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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 15, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BRAND SCAFFOLD SERVICES, INC.
(Exact Name of Registrant as Specified in Its Charter)
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<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)
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COPIES TO:
JOSEPH P. HADLEY
DAVIS POLK & WARDWELL
450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 450-4000
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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. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) AGGREGATE OFFERING PRICE REGISTRATION FEE(2)
- ----------------------------------------- ------------------ ----------------- -------------------------- --------------------
<S> <C> <C> <C> <C>
14.5% Senior Exchangeable Preferred Stock
due 2008, $0.01 par value per share .... 1,042,460 shares 30.95 $32,269,086 $9,520
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14.5% Junior Subordinated Exchange
Debentures due 2008 .................... $ 134,081,362 N/A N/A N/A
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</TABLE>
(1) Plus accretion from March 31, 1998.
(2) Calculated pursuant to Rule 457(o).
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.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement contains a prospectus (the "Exchange
Prospectus") relating to the offer (the "Exchange Offer") for all outstanding
14.5% Senior Exchangeable Preferred Stock due 2008, par value $0.01, of Brand
Scaffold Services, Inc. (the "Old Preferred Stock") in exchange for its 14.5%
Senior Exchangeable Preferred Stock due 2008, par value $0.01 (the "New
Preferred Stock"), which has 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 New Preferred Stock 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 Preferred Stock 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 JUNE 15, 1998
PROSPECTUS
[BRAND SCAFFOLD SERVICES, INC. LOGO]
BRAND SCAFFOLD SERVICES, INC.
OFFER TO EXCHANGE 14.5% SENIOR EXCHANGEABLE PREFERRED STOCK DUE 2008, $0.01 PAR
VALUE PER SHARE WHICH HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, FOR ANY AND ALL OUTSTANDING 14.5% SENIOR EXCHANGEABLE PREFERRED STOCK
DUE 2008, $0.01 PAR VALUE PER SHARE.
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 one share of
its 14.5% Senior Exchangeable Preferred Stock due 2008, $0.01 par value per
share (the "New Preferred Stock"), which has 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 each outstanding share of its 14.5% Senior
Exchangeable Preferred Stock due 2008, $0.01 par value per share (the "Old
Preferred Stock," and together with the New Preferred Stock, the "Preferred
Stock") of which 1,042,460 shares are issued and outstanding as of the date
hereof.
The Company will accept for exchange any and all shares of Old Preferred
Stock 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
Preferred Stock 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 number of shares of Old Preferred Stock being tendered for exchange.
See "The Exchange Offer."
The form and terms of the New Preferred Stock are substantially identical
in all material respects to the form and terms of the Old Preferred Stock
except that (i) the shares of New Preferred Stock will have been registered
under the Securities Act, and thus will not bear restrictive legends
restricting their transfer pursuant to the Securities Act and (ii) holders of
New Preferred Stock will not be entitled to certain rights of holders of the
Old Preferred Stock under the Registration Rights Agreement (as defined) which
will terminate upon the consummation of the Exchange Offer. See "The Exchange
Offer--Consequences of Failure to Exchange."
Holders of the Preferred Stock are entitled to receive dividends, when, as
and if, declared by the Board (as defined) at a rate of 14.5% per annum on the
liquidation value (initially $25.00 per share). Dividends on the Preferred
Stock accrete to the liquidation value of the Preferred Stock. At March 31,
1998, the liquidation value was $30.95 per share. Subject to certain
conditions, the Company may issue 14.5% Junior Subordinated Exchange Debentures
due 2008 (the "Exchange Debentures") in exchange for any or all outstanding
Preferred Stock, at an exchange ratio of $1.00 of liquidation value of
Preferred Stock for $1.00 principal amount of Exchange Debentures. After
September 30, 2001, the Company may redeem any or all outstanding shares of the
Preferred Stock at the redemption prices set forth herein. Subject to certain
conditions, in the event of an Equity Offering (as defined) prior to September
30, 1999, the Company may redeem not less than all of the outstanding Preferred
Stock at a price of 114.5% of liquidation value. 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 the Preferred Stock at a
redemption price equal to 101% of the liquidation value. The Company is
required to redeem all shares of the Preferred Stock on March 31, 2008 at a
price equal to the liquidation value at such date. See "Description of
Preferred Stock."
THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL ARE FIRST BEING MAILED TO
HOLDERS OF OLD PREFERRED STOCK ON OR ABOUT , 1998.
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.
<PAGE>
--------------
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>
The Old Preferred Stock was originally issued and sold on September 30,
1996 in transactions not registered under the Securities Act, in reliance upon
the exemption provided in Section 4(2) of the Securities Act. Accordingly, the
Old Preferred Stock may not be reoffered, resold or otherwise pledged,
hypothecated or transferred in the United States unless so registered or unless
an applicable exemption from the registration requirements of the Securities
Act is available. 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 Preferred Stock for New Preferred Stock pursuant to
the Exchange Offer may offer for resale, resell and otherwise transfer such New
Preferred Stock without compliance with the registration and prospectus
delivery requirements of the Securities Act, provided, that (i) such New
Preferred Stock is 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 New Preferred Stock and has no arrangement with any person
to participate in the distribution of such New Preferred Stock, 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 Preferred Stock for New Preferred Stock pursuant to the Exchange
Offer with the intention to participate in a distribution of the New Preferred
Stock 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 New Preferred Stock for its own account
in exchange for Old Preferred Stock, where such Old Preferred Stock was
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 New Preferred Stock. 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 New Preferred Stock received in
exchange for Old Preferred Stock where such Old Preferred Stock was 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 NEW PREFERRED STOCK.
The New Preferred Stock will constitute a new issue of securities with no
established trading market, and there can be no assurance as to the liquidity
of any markets that may develop for the New Preferred Stock or as to the
ability of or price at which the holders of New Preferred Stock would be able
to sell their New Preferred Stock. Future trading prices of the New Preferred
Stock will depend on many factors, including, among others, the Company's
operating results and the market for similar securities. The Company does not
intend to apply for listing of the New Preferred Stock on any securities
exchange. No assurance can be given that an active public or other market will
develop for the New Preferred Stock or as to the liquidity of or the trading
market for the New Preferred Stock.
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
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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 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, 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 March 31, 1998, the Company generated revenues and Adjusted
EBITDA (as defined) of $168.1 million and $31.0 million, respectively.
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.
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.
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
3
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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 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.
4
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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>
EXCHANGE OFFER
NEW PREFERRED STOCK......... Up to 1,042,460 shares of New Preferred Stock.
The terms of the New Preferred Stock and the Old
Preferred Stock are substantially identical in
all material respects, except that the offer of
the New Preferred Stock will have been registered
under the Securities Act and therefore, the New
Preferred Stock will not be subject to certain
transfer restrictions and registration rights
under the Registration Rights Agreement
applicable to the Old Preferred Stock.
