledge of substantially all of the assets of the Company and its
subsidiaries and is also guaranteed by the Company's U.S. subsidiaries. See
"Risk Factors--Effective Subordination of the Exchange Notes; Dependence on
Subsidiaries." As of June 30, 1998, $29.5 million of indebtedness is
outstanding under the Bank Facility. In addition, as of June 30, 1998, the
Company had $14.0 million in unused senior secured borrowing capacity under the
Bank Facility. As of June 30, 1998, the Company had no indebtedness junior to
the Notes.
This Prospectus is to be used by Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJSC") in connection with offers and sales in market-making
transactions at negotiated prices related to prevailing market prices at the
time of sale. DLJSC may act as principal or agent in such transactions and has
no obligation to make a market in the Exchange Notes, and may discontinue its
market-making activities any time without notice, at its sole discretion. If
DLJSC conducts any market-making activities, it may be required to deliver a
"market-making prospectus" when effecting offers and sales in the Notes because
of the equity ownership of affiliates of DLJSC. Certain affiliates of DLJSC
hold in the aggregate a 65.5% equity interest in the Company. The Company will
receive no portion of the proceeds of the sale of such Exchange Notes and will
bear expenses incident to the registration thereof.
No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the offer
of securities made by this Prospectus and, if given or made, such information
or representations must not be relied upon as having been authorized by the
Company or by any underwriter, dealer or agent. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction. This
Prospectus does not constitute an offer to sell or a solicitation of an offer
to buy any securities other than those to which it relates. Neither the
delivery of this Prospectus nor any sale of, or offer to sell, the securities
offered hereby shall, under any circumstances, create an implication that there
has been no change in the affairs of the Company since the date hereof or that
the information herein is correct as of any time subsequent to its date.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE PAGE , "RISK
FACTORS," FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE
PARTICIPANTS IN THE EXCHANGE OFFER.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1998
A-1
<PAGE>
[Alternate Page]
THE OLD NOTE OFFERING
OLD NOTES................... On February 25, 1998, the Company issued and
sold $130,000,000 aggregate principal amount of
its Old Notes to Donaldson, Lufkin & Jenrette
Securities Corporation, as initial purchaser (the
"Initial Purchaser"). The Initial Purchaser
subsequently offered and resold the Old Notes to
"Qualified Institutional Buyers" (as defined in
Rule 144A under the Securities Act) pursuant to
Rule 144A under the Securities Act and in
offshore transactions complying with Rule 903 or
Rule 904 of Regulation S under the Securities Act
(the "Old Note Offering").
SUMMARY DESCRIPTION OF THE NOTES
NOTES....................... 10 1/4% Senior Notes due 2008
PRINCIPAL AMOUNT............ $130,000,000
MATURITY DATE............... February 15, 2008
INTEREST PAYMENT DATES...... February 15 and August 15 of each year,
commencing August 15, 1998
OPTIONAL REDEMPTION......... The Notes may be redeemed, at the Company's
option, in whole or in part from time to time on
or after February 15, 2003, at the redemption
prices set forth herein, plus accrued and unpaid
interest to the redemption date plus Liquidated
Damages, if any. In the event the Company
consummates one or more Qualified Equity
Offerings on or prior to February 15, 2001, the
Company at its option may use all or a portion of
the net cash proceeds from such Qualified Equity
Offerings to redeem up to 35% of the aggregate
principal amount of the Notes at a redemption
price equal to 110 1/4% of the aggregate
principal amount thereof, together with accrued
and unpaid interest to the date of redemption
plus Liquidated Damages, if any. See "Description
of Notes--Optional Redemption."
MANDATORY REDEMPTION........ Except as set forth herein, the Company is not
required to make mandatory redemption or sinking
fund payments with respect to the Notes.
RANKING OF THE NOTES........ The Notes are general senior unsecured
obligations of the Company and are ranked pari
passu with all existing and future senior
unsecured indebtedness and other obligations of
the Company. The Notes are effectively
subordinated to all existing and future
liabilities of the Company's subsidiaries,
including trade payables. As of March 31, 1998,
the Company's subsidiaries had no outstanding
Indebtedness other than intercompany Indebtedness
and certain capital lease obligations. In
addition, the Notes are effectively subordinated
to existing and future senior secured
Indebtedness, including the Bank Facility, which
is secured by a pledge of substantially all of
the assets of the
A-2
<PAGE>
[Alternate Page]
Company and its subsidiaries and is also
guaranteed by the Company's U.S. subsidiaries.