EXCHANGE OFFER.............. The Company is offering, upon the terms and
subject to the conditions of the Exchange Offer,
to exchange one share of New Preferred Stock for
each share of Old Preferred Stock. See "The
Exchange Offer" for a description of the
procedures for tendering Old Preferred Stock. In
connection with the Resale Agreement dated March
2, 1998 (the "Resale Agreement"), among DLJMB,
Carlisle, Rust, certain other holders of Old
Preferred Stock, and Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJSC"), the Company
entered into the Registration Rights Agreement
(the "Registration Rights Agreement") dated as of
March 2, 1998 among the Company and DLJSC, which
grants holders of the Old Preferred Stock 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 New
Preferred Stock 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 Preferred Stock pursuant to the
Exchange Offer may be withdrawn at any time prior
to the Expiration Date. Any Old Preferred Stock
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."
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 Preferred Stock 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 New Preferred Stock 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.
6
<PAGE>
CONSEQUENCES OF EXCHANGING OLD PREFERRED STOCK 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 New
Preferred Stock issued pursuant to the Exchange Offer in exchange for the Old
Preferred Stock 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 New Preferred Stock issued pursuant to the Exchange Offer in
exchange for Old Preferred Stock may be offered for resale, resold and
otherwise transferred by any holder of such New Preferred Stock, 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 New Preferred Stock is 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 New Preferred Stock. Any
holder who tenders in the Exchange Offer for the purpose of participating in a
distribution of the New Preferred Stock 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 New Preferred Stock for its own account in exchange for Old Preferred
Stock, where such Old Preferred Stock was 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 New Preferred Stock. See "Plan of Distribution."
By executing the Letter of Transmittal, each holder of Old Preferred Stock
will represent to the Company that, among other things, (i) the New Preferred
Stock acquired pursuant to the Exchange Offer is being obtained in the ordinary
course of business of the person receiving such New Preferred Stock, whether or
not such person is such holder, (ii) neither the holder of Old Preferred Stock,
nor any such other person has an arrangement or understanding with any person
to participate in the distribution of such New Preferred Stock, (iii) if the
holder is not a broker-dealer, or is a broker-dealer but will not receive New
Preferred Stock for its own account in exchange for Old Preferred Stock,
neither the holder nor any such other person is engaged in or intends to
participate in the distribution of such New Preferred Stock 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 New Preferred Stock for its own account in exchange for Old
Preferred Stock that was 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 New Preferred Stock.
See "Plan of Distribution." To comply with the securities laws of certain
jurisdictions, it may be necessary to qualify for sale or register the New
Preferred Stock prior to offering or selling such New Preferred Stock. The
Company does not currently intend to take any action to register or qualify the
New Preferred Stock for resale in any such jurisdictions.
Following the consummation of the Exchange Offer, holders of Old Preferred
Stock not tendered will not have any future registration rights and the Old
Preferred Stock will continue to be subject to certain restrictions on
transfer. In general, the Old Preferred Stock 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 PREFERRED STOCK AND THE EXCHANGE DEBENTURES
The Exchange Offer applies to 1,042,460 shares of the Old Preferred Stock.
The form and terms of the New Preferred Stock are substantially identical in
all material respects to the form and terms of the Old Preferred Stock except
that the shares of New Preferred Stock will have been registered under the
Securities Act and thus will not be subject to certain transfer restrictions
and registration rights.
7
<PAGE>
THE PREFERRED STOCK
DIVIDENDS................... The holders of the Preferred Stock are entitled
to receive dividends, when, as and if declared by
the Board at the rate of 14.5% per annum on the
liquidation value. Dividends on the Preferred
Stock accrete to the liquidation value of the
Preferred Stock until the Cash Pay Date (as
defined). 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 Preferred Stock. See
"Description of Preferred Stock."
LIQUIDATION PREFERENCE...... Liquidation value plus accrued and unpaid
dividends. At March 31, 1998, the liquidation
value was $30.95 per share.
VOTING...................... Holders of the Preferred Stock have no general
voting rights except as provided by law and as
provided in the Certificate of Designations (as
defined) therefor. The holders of Preferred Stock
voting as a class are entitled to elect two
directors if and whenever (i) six consecutive
quarterly dividends after the Fifth Anniversary
(as defined) have not been paid in full, (ii) the
Company has not redeemed the Preferred Stock on
March 31, 2008, (iii) the Company has not offered
to redeem the 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 Preferred Stock or (v) the
Company's Certificate of Incorporation has been
amended in a manner adverse to the holders of
Preferred Stock without such holder's consent.
MANDATORY REDEMPTION........ 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 Preferred Stock at a redemption price equal to
101% of the liquidation value. In addition, the
Company is required to redeem all shares of
Preferred Stock on March 31, 2008 at a price
equal to the liquidation value at such date.
OPTIONAL REDEMPTION......... 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 Preferred Stock at a
price of 114.5% of the liquidation value;
provided that the aggregate redemption price of
all the outstanding shares of Preferred Stock
does 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 Preferred Stock at a price
of 107.25% of the liquidation value in 2001
declining annually ratably to 100% in 2004 and
thereafter.
8
<PAGE>
RANKING..................... The Preferred Stock shall, with respect to
dividend rights and rights on liquidation,
dissolution and winding up, rank senior to all
classes or series of equity securities of the
Company, including the Company's common stock,
$0.01 par value ("Common Stock"), and each other
class of capital stock of the Company, the terms
of which provide that such class shall rank
junior to the Preferred Stock or the terms of
which do not specify any rank relative to the
Preferred Stock.
EXCHANGE FEATURE............ Subject to certain conditions, the Company may
issue 14.5% Junior Subordinated Exchange
Debentures in exchange for any or all outstanding
Preferred Stock, at an exchange ratio of $1.00 of
liquidation value of Preferred Stock for $1.00
principal amount of Exchange Debentures.
THE EXCHANGE DEBENTURES
MATURITY DATE............... March 31, 2008
INTEREST RATE............... 14.5% effective annual rate payable quarterly.
Prior to the Cash Pay Date, quarterly interest
will be payable solely in the form of additional
Exchange Debentures. After the Cash Pay Date,
interest will be payable in cash.
OPTIONAL REDEMPTION......... The Securities are redeemable at any time after
September 30, 2001 at the option of the Company,
in whole or in part, at certain redemption prices
set forth herein. In addition, at the option of
the Company, prior to September 30, 1999, the
Company may redeem outstanding Exchange
Debentures, in whole or in part (pro rata from
each holder thereof), at a purchase price equal
to 114.5% of the principal amount of the Exchange
Debentures so redeemed plus accrued and unpaid
cash interest, if any, to the date of redemption
with the proceeds of an Equity Offering.
CHANGE OF CONTROL........... In the event of a Change of Control that
constitutes a Repurchase Event (each, as defined
in the Certificate of Designations), each holder
of Exchange Debentures will have the right to
require the Company to repurchase its Exchange
Debentures at a purchase price equal to 101% of
the principal amount of the Exchange Debentures
so redeemed plus accrued and unpaid interest, if
any.
RANKING..................... 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.
CERTAIN COVENANTS........... The Exchange Debentures, if issued, will be
issued pursuant to an indenture which will
contain certain customary covenants which, among
other things, relate to (i) the payment of
princi-
9
<PAGE>
pal, premium and interest on the Exchange
Debentures, (ii) the maintenance of an office
for payments, (iii) the appointment of a paying
agent, (iv) lists of Exchange Debenture holders,
(v) the filing of reports, (vi) limitations on
certain payments by the Company and (vii)
limitations on the Company's ability to merge,
consolidate or sell all or substantially all its
assets.
RISK FACTORS
Prospective investors in the New Preferred Stock 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, (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 three
months ended March 31, 1998 and as of December 31, 1996, December 31, 1997 and
March 31, 1998 and (iii) summary pro forma combined financial data for the year
ended December 31, 1996. 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 three months ended March 31, 1998 has been derived from the
unaudited financial statements of Successor. The summary pro forma combined
financial data for the year ended December 31, 1996 has been derived from the
audited financial statements of Predecessor and Successor but has not been
audited as presented. 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 THREE MONTHS
ENDED ENDED ENDED PRO FORMA ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, COMBINED DECEMBER 31, MARCH 31,
1995 1996 1996 1996 (1) 1997 1998
-------------- --------------- -------------- ----------- -------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA: (2)
Revenue ........................ $193,829 $124,769 $44,412 $169,181 $160,660 $ 50,690
Operating Expenses ............. 138,968 89,073 34,170 126,751 122,638 38,814
-------- -------- ------- -------- -------- --------
Gross Profit .................. 54,861 35,696 10,242 42,430 38,022 11,876
Selling and Administrative
Expenses ...................... 25,807 15,825 4,743 20,568 25,840 5,986
Nonrecurring Start-up
Expenses ...................... -- -- -- -- 2,498 --
-------- -------- ------- -------- -------- --------
Operating Income ............... 29,054 19,871 5,499 21,862 9,684 5,890
Interest Expense ............... 9,444 7,872 4,504 15,846 15,422 4,057
Interest Income ................ (1,012) (482) (195) (677) (397) (125)
Other Expense, Net (3) ......... 853 708 -- 708 -- --
-------- -------- ------- -------- -------- --------
Pretax Income (Loss) .......... 19,769 11,773 1,190 5,985 (5,341) 1,958
Provision for
Income Tax .................... 8,300 4,813 525 2,633 -- --
Extraordinary Loss, Net of
Tax ........................... -- -- -- -- -- 4,329
-------- -------- ------- -------- -------- --------
Net Income (Loss) .............. $ 11,469 $ 6,960 $ 665 $ 3,352 $ (5,341) $ (2,371)
======== ======== ======= ======== ======== ========
OTHER DATA: (2)
EBITDA (4) ..................... $ 36,803 $ 25,832 $ 8,398 $ 34,230 $ 24,507 $ 9,009
Adjusted
EBITDA (4) (5) ................ 36,803 25,832 9,387 35,219 29,629 10,498
Cash flow from operations 35,587 28,478 4,966 6,482 11,983 (171)
Depreciation and
Amortization .................. 8,602 6,669 3,567 14,468 13,294 3,334
Cash Interest Expense (6) 9,444 7,872 3,836 15,178 14,453 3,842
-------- -------- ------- -------- -------- --------
Ratio of Adjusted
EBITDA to
Cash Interest
Expense (4) (5) (6) ........... 3.9x 3.3x 2.4x 2.3x 2.1x 2.7x
Capital Expenditures
Maintenance ................... $ 2,755 $ 512 $ 97 $ 609 $ 3,024 $ 1,795
Expansion ..................... 5,847 1,298 111 1,409 6,733 1,952
-------- -------- ------- -------- -------- --------
Total ........................ $ 8,602 $ 1,810 $ 208 $ 2,018 $ 9,757 $ 3,747
Ratio of earnings to
combined fixed charges
and preferred stock
dividends (7) ................. 3.0x 2.4x .5x 1.2x
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
SUCCESSOR
----------------------------------------
AT DECEMBER 31,
------------------------ AT MARCH 31,
1996 1997 1998
---------- ----------- -------------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA: (2)
<S> <C> <C> <C>
Working Capital ................................... $ 12,656 $ 4,207 $ 19,541
Total Assets ...................................... 204,266 197,543 204,148
Debt (including current portion) .................. 158,000 154,250 161,000
14.5% Senior Exchangeable Preferred Stock ......... 25,906 31,140 32,268
Stockholder's Equity (Deficit) .................... 4,247 (5,176) (8,542)
</TABLE>
- ----------
(1) Pro forma combined 1996 financial data gives effect to the Acquisition,
including related expenses, as if it had occurred on January 1, 1996.
Amounts have been derived from the results for Predecessor for the nine
months ended September 30, 1996 and for the Successor 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.
(2) 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.
(3) 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.
(4) EBITDA is defined as earnings before nonrecurring start-up expenses,
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.
(5) 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 three months ended March 31, 1998, the WMI
Payments were $725,000, $2,900,000 and $725,000, 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
$675,000 for the three months ended December 31, 1996, the year ended
December 31, 1997 and the three months ended March 31, 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 $1,589,000,
for the three months ended December 31, 1996, the year ended December 31,
1997 and the three months ended March 31, 1998, respectively, but had
cash expenditures related to these items of $562,000, $3,005,000 and
$775,000, respectively. Adjusted EBITDA for the three months ended
December 31, 1996, the year ended December 31, 1997 and the three months
ended March 31, 1998 is therefore increased by the portion of claims
expense not paid in cash, or $627,000, $2,922,000 and $814,000,
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 three months ended March 31, 1998 is an
increase of $989,000, $5,122,000 and $1,489,000, respectively.
(6) 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
$214,000 for the three months ended March 31, 1998.
(7) For the purposes of calculating the ratio of earnings to combined fixed
charges and preferred stock dividends, 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, amortization of debt issuance costs, and
preferred stock dividends.
12
<PAGE>
RISK FACTORS
In addition to the other matters described in this Prospectus, prospective
purchasers of the New Preferred Stock 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 March 31, 1998, the Company's total
long-term debt was $161.0 million. The degree to which the Company is leveraged
could have important consequences to holders of the Preferred Stock, 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 (as defined) 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.
RESTRICTIVE COVENANTS
Among other things, the covenants contained in the agreements governing
the Company's indebtedness 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
13
<PAGE>
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 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."
Both the Bank Facility and the Notes (as defined) would restrict the
Company's ability to pay cash dividends on or to redeem the Preferred Stock.
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
(as defined) and its current and expected financial performance. However, 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."