As of March 31, 1998, $31.0 million of
Indebtedness was outstanding under the Bank
Facility. In addition, as of March 31, 1998, the
Company had $16.2 million in unused senior
secured borrowing capacity under the Bank
Facility. Further, as of March 31, 1998, the
Company had outstanding approximately $161.0
million in aggregate principal amount of senior
Indebtedness, of which approximately $31.0
million was secured Indebtedness. As of March
31, 1998, the Company had the ability to incur
up to $177.2 million in senior indebtedness
based upon the covenants with which it must
comply. See "Description of Notes--General."
CHANGE OF CONTROL........... Upon a Change of Control, each holder of Notes
may require the Company to repurchase all or any
part of such holder's Notes at a purchase price
equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest to the
date of purchase plus Liquidated Damages, if any.
However, the Company's ability to repurchase the
Notes upon a Change of Control may be limited by
the terms of then existing contractual
obligations of the Company and its subsidiaries.
Furthermore, under the Bank Facility, a "Change
in Control" (as defined therein) would constitute
an event of default, causing acceleration of all
payments required thereunder. There can be no
assurance that upon the occurrence of a Change of
Control, the Company will have sufficient funds
to purchase the Notes. See "Description of
Notes--Change of Control."
CERTAIN COVENANTS........... The Indenture governing the Notes (the
"Indenture") contains covenants limiting the
ability of the Company and its Subsidiaries to,
among other things, pay dividends or make other
Restricted Payments (as defined), make
Investments (as defined), incur additional
Indebtedness, permit Liens (as defined), incur
dividend and other payment restrictions affecting
Subsidiaries (as defined), enter into
consolidation, merger, conveyance, lease or
transfer transactions, make asset sales, enter
into transactions with Affiliates (as defined)
and engage in unrelated lines of business. In
addition, the Indenture imposes restrictions on
the ability of Subsidiaries to issue guarantees.
These covenants are subject to certain exceptions
and qualifications.
See "Description of Notes--Certain Covenants"
and "--Consolidation, Merger, Conveyance, Lease
or Transfer."
RISK FACTORS
Prospective investors in the Notes should carefully consider the factors
discussed in detail elsewhere in this Prospectus under the caption "Risk
Factors."
A-3
<PAGE>
[Alternate Page]
DESCRIPTION OF NOTES
GENERAL
The Notes were issued under an indenture, dated as of February 25, 1998
(the "Indenture") by and between the Company and U.S. Trust Company of Texas,
N.A., as trustee under the Indenture (the "Trustee"). The Notes are subject to
the terms stated in the Indenture and to the terms made part of the Indenture
by reference to the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"). Holders of the Notes are referred to the Indenture and the
Trust Indenture Act for a statement of those terms. Although all of the
material elements of the Notes and the Indenture are stated herein, the
statements and definitions of terms under this caption relating to the Notes
and the Indenture described below are summaries and do not purport to be
complete. Such summaries make use of certain terms defined in the Indenture and
are qualified in their entirety by express reference to the Indenture. Copies
of the proposed form of the Indenture and Registration Rights Agreement are
available as set forth under "--Additional Information." Certain terms used
herein are defined below under "--Certain Definitions."
The Notes represent general senior unsecured obligations of the Company
and rank pari passu with all existing and future senior unsecured Indebtedness
and other obligations of the Company. The Notes are effectively subordinated to
all existing and future liabilities of the Company's subsidiaries, including
trade payables. As of March 31, 1998, the Company's subsidiaries had no
outstanding Indebtedness other than intercompany Indebtedness and certain
capital lease obligations. In addition, the Notes are effectively subordinated
to existing and future senior secured Indebtedness, including the Bank
Facility, which is secured by a pledge of substantially all of the assets of
the Company and its subsidiaries and is also guaranteed by the Company's U.S.
subsidiaries. As of March 31, 1998, $31.0 million of Indebtedness was
outstanding under the Bank Facility. In addition, as of March 31, 1998, the
Company had $16.2 million in unused senior secured borrowing capacity under the
Bank Facility. Further, as of March 31, 1998, the Company had outstanding
approximately $161.0 million in aggregate principal amount of senior
Indebtedness, including approximately $31.0 million of secured Indebtedness.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $130.0 million,
mature on February 15, 2008, and bear interest at 10 1/4% per annum from the
Issue Date or from the most recent interest payment date to which interest has
been paid or provided for. Interest on the Notes will be payable semi-annually
in arrears on February 15 and August 15 of each year, commencing August 15,
1998, to the Persons in whose names such Notes are registered at the close of
business on the February 1 or August 1 immediately preceding such interest
payment date. Interest will be calculated on the basis of a 360-day year
consisting of twelve 30-day months.
The Notes may be presented or surrendered for payment of principal,
premium, if any, interest and Liquidated Damages, if any, and for registration
of transfer or exchange, at the office or agency of the Company within the City
and State of New York, maintained for such purpose. In addition, in the event
the Notes do not remain in book-entry form, interest may be paid, at the option
of the Company, by check mailed to the registered holders of the Notes at the
respective addresses as set forth on the Note Register. Until otherwise
designated by the Company, the Company's office or agency in New York will be
the office of the Trustee maintained for such purpose. The Notes will be issued
only in fully registered form, without coupons, in denominations of $1,000 and
integral multiples thereof. No service charge will be made for any registration
of transfer or exchange or redemption of Notes, but the Company or Trustee may
require in certain circumstances payment of a sum sufficient to cover any tax
or other governmental charge payable in connection therewith.
OPTIONAL REDEMPTION
Except as provided in the next paragraph, the Notes are not redeemable at
the option of the Company prior to February 15, 2003. On or after such date,
the Notes will be redeemable at the option
A-4
<PAGE>
[Alternate Page]
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Preferred Stock
offered pursuant to this Prospectus.
A-5
<PAGE>
[Alternate Page]
MARKET-MAKING ACTIVITIES OF DLJSC
This Prospectus is to be used by DLJSC in connection with offers and sales
of the Exchange Notes in market-making transactions at negotiated prices
related to prevailing market prices at the time of sale. DLJSC may act as
principal or agent in such transactions. There can be no assurance that DLJSC
will continue to act in such capacities. DLJSC has no obligation to make a
market in the Exchange Notes, and may discontinue its market-making activities
at any time without notice, at its sole discretion.
DLJMB, an affiliate of DLJSC, holds together with its affiliates, in the
aggregate, a 65.5% equity interest in the Company. DLJSC acted as an Initial
Purchaser in connection with the original offering of the Old Notes.
The Company will receive no portion of the proceeds of the sales of the
Exchange Notes and will bear the expenses incident to the registration thereof.
The Company has agreed to indemnify DLJSC against certain liabilities,
including civil liabilities under the Securities Act or to contribute to
payments DLJSC may be required to make in respect thereof.
A-6
<PAGE>
[Alternate Back Cover]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH AN OFFER OR SOLICITATION.
-----------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary ............................
Risk Factors ..................................
Use of Proceeds ...............................
Capitalization ................................
Selected Consolidated Financial Data ..........
Management's Discussion and Analysis of
Financial Condition and Results of
Operations .................................
Business ......................................
Management ....................................
Principal Stockholders ........................
Certain Relationships and Related
Transactions ...............................
Description of Bank Facility ..................
Description of Preferred Stock ................
Description of Notes ..........................
Legal Matters .................................
Independent Public Accountants ................
Market Making Activities of DLJSC .............
Available Information .........................
Index to Consolidated Financial
Statements ................................. F-1
</TABLE>
[GRAPHIC LOGO]
BRAND SCAFFOLD
SERVICES, INC.
10 1/4% SENIOR NOTES DUE 2008
--------------------------------------------------------------
PROSPECTUS
--------------------------------------------------------------
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the Delaware General Corporation Law (the "DGCL"), directors,
officers, employees and other individuals may be indemnified against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with specified actions, suits or proceedings, whether civil,
criminal, administrative or investigative (other than a derivative action) if
they acted in good faith and in a manner they reasonably believed to be in or
not opposed to the best interests of the Company and, with respect to any
criminal action or proceeding, had no reasonable cause to believe their conduct
was unlawful. A similar standard of care is applicable in the case of a
derivative action, except that indemnification only extends to expenses
(including attorneys' fees) incurred in connection with the defense or
settlement of such an action, and the DGCL requires court approval before there
can be any indemnification of expenses where the person seeking indemnification
has been found liable to the Company.