SUBORDINATION; DEPENDENCE ON SUBSIDIARIES
The Preferred Stock and, if issued, the Exchange Debentures will be
effectively subordinated to all current and future senior indebtedness,
including indebtedness under the Bank Facility and the Notes, 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 Preferred Stock only after all indebtedness under the Bank Facility and all
other senior indebtedness has been paid in full, and there may not be
sufficient assets remaining to pay amounts due on any or all of the shares of
Preferred Stock then outstanding. The Company's U.S. subsidiaries have issued
guarantees under the Bank Facility. As of March 31, 1998, the Company had $31.0
million of senior indebtedness outstanding. In addition, as of March 31, 1998,
the Company had $16.2 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 payments
with respect to the Company's obligations, including the Preferred Stock,
depends on the earnings of its subsidiaries and on its ability to receive funds
from such subsidiaries through dividends or other payments. Since the Preferred
Stock is an obligation of the Company only, the Company's subsidiaries are not
obligated or required to pay any amounts due pursuant to the Preferred Stock or
to make funds available therefor in the form of dividends or advances to the
Company. Furthermore, the Preferred Stock 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
Preferred Stock 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
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.
14
<PAGE>
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 or 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 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.
15
<PAGE>
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 PREFERRED STOCK UPON A CHANGE OF CONTROL
Upon a Change of Control, the Company is required to make an offer to
repurchase all of the shares of Preferred Stock or, if issued, Exchange
Debentures then outstanding at a redemption price equal to 101% of the
liquidation value, together with accrued and unpaid cash dividends thereon.
However, the Company's ability to repurchase the Preferred Stock 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. Pursuant to the Indenture, upon a "Change of Control" (as defined
therein) 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, plus accrued and unpaid interest, if any,
to the date of purchase. 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. In addition, no funds
would be available for redemption of the Preferred Stock until such repurchase
of Notes is completed.
With respect to the sale of assets referred to in the definition of
"Change of Control" in the Certificate of Designations, 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 Preferred Stock is
subject to repurchase.
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.
LACK OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The New Preferred Stock will constitute a new issue of securities with no
established trading market, and there can be no assurance as to the liquidity
of any markets that may develop for the New Preferred Stock or as to the
ability of or price at which the holders of New Preferred Stock would be able
to sell their New Preferred Stock. Future trading prices of the New Preferred
Stock will depend on many factors, including, among others, the Company's
operating results and the market for similar securities. The
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Company does not intend to apply for listing of the New Preferred Stock on any
securities exchange. No assurance can be given that an active public or other
market will develop for the New Preferred Stock or as to the liquidity of or
the trading market for the New Preferred Stock.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Preferred Stock who do not exchange their Old Preferred
Stock for New Preferred Stock pursuant to the Exchange Offer will continue to
be subject to the restrictions on transfer of such Old Preferred Stock. In
general, the Old Preferred Stock 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 Preferred Stock under the
Securities Act. The Company believes that, based upon interpretations contained
in letters issued to third parties by the staff of the Commission, New
Preferred Stock issued pursuant to the Exchange Offer in exchange for Old
Preferred Stock may be offered for resale, resold or otherwise transferred by
each holder thereof (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 New
Preferred Stock is 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 New Preferred Stock. Eligible holders
wishing to accept the Exchange Offer must represent to the Company that (i) the
New Preferred Stock acquired pursuant to the Exchange Offer is being obtained
in the ordinary course of business of the person receiving such New Preferred
Stock, whether or not such person is such holder, (ii) neither the holder of
Old Preferred Stock nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such New
Preferred Stock, (iii) if the holder is not a broker-dealer or is a
broker-dealer but will not receive New Preferred Stock for its own account in
exchange for Old Preferred Stock, neither the holder nor any such other person
is engaged in or intends to participate in a distribution of the New Preferred
Stock 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 New
Preferred Stock for its own account pursuant to the Exchange Offer must
represent that the Old Preferred Stock tendered in exchange therefor was
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 New Preferred Stock. 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 New
Preferred Stock received in exchange for Old Preferred Stock where such Old
Preferred Stock was 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 New Preferred Stock may not be offered or
sold unless it has 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 New Preferred Stock 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 Preferred Stock under the
Securities Act or any applicable securities laws. In such event, holders of Old
Preferred Stock seeking liquidity in their investment would have to rely on
exemptions to the registration requirements under such laws. The Old Preferred
Stock 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
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Act without registration under the Securities Act. To the extent that Old
Preferred Stock is tendered and accepted in the Exchange Offer, the reduction
in the principal amount of Old Preferred Stock outstanding could have an
adverse effect upon, and increase the volatility of the market price for, the
untendered and tendered but unaccepted Old Preferred Stock.
EXCHANGE OFFER PROCEDURES
To participate in the Exchange Offer, and avoid the restrictions on Old
Preferred Stock, each holder of Old Preferred Stock 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
Preferred Stock must be received by the Exchange Agent, (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old
Preferred Stock, 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."
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USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer. 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
In connection with the Resale Agreement, the Company entered into the
Registration Rights Agreement, 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 March 2, 1998 (the "Resale Date"), (ii) use its
best efforts to cause the Registration Statement to become effective within 240
days after the Resale 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 Preferred Stock for New
Preferred Stock pursuant to the Exchange Offer may offer for resale, resell and
otherwise transfer such New Preferred Stock without compliance with the
registration and prospectus delivery requirements of the Securities Act;
provided, that (i) such New Preferred Stock is 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 New Preferred Stock and has no
arrangement with any person to participate in the distribution of such New
Preferred Stock, 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 Preferred Stock for New
Preferred Stock pursuant to the Exchange Offer with the intention to
participate in a distribution of the New Preferred Stock 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 New Preferred Stock for its own
account in exchange for Old Preferred Stock, where such Old Preferred Stock was
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 New Preferred Stock. 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 New Preferred Stock (other than a
resale of an unsold allotment from the original sale of Old Preferred Stock)
received in exchange for Old Preferred Stock where such Old Preferred Stock was
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 all shares of Old Preferred
Stock validly tendered and not withdrawn prior to 5:00 p.m., New York City
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time, on the Expiration Date. For each share of Old Preferred Stock tendered
pursuant to the Exchange Offer and not withdrawn prior to the Expiration Date,
the Company will issue one share of New Preferred Stock. Holders may tender
some or all of their shares of Old Preferred Stock pursuant to the Exchange
Offer.
The terms of the New Preferred Stock and the Old Preferred Stock are
substantially identical in all material respects, except that (i) the exchange
will be registered under the Securities Act and, therefore, the New Preferred
Stock will not bear legends restricting the transfer of such New Preferred
Stock, and (ii) holders of the New Preferred Stock will not be entitled to any
of the registration rights of holders of Old Preferred Stock under the
Registration Rights Agreement, which rights will terminate upon the
consummation of the Exchange Offer.
As of the date of this Prospectus, 1,042,460 shares of Old Preferred Stock
are outstanding. This Prospectus, together with the Letter of Transmittal, is
being sent to all registered holders of the Old Preferred Stock.
Holders of Old Preferred Stock 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. Shares of Old Preferred Stock which
are not tendered and were not prohibited from being tendered for exchange in
the Exchange Offer will remain outstanding and continue 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, each share of Old
Preferred Stock properly tendered and not withdrawn and will issue one share of
New Preferred Stock in exchange therefor promptly after acceptance of the Old
Preferred Stock. For purposes of the Exchange Offer, the Company shall be
deemed to have accepted properly tendered Old Preferred Stock 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 New Preferred Stock from the Company.