The Company's Certificate of Incorporation, as amended, provides in effect
for the indemnification of the Company of each director and officer of the
Company to the fullest extent permitted by applicable law.
If the DGCL is amended to further expand the indemnification permitted to
directors, officers, employees or agents of the Company, then the Company shall
indemnify such persons to the fullest extent permitted by the DGCL, as so
amended.
ITEM 21. EXHIBITS
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- ---------------------------------------------------------------------------------------
<S> <C> <C>
*3.1 -- Certificate of Incorporation of the Registrant
*3.2 -- Certificate of Amendment of Certificate of Incorporation of the Registrant
*3.3 -- Amended and Restated By-Laws of Brand Scaffold Services, Inc.
*4.1 -- Amended and Restated Certificate of Designations, Preferences and Rights of 14.5%
Senior Exchangeable Preferred Stock due 2008 (the "Preferred Stock")
*4.2 -- Amended and Restated Shareholders Agreement dated as of September 30, 1996
among DLJ Merchant Banking Partners, L.P., DLJ International Partners, C.V.,
DLJ Offshore Partners, C.V., DLJ Merchant Banking Funding, Inc., Carlisle-Brand
Investors, L.P., Rust Industrial Services Inc., DLJ Brand Holdings, Inc. ("Holdings"),
Brand Scaffold Services, Inc. and Certain Individuals
*4.3 -- Stock Option Agreement dated as of March 4, 1997 between Holdings and Carlisle
Group, L.P.
*4.4 -- Indenture dated as of February 25, 1998 between the Company, and U.S. Trust
Company of Texas, N.A., as Trustee, relating to the Company's 10 1/4% Senior Notes
due 2008 (the "Notes")
*4.5 -- Registration Rights Agreement, dated as of February 25, 1998, between the Company
and Donaldson Lufkin & Jenrette Securities Corporation ("DLJSC"), as initial
purchaser, relating to the Notes
*4.6 -- Registration Rights Agreement dated as of March 2, 1998 by and between the
Company and DLJSC, relating to the Preferred Stock
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -------------------------------------------------------------------------------------------
<S> <C> <C>
5 -- Opinion of Davis Polk & Wardwell, Counsel of the Registrant, regarding the validity of
the securities being registered
*10.1 -- Credit Agreement dated as of September 30, 1996, among Brand Scaffold Services,
Inc., the Banks party thereto, DLJ Capital, as Syndication Agent, and Bank of
America, as Administrative Agent
*10.2 -- Purchase Agreement dated as of February 25, 1998, by and between the Company and
DLJSC, as initial purchaser, relating to the Notes
*10.3 -- The Amended and Restated Transaction Agreement dated as of September 18, 1996
among DLJ Merchant Banking Partners, L.P., DLJ International Partners, C.V.,
DLJ Offshore Partners, C.V., DLJ Merchant Banking Funding, Inc., Carlisle
Enterprises, L.P., Holdings, the Company, Brand Scaffold Builders, Inc., Brand Scaffold
Rental & Erection, Inc. 702569 Alberta Ltd., Rust International Inc., Rust Industrial
Services Inc., Rust Scaffold Services Inc., Rust Scaffold Builders Inc., and Rust Scaffold
& Erection Inc.
*10.4 -- Employment Agreement dated as of October 1, 1996 between the Company and
John M. Monter
*10.5 -- Employment Agreement dated as of July 29, 1996 between the Company and
James "Marty" McGee
*10.6 -- Employment Agreement dated as of July 29, 1996 between the Company and
Ronald W. Moore
*10.7 -- Employment Agreement dated as of July 29, 1996 between the Company and
Otto K. Knoll
*10.8 -- Offer Letter dated as of March 30, 1998 addressed to Ian R. Alexander
12 -- Statement of Computation of Ratio of Earnings to Fixed Charges
*21 -- Subsidiaries of the Registrant
23.1 -- Consent of Arthur Andersen LLP, independent public accountants
23.2 -- Consent of Davis Polk & Wardwell, counsel to the Registrant (included in Exhibit 5)
*24 -- Powers of Attorney
*25 -- Statement of Eligibility of U.S. Trust Company of Texas, N.A.
27 -- Financial Data Schedule
*99.1 -- Form of Letter of Transmittal
*99.2 -- Form of Notice of Guaranteed Delivery
*99.3 -- Form of Instruction to Registered Holder and/or Book-Entry Transfer Facility
Participant from Owner of Old Notes
*99.4 -- Form of Letter to Clients of Depository Trust Company Participants
*99.5 -- Form of Letter to Registered Holders and Depository Trust Company Participants
</TABLE>
- ----------
* Previously filed with the SEC.
(b) Schedules
All supplementary schedules relating to the Registration Statement are
omitted because they are not required or because the required information,
where material, is contained in the Financial Statements.
II-2
<PAGE>
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes to file an application
for the purpose of determining the eligibility of the Trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act ("Act") in accordance
with the rules and regulations prescribed by the Commission under Section
305(b)(2) of the Act.
(d) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt
of such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT ON FORM S-1
TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE
CITY OF CHESTERFIELD, STATE OF MISSOURI, SEPTEMBER 9, 1998.
BRAND SCAFFOLD SERVICES, INC.
September 9, 1998
By: /s/ Ian R. Alexander
-------------------------------------
Ian R. Alexander
Chief Financial Officer,
Vice President, Finance and Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT ON FORM S-1 HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------- ----------------------------------- ------------------
<S> <C> <C>
/s/ John M. Monter Director, Chief Executive Officer September 9, 1998
-----------------------------
and President (Principal
John M. Monter
Executive Officer)
/s/ Ian R. Alexander Chief Financial Officer, Vice September 9, 1998
-----------------------------
President, Finance and Secretary
Ian R. Alexander
(Principal Financial Officer and
Principal Accounting Officer)
* Chairman of the Board September 9, 1998
-----------------------------
David L. Jaffe
* Director September 9, 1998
-----------------------------
Robert Bonczek
* Director September 9, 1998
-----------------------------
James S. Carlisle
* Director September 9, 1998
-----------------------------
Vincent Langone
* Director September 9, 1998
-----------------------------
D.P. "Pat" Payne
* Director September 9, 1998
-----------------------------
Karl R. Wyss
*By: /s/ Ian R. Alexander September 9, 1998
-----------------------------
Ian R. Alexander
as Attorney-in-fact
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -------------------------------------------------------------------------------------------
<S> <C> <C>
*3.1 -- Certificate of Incorporation of the Registrant
*3.2 -- Certificate of Amendment of Certificate of Incorporation of the Registrant
*3.3 -- Amended and Restated By-Laws of Brand Scaffold Services, Inc.
*4.1 -- Amended and Restated Certificate of Designations, Preferences and Rights of 14.5%
Senior Exchangeable Preferred Stock due 2008 (the "Preferred Stock")
*4.2 -- Amended and Restated Shareholders Agreement dated as of September 30, 1996
among DLJ Merchant Banking Partners, L.P., DLJ International Partners, C.V.,
DLJ Offshore Partners, C.V., DLJ Merchant Banking Funding, Inc., Carlisle-Brand
Investors, L.P., Rust Industrial Services Inc., DLJ Brand Holdings, Inc. ("Holdings"),
Brand Scaffold Services, Inc. and Certain Individuals
*4.3 -- Stock Option Agreement dated as of March 4, 1997 between Holdings and Carlisle
Group, L.P.
*4.4 -- Indenture dated as of February 25, 1998 between the Company, and U.S. Trust
Company of Texas, N.A., as Trustee, relating to the Company's 10 1/4% Senior Notes
due 2008 (the "Notes")
*4.5 -- Registration Rights Agreement, dated as of February 25, 1998, between the Company
and Donaldson Lufkin & Jenrette Securities Corporation ("DLJSC"), as initial
purchaser, relating to the Notes
*4.6 -- Registration Rights Agreement dated as of March 2, 1998 by and between the
Company and DLJSC, relating to the Preferred Stock
5 -- Opinion of Davis Polk & Wardwell, Counsel of the Registrant, regarding the validity of
the securities being registered
*10.1 -- Credit Agreement dated as of September 30, 1996, among Brand Scaffold Services,
Inc., the Banks party thereto, DLJ Capital, as Syndication Agent, and Bank of
America, as Administrative Agent
*10.2 -- Purchase Agreement dated as of February 25, 1998, by and between the Company and
DLJSC, as initial purchaser, relating to the Notes
*10.3 -- The Amended and Restated Transaction Agreement dated as of September 18, 1996
among DLJ Merchant Banking Partners, L.P., DLJ International Partners, C.V.,
DLJ Offshore Partners, C.V., DLJ Merchant Banking Funding, Inc., Carlisle
Enterprises, L.P., Holdings, the Company, Brand Scaffold Builders, Inc., Brand Scaffold
Rental & Erection, Inc. 702569 Alberta Ltd., Rust International Inc., Rust Industrial
Services Inc., Rust Scaffold Services Inc., Rust Scaffold Builders Inc., and Rust Scaffold
& Erection Inc.