In all cases, issuance of New Preferred Stock for Old Preferred Stock that
is accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of such Old Preferred Stock, 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
Preferred Stock 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 Preferred Stock is not accepted for any reason set
forth in the terms and conditions of the Exchange Offer, certificates for any
such unaccepted or nonexchanged Old Preferred Stock 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 shares of Old Preferred Stock 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 shares of Old Preferred Stock 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."
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.
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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 shares of Old Preferred Stock, 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 Preferred Stock 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.
DIVIDENDS ON THE NEW PREFERRED STOCK
Holders of the New Preferred Stock shall be entitled to receive, when, as
and if declared by the Board, dividends at the rate of 14.5% per annum on the
liquidation value, which shall be identical to the liquidation value of the Old
Preferred Stock. Dividends shall accrete to the liquidation value of the New
Preferred Stock until the Cash Pay Date. Following the Cash Pay Date, dividends
will be payable in cash.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to exchange any shares of New Preferred Stock for any shares of Old
Preferred Stock, and may terminate or amend the Exchange Offer before the
acceptance of any shares of Old Preferred Stock 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 determines in its sole discretion that any of these
conditions are not satisfied, the Company may (i) refuse to accept any shares
of Old Preferred Stock and return all tendered shares of Old Preferred Stock to
the tendering holders, (ii) extend the Exchange Offer and retain all shares of
Old Preferred Stock tendered prior to the expiration of the Exchange Offer,
subject, however, to the rights of holders who tendered such shares of Old
Preferred Stock to withdraw their tendered shares of Old Preferred Stock, or
(iii) waive such unsatisfied conditions with respect to the Exchange Offer and
accept all properly tendered shares of Old Preferred Stock which have not been
withdrawn. 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 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 in its sole 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
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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 Preferred Stock may tender such Old Preferred Stock
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 Preferred Stock
(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 New Preferred Stock for its own account in
exchange for Old Preferred Stock, where such New Preferred Stock was 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 New Preferred Stock. See "Plan of Distribution."
The tender of Old Preferred Stock 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 PREFERRED STOCK 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 PREFERRED STOCK
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 Preferred Stock is 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 Preferred Stock, either make appropriate arrangement to register
ownership of the Old Preferred Stock in such owner's name or obtain a properly
completed stock 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),
pursuant to Rule 17Ad-15 under the Exchange Act (an "Eligible Institution")
unless the Old Preferred Stock tendered pursuant thereto is 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 shares of Old
Preferred Stock listed therein signs the Letter of Transmittal, such shares of
Old Preferred Stock must be endorsed or accompanied by a properly completed
stock power, signed by such registered holder as such registered holder's name
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appears on such shares of Old Preferred Stock, with the signature thereon
guaranteed by an Eligible Institution. If the Letter of Transmittal or any
shares of Old Preferred Stock or stock 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 Preferred Stock and withdrawal of tendered Old Preferred Stock and
the Company's determination will be final and binding. The Company reserves the
absolute right to reject any and all Old Preferred Stock not properly tendered
or any Old Preferred Stock 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 Preferred Stock. 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 Preferred Stock
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 Preferred Stock, neither the Company, the Exchange Agent nor any
other person shall incur any liability for failure to give such notification.
Tenders of Old Preferred Stock will not be deemed to have been made until such
defects or irregularities have been cured or waived. Any shares of Old
Preferred Stock 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 Preferred Stock that remains 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 Preferred Stock 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 shares of New Preferred Stock 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 New Preferred Stock 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
Preferred Stock at the book-entry transfer facility for the Old Preferred
Stock, 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 Preferred
Stock by causing DTC to transfer such Old Preferred Stock into the Exchange
Agent's account with respect to the Old Preferred Stock 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 Preferred Stock and (i) whose Old
Preferred Stock is not immediately available, (ii) who cannot deliver their Old
Preferred Stock, the Letter of Transmittal or any other required documents to
the Exchange Agent prior to the Expiration Date or (iii) who cannot complete
the procedures for book-entry transfer of Old Preferred Stock to the Exchange
Agent's account with DTC prior to the Expiration Date, may effect a tender if:
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(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 shares of Old Preferred Stock (if possible) and the aggregate
number of shares of Old Preferred Stock 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 shares of Old Preferred Stock
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 shares of Old Preferred Stock 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
shares of Old Preferred Stock in proper form for transfer and all other
documents required by the Letter of Transmittal, or confirmation of book-entry
transfer of the Old Preferred Stock 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 Preferred Stock according to
the guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Preferred Stock 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 Preferred Stock 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 Preferred Stock
to be withdrawn (the "Depositor"), (ii) identify the shares of Old Preferred
Stock to be withdrawn (including the certificate number or numbers and
aggregate number of such shares of Old Preferred Stock), (iii) be signed by the
holder in the same manner as the original signature on the Letter of
Transmittal by which such shares of Old Preferred Stock were tendered
(including any required signature guarantees) and (iv) specify the name in
which any such shares of Old Preferred Stock are to be registered, if different
from that of the Depositor. If shares of Old Preferred Stock 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 shares of Old Preferred Stock 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 Preferred
Stock so withdrawn will be deemed not to have been validly tendered for
purposes of the Exchange Offer and no New Preferred Stock will be issued with
respect thereto unless the Old Preferred Stock so withdrawn is validly
retendered. Any shares of Old Preferred Stock 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 shares of
Old Preferred Stock 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 PREFERRED STOCK
Holders of Old Preferred Stock whose Old Preferred Stock is not tendered
or is tendered but not accepted in the Exchange Offer will continue to hold
such Old Preferred Stock and will be entitled to all the rights and preferences
and subject to the limitations applicable thereto. Following consummation of
the Exchange Offer, the holders of Old Preferred Stock will continue to be
subject to the existing restrictions upon transfer contained in the legend
thereon. In general, the Old Preferred Stock may not
24
<PAGE>
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. To the extent that shares
of Old Preferred Stock are tendered and accepted in the Exchange Offer, the
trading market for untendered and tendered but unaccepted shares of Old
Preferred Stock 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 Preferred Stock pursuant to the Exchange Offer. If, however,
certificates representing New Preferred Stock or Old Preferred Stock for shares
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 shares of Old Preferred Stock tendered, or if tendered shares of
Old Preferred Stock 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 Preferred Stock 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 New Preferred Stock 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 shares of Old
Preferred Stock will not have any registration rights under the Registration
Rights Agreement with respect to such nontendered shares of Old Preferred
25
<PAGE>
Stock and, accordingly, such shares of Old Preferred Stock will continue to be
subject to the restrictions on transfer contained in the legend thereon as a
consequence of the issuance of the Old Preferred Stock 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 shares of
Old Preferred Stock 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 Preferred Stock 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 Preferred Stock for New
Preferred Stock pursuant to the Exchange Offer may offer for resale, resell and
otherwise transfer such New Preferred Stock without compliance with the
registration and prospectus delivery requirements of the Securities Act,
provided, however, that (i) such New Preferred Stock is 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 New Preferred Stock
and has no arrangement with any person to participate in the distribution of
such New Preferred Stock, 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 Preferred Stock for New
Preferred Stock pursuant to the Exchange Offer with the intention to
participate in a distribution of the New Preferred Stock 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 New Preferred Stock for its own account in
exchange for Old Preferred Stock, where such Old Preferred Stock was 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 New Preferred Stock. See "Plan of Distribution." The
New Preferred Stock may not be offered or sold unless it has 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 New
Preferred Stock in any jurisdiction requested by the holders, subject to
certain limitations. To the extent the Old Preferred Stock is tendered and
accepted in the Exchange Offer, the trading market for untendered and tendered
but unaccepted Old Preferred Stock could be adversely affected.