*10.4 -- Employment Agreement dated as of October 1, 1996 between the Company and
John M. Monter
*10.5 -- Employment Agreement dated as of July 29, 1996 between the Company and
James "Marty" McGee
*10.6 -- Employment Agreement dated as of July 29, 1996 between the Company and
Ronald W. Moore
*10.7 -- Employment Agreement dated as of July 29, 1996 between the Company and
Otto K. Knoll
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------------- ------------------------------------------------------------------------------------
<S> <C> <C>
*10.8 -- Offer Letter dated as of March 30, 1998 addressed to Ian R. Alexander
12 -- Statement of Computation of Ratio of Earnings to Fixed Charges
*21 -- Subsidiaries of the Registrant
23.1 -- Consent of Arthur Andersen LLP, independent public accountants
23.2 -- Consent of Davis Polk & Wardwell, counsel to the Registrant (included in Exhibit 5)
*24 -- Powers of Attorney
*25 -- Statement of Eligibility of U.S. Trust Company of Texas, N.A.
27 -- Financial Data Schedule
*99.1 -- Form of Letter of Transmittal
*99.2 -- Form of Notice of Guaranteed Delivery
*99.3 -- Form of Instruction to Registered Holder and/or Book-Entry Transfer Facility
Participant from Owner of Old Notes
*99.4 -- Form of Letter to Clients of Depository Trust Company Participants
*99.5 -- Form of Letter to Registered Holders and Depository Trust Company Participants
</TABLE>
- ----------
* Previously filed with the SEC.
E-2
<PAGE>
BRAND SCAFFOLD SERVICES, INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, 1998
DECEMBER 31, 1997 (UNAUDITED)
----------------- -----------
<S> <C> <C>
Income (loss) before income taxes $(5,341) $3,476
Interest expense 15,422 8,359
Capitalized interest - -
One-third of rents payable in the next year 445 239
------------------------------------------
Income (loss) before income taxes, interest and one-third rents 10,526 12,074
==========================================
Interest expense 15,422 8,359
One-third of rents payable in the next year 445 239
------------------------------------------
Interest expense plus one-third of rents 15,867 8,598
==========================================
Ratio of earnings to fixed charges 0.66 to 1 1.19 to 1
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
for Rust Scaffold Services Inc. and Subsidiaries and Brand Scaffold Services
Inc. and Subsidiaries (and to all references to our Firm) included in or made
a part of this registration statement.
ARTHUR ANDERSEN LLP
St. Louis, Missouri
September 10, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
BRAND SCAFFOLD SERVICES, INC. AND SUBSIDIARIES
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE SIX MONTHS
ENDED JUNE 30, 1998
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<EXCHANGE-RATE> 1 1
<CASH> 2,217 6,104
<SECURITIES> 0 0
<RECEIVABLES> 30,691 33,782
<ALLOWANCES> (1,000) (1,092)
<INVENTORY> 0 0
<CURRENT-ASSETS> 33,496 42,752
<PP&E> 170,479 178,353
<DEPRECIATION> (14,938) (21,152)
<TOTAL-ASSETS> 197,543 206,941
<CURRENT-LIABILITIES> 29,289 24,000
<BONDS> 0 130,000
31,140 33,439
0 0
<COMMON> 0 0
<OTHER-SE> (5,176) (8,493)
<TOTAL-LIABILITY-AND-EQUITY> 197,543 206,941
<SALES> 0 0
<TOTAL-REVENUES> 160,660 100,655
<CGS> 0 0
<TOTAL-COSTS> 122,638 76,655
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 842 122
<INTEREST-EXPENSE> 15,422 8,359
<INCOME-PRETAX> (5,341) 3,476
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (5,341) 3,476
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 4,329
<CHANGES> 0 0
<NET-INCOME> (5,341) (853)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