RESALE OF THE NEW PREFERRED STOCK
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, the New Preferred Stock would in
general be freely transferable after the Exchange Offer without further
registration under the Securities Act. However, any purchaser of Old Preferred
Stock who intends to participate in the Exchange Offer for the purpose of
distributing the New Preferred Stock (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 Preferred Stock 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 Preferred Stock 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 Preferred Stock 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 shares of New Preferred Stock 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 New Preferred Stock. In addition, in connection with any resales of New
Preferred Stock, any broker-dealer (a "Participating Broker-Dealer") who
acquired the New Preferred Stock 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
26
<PAGE>
Commission has taken the position that Participating Broker-Dealers may fulfill
their prospectus delivery requirements with respect to the New Preferred Stock
(other than a resale of an unsold allotment from the original sale of the Old
Preferred Stock) 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 New
Preferred Stock.
OTHER
PARTICIPATION IN THE EXCHANGE OFFER IS VOLUNTARY AND HOLDERS SHOULD
CAREFULLY CONSIDER WHETHER TO ACCEPT. HOLDERS OF SHARES OF OLD PREFERRED STOCK
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
Preferred Stock will not have any registration rights under the Registration
Rights Agreement with respect to such nontendered Old Preferred Stock and such
Old Preferred Stock will continue to be subject to the restrictions on transfer
contained in the legend thereon. Accordingly, such Old Preferred Stock 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 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 Preferred Stock for New Preferred Stock pursuant to
the Exchange Offer will not result in any United States federal income tax
consequences to holders. When a holder exchanges a share of Old Preferred Stock
for a share of New Preferred Stock pursuant to the Exchange Offer, the holder
will have the same adjusted basis and holding period in the share of New
Preferred Stock as in the share of Old Preferred Stock 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 PREFERRED STOCK 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 March 31, 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 MARCH 31, 1998
-----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Long-term Debt (including current portion):
Bank Facility
Term Facilities ............................................ 30,000
Revolving Facility(1) ...................................... 1,000
10 1/4% Senior Notes due 2008 .............................. 130,000
-------
Total Long-term Debt ....................................... 161,000
14.5% Senior Exchangeable Preferred;
1,250,000 shares authorized; 1,042,460 shares issued ......... 32,268
Stockholder's Deficit ......................................... (8,542)
-------
Total Capitalization ....................................... 184,726
=======
</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 $0.4 million which allows the beneficiary, Lyondell-Citgo
Refining Company Ltd., to pay all amounts due the Company in full without
withholding a retention amount.
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, (ii) selected historical
financial data of Successor, for the three months ended December 31, 1996, the
year ended December 31, 1997 and the three months ended March 31, 1997 and 1998
and (iii) selected pro forma combined financial data for the year ended
December 31, 1996. 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 three months ended March 31, 1997
and 1998 has been derived from the unaudited financial statements of Successor.
The selected pro forma combined financial data for the year ended December 31,
1996 has been derived from the audited financial statements of Predecessor and
Successor but has not been audited as presented. 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)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA: (2)
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 (3) ....... -- 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: (2)
EBITDA (4) ................... $ 41,751 $ 33,956 $ 36,803 $ 25,832
Adjusted
EBITDA (4) (5) .............. 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 (6) 8,534 9,655 9,444 7,872
Ratio of Adjusted
EBITDA to Cash
Interest Expense (4)
(5) (6) ..................... 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
Combined Fixed
Charges and Preferred
Stock Dividends (7) ......... 3.8x 2.6x 3.0x 2.4x
<CAPTION>
SUCCESSOR
-------------------------------------------------------------------
THREE THREE THREE
MONTHS PRO YEAR MONTHS MONTHS
ENDED FORMA ENDED ENDED ENDED
DECEMBER 31, COMBINED DECEMBER 31, MARCH 31, MARCH 31,
1996 1996 (1) 1997 1997 1998
-------------- ------------ -------------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenue ...................... $44,412 $169,181 $160,660 $43,203 $ 50,690
Operating Expenses ........... 34,170 126,751 122,638 31,751 38,814
------- -------- -------- ------- --------
Gross Profit ................ 10,242 42,430 38,022 11,452 11,876
Selling and
Administrative
Expenses .................... 4,743 20,568 25,840 5,927 5,986
Nonrecurring Start-up
Expenses .................... -- -- 2,498 -- --
------- -------- -------- ------- --------
Operating Income ............. 5,499 21,862 9,684 5,525 5,890
Interest Expense ............. 4,504 15,846 15,422 3,763 4,057
Interest Income .............. (195) (677) (397) (120) (125)
Other Expense, Net (3) ....... -- 708 -- -- --
------- -------- -------- ------- --------
Pretax Income (Loss)......... 1,190 5,985 (5,341) 1,882 1,958
Provision for Income
Tax ......................... 525 2,633 -- -- --
Extraordinary Loss,
Net of Tax ................. -- -- -- -- 4,329
------- -------- -------- ------- --------
Net Income (Loss) ........... $ 665 $ 3,352 $ (5,341) $ 1,882 $ (2,371)
======= ======== ======== ======= ========
OTHER DATA: (2)
EBITDA (4) ................... $ 8,398 $ 34,230 $ 24,507 $ 8,420 $ 9,009
Adjusted
EBITDA (4) (5) .............. 9,387 35,219 29,629 9,101 10,498
Cash flow from
operations .................. 4,966 6,482 11,983 560 (171)
Depreciation and
Amortization ................ 3,567 14,468 13,294 3,138 3,334
Cash Interest Expense (6) 3,836 15,178 14,453 3,520 3,842
Ratio of Adjusted
EBITDA to Cash
Interest Expense (4)
(5) (6) ..................... 2.4x 2.3x 2.1x 2.6x 2.7x
Capital Expenditures
Maintenance ................. $ 97 $ 609 $ 3,024 $ 1,509 $ 1,795
Expansion ................... 111 1,409 6,733 1,640 1,952
------- -------- -------- ------- --------
Total ....................... $ 208 $ 2,018 $ 9,757 $ 3,149 $ 3,747
Ratio of Earnings to
Combined Fixed
Charges and Preferred
Stock Dividends (7) ......... .5x 1.2x
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
----------------------------------- ----------
AT DECEMBER 31,
----------------------------------------------
1993 1994 1995 1996
(UNAUDITED) ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA: (2)
Working Capital .................................... $ 28,457 $ 34,155 $ 30,227 $ 12,656
Total Assets ....................................... 180,310 180,107 178,201 204,266
Long-Term Debt (including current portion) ......... -- -- -- 158,000
14.5% Senior Exchangeable Preferred Stock .......... -- -- -- 25,906
Stockholder's Equity (Deficit) ..................... 161,005 150,005 141,374 4,247
<CAPTION>
SUCCESSOR
----------------------------------------
AT DECEMBER
31,
----------- AT MARCH 31, AT MARCH 31,
1997 1997 1998
----------- -------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA: (2)
Working Capital .................................... $ 4,207 $ 13,855 $ 19,541
Total Assets ....................................... 197,543 204,507 204,148
Long-Term Debt (including current portion) ......... 154,250 158,500 161,000
14.5% Senior Exchangeable Preferred Stock .......... 31,140 26,924 32,268
Stockholder's Equity (Deficit) ..................... (5,176) 5,019 (8,542)
</TABLE>
- ----------
(1) Unaudited pro forma combined 1996 financial data gives effect to the
Acquisition, including related expenses, as if it had occurred on January
1, 1996. Amounts have been derived from the results for Predecessor for
the nine months ended September 30, 1996 and for the Successor 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.
(2) 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.
(3) 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.
(4) EBITDA is defined as earnings before nonrecurring start-up expenses,
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.
(5) 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
three months ended March 31, 1997 and 1998, the WMI Payments were
$725,000, $2,900,000, $725,000 and $725,000, 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, $550,000
and $675,000 for the three months ended December 31, 1996, the year ended
December 31, 1997 and the three months ended March 31, 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, $1,105,000 and
$1,589,000 for the three months ended December 31, 1996, the year ended
December 31, 1997 and the three months ended March 31, 1997 and 1998,
respectively, but had cash expenditures related to these items of
$562,000, $3,005,000, $975,000 and $775,000, respectively. Adjusted
EBITDA for the three months ended December 31, 1996, the year ended
December 31, 1997 and the three months ended March 31, 1997 and 1998 is
therefore increased by the portion of claims expense not paid in cash, or
$627,000, $2,922,000, $130,000 and $814,000, respectively. The total of
the adjustments for the WMI Payments and the non-cash claim for the three
months ended December 31, 1996, the year ended December 31, 1997 and the
three months ended March 31, 1997 and 1998 is an increase of $989,000,
$5,122,000, $680,000 and $1,489,000, respectively.
(6) 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
$242,000 and $214,000 for the three months ended March 31, 1997 and 1998,
respectively.
(7) For the purposes of calculating the ratio of earnings to combined fixed
charges and preferred stock dividends, 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, amortization of debt issuance costs, and
preferred stock dividends.
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.
31
<PAGE>
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.
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 three months
ended March 31, 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 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
-------------- -------------- ---------------------------------------
THREE MONTHS
YEAR YEAR YEAR ENDED
ENDED ENDED ENDED MARCH 31,
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 $43,203 $ 50,690
Operating Expenses .................... 138,968 123,243 122,638 31,751 38,814
-------- -------- -------- ------- --------
Gross Profit ......................... 54,861 45,938 38,022 11,452 11,876
Selling and Administrative Expenses.... 25,807 20,568 25,840 5,927 5,986
Nonrecurring Start-up Expenses ........
-- -- 2,498 -- --
-------- -------- -------- ------- --------
Operating Income ...................... 29,054 25,370 9,684 5,525 5,890
Interest Expense ...................... 9,444 12,376 15,422 3,763 4,057
Interest Income ....................... (1,012) (677) (397) (120) (125)
Other Expense, Net .................... 853 708 -- -- --
-------- -------- -------- ------- --------
Pre-Tax Income (Loss) ................ 19,769 12,963 (5,341) 1,882 1,958
Provision for Income Tax .............. 8,300 5,338 -- -- --
Extraordinary items (net of tax) ..... -- -- -- -- 4,329
-------- -------- -------- ------- --------
Net Income (Loss) .................... $ 11,469 $ 7,625 $ (5,341) $ 1,882 $ (2,371)
======== ======== ======== ======= ========
OTHER DATA:
EBITDA ................................ $ 36,803 $ 34,230 $ 24,507 $ 8,420 $ 9,009
Adjusted EBITDA ....................... 36,803 35,219 29,629 9,101 10,498
</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
-------------- -------------- ---------------------------------------
THREE MONTHS
YEAR YEAR YEAR ENDED
ENDED ENDED ENDED MARCH 31,
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 73.5 76.6
----- ----- ----- ---- ----
Gross Profit .......................... 28.3 27.2 23.7 26.5 23.4
Selling and Administrative Expenses..... 13.3 12.2 16.1 13.7 11.8
Nonrecurring Start-up Expenses ......... -- -- 1.6 -- --
----- ----- ----- ---- ----
Operating Income ....................... 15.0 15.0 6.0 12.8 11.6
Interest Expense ....................... 4.9 7.3 9.6 8.7 8.0
Interest Income ........................ ( 0.5) ( 0.4) ( 0.2) (0.3) (0.2)
Other Expenses, Net .................... 0.4 0.4 -- -- --
----- ----- ----- ---- ----
Pre-Tax Income (Loss) ................. 10.2 7.7 ( 3.4) 4.4 3.9
Provision for Income Tax ............... 4.3 3.2 -- -- --
Extraordinary items (net of tax) ...... -- -- -- -- 8.5
----- ----- ----- ---- ----
Net Income (Loss) ..................... 5.9% 4.5% ( 3.4)% 4.4% (4.7)%
===== ===== ===== ==== ====
OTHER DATA:
EBITDA ................................. 19.1% 20.2% 15.3% 19.5% 17.8%
Adjusted EBITDA ........................ 19.1 20.8 18.4 21.1 20.7
</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.
THREE MONTHS ENDED MARCH 31, 1998 AS COMPARED TO THREE MONTHS ENDED MARCH 31,
1997
Revenues. Revenues for the three months ended March 31, 1998 were $50.7
million as compared to $43.2 million for the three months ended March 31, 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 $7.0 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 three months ended March 31, 1998 was
$11.9 million as compared to $11.5 million for the three months ended March 31,
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 three months ended March 31, 1998 were $6.0 million as compared to $5.9
million for the three months ended March 31, 1997. The decrease in selling and
administrative expenses as a percentage of revenue from 13.7% for the three
months ended March 31, 1997 to 11.8% for the three months ended March 31, 1998
is directly attributable to the cost reduction program which was implemented in
November, 1997. Selling and administrative expenses were also reduced by
$175,000 in 1997 and $50,000 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 three months ended March 31,
1998 was $5.9 million as compared to $5.5 million for the three months ended
March 31, 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 three months ended March 31,
1998 was $4.1 million compared to $3.8 million for the three months ended March
31, 1997. The $300,000 increase is due to the
33
<PAGE>
combination of increased activity under the Revolving Facility and a higher
weighted average interest rate on all outstanding debt of 9.4% for the three
months ended March 31, 1998 as compared to 8.7% for the three months ended
March 31, 1997.
Extraordinary Items (net of tax). Extraordinary items for the three months
ended March 31, 1998 were $4.3 million compared to $0 for the three months
ended March 31, 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.
Interest Expense. Interest expense for the year ended December 31, 1997
was $15.4 million as compared to $12.4 million for the year ended December 31,
1996. The $3.0 million increase occurred as a result of the higher level of
debt due to the Acquisition.
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 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.
34
<PAGE>
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.
Interest Expense. Net interest expense for the year ended December 31,
1996 was $12.4 million as compared to $9.4 million for the year ended December
31, 1995 due primarily to the higher level of debt outstanding resulting from
the Acquisition.
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 March 31, 1998, the
Company had working capital of $19.5 million and cash of $1.3 million. The
Company had $1.0 million of borrowings under the revolving portion (the
"Revolving Loan") of the Bank Facility at March 31, 1998.
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.
For the three months ended March 31, 1998, the Company utilized cash of
$0.9 million from its December 31, 1997 balance of $2.2 million, and for the
year ended December 31, 1995, the nine months ended September 30, 1996, the
three months ended December 31, 1996, the year ended December 31, 1997 and the
three months ended March 31, 1998 cash provided by (used for) operating
activities was $35.6 million, $28.5 million, $5.0 million, $12.0 million and
$(.2) 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
three months ended March 31, 1998, expansion capital expenditures were $2.0
million, of which approximately $0.7 million was spent on new frame and brace
scaffolding to service the growing demand in the commercial scaffolding market.
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
35
<PAGE>
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 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 March 31, 1998, the Company had $1.0 million of
outstanding borrowings under the Revolving Facility, leaving $16.2 million
available to the Company. The interest rate on each facility under the Bank
Facility is variable. As of March 31, 1998, the interest rate on loans
outstanding under the term facility was an annual dollar-weighted rate of 9.0%.
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 three months
ended March 31, 1998 total payments for interest were $3.1 million, and $119.8
million of the Term Loans was repaid with proceeds from 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 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.
36
<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, labor for the erection and dismantlement of the
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 March 31, 1998, the Company generated
revenues and Adjusted EBITDA (as defined) of $168.1 million and $31.0 million,
respectively.
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
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.
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<PAGE>
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 the 1996 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 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.
38
<PAGE>
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 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
39
<PAGE>
$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
99999 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.
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.
40
<PAGE>
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 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 1.5 for the three months ended March 31, 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 approximately 17% of the Company's 1997 revenues.
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
41
<PAGE>
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 March 31, 1998, the Company had approximately 2,900 employees of
which approximately 733 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.
42
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to
directors and executive officers of the Company.
<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 is a Managing Director of
DLJ Merchant Banking, Inc. ("DLJMB, Inc.") and has been Chairman of the Board
of the Company since the Acquisition. 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 : 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 in April 1998, Mr. Alexander had a
variety of assignments with BP Oil Company from 1973 until 1993 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.
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 held manufacturing, materials, and logistics management positions
with Kimble Glass, Inc. from 1996 to 1997 and with Cooper from 1992 to 1996.
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 held various Western Region Management positions with
Rust Industrial. From 1991 to 1994, Mr. Knoll was a Vice President,
Operations--Western Region for Serv-Tech, Inc.
43
<PAGE>
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. 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 was Chairman, President and Chief
Executive Officer of Formica Corporation from 1989 through 1995. Since 1995,
Mr. Langone has been 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.
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 Old Preferred Stock for an aggregate purchase price of
$823,905. In 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,
44
<PAGE>
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, DLJSC, 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. DLJSC 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 Notes was
used to repay indebtedness under the Bank Facility, $1.6 million of which was
owed to DLJ Capital on the date of the Old Note Offering. In connection with an
amendment to the existing Bank Facility, the Company will pay customary fees to
DLJ Capital, as the Syndication Agent and as a Lender under the Bank Facility.
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by the Chief
Executive Officer and the six other most highly paid executive officers for
services rendered in 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------
ANNUAL COMPENSATION AWARDS
-------------------------------------- ------------
SECURITIES
UNDERLYING ALL
OTHER OPTIONS OTHER
SALARY BONUS COMPENSATION /SARS COMPENSATION
NAME AND PRINCIPAL POSITION ($) ($) ($) (#) ($)
- -------------------------------- --------- --------- -------------- ------------ ---------------
<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.
45
<PAGE>
(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 at
continued base salary of $150,000 and one year's continued coverage under
the Company's medical and dental plan.
Stock Option Grants in Last Fiscal Year.
The following table sets forth certain information concerning grants of
stock options made to the persons named in the Summary Compensation Table
during the year ended December 31, 1997. Such grants are exercisable for shares
of the common stock of Holdings. No stock appreciation rights were granted.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (2)
---------------------------------------------------------------------- ------------------
% OF TOTAL
OPTIONS
NUMBER OF SECURITIES GRANTED TO EXERCISE OR
UNDERLYING OPTIONS EMPLOYEES IN BASE PRICE
NAME GRANTED (#) (1) FISCAL YEAR ($/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.
46
<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 AGREEMENTS
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.
Each of Messrs. McGee, Moore and Knoll is party to an employment agreement
with the Company. Each agreement terminates on 31, 1998. Each provides for (i)
a minimum annual salary and bonus, (ii) a completion bonus (equal to 35% of
bonuses earned in 1996 and 1997) if such individual remains employed by the
Company on July 31, 1998 and (iii) a change of control payment (equal to two
months salary) in the event of a sale of the Company to an unrelated entity. In
the event of termination of any such individual's employment without cause, he
is entitled to certain payments which may exceed the total payments otherwise
required under his applicable agreement. As a part of their respective
employment agreements, such individuals have entered into covenants generally
prohibiting each of them from competing with the Company, working for any of
the Company's competitors or using proprietary information.
47
<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 March 31, 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 DLJSC. 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.
48
<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.
49
<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 DLJSC. 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 Old 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.
50
<PAGE>
DESCRIPTION OF BANK FACILITY
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, as amended, 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; (ii)
minimum interest coverage; (iii) minimum fixed charge coverage; (iv) minimum
net worth; and (v) maximum capital expenditures. In addition, the Credit
Agreement restricts the Company's ability, among other things, to (i) incur
debt, sale-leasebacks and contingent 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.
51
<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 Preferred Stock, which is governed by the Certificate of Designations,
Preferences and Rights relating thereto (the "Certificate of Designations").
Each share of Preferred Stock had an initial liquidation preference of
$25.00 per share, plus accrued and unpaid dividends. The Preferred Stock ranks
senior to all classes or series of equity securities of the Company. The
holders of the Preferred Stock are entitled to receive dividends, when, as and
if declared by the Board at the rate of 14.5% per annum on the liquidation
value. Dividends on the Preferred Stock accrete to the liquidation value of the
Preferred Stock until the later of (i) September 30, 2001 (the "Fifth
Anniversary") and (ii) the first date on which dividends on the 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 Preferred Stock.
In the event of an Equity Offering prior to September 30, 1999, the
Company may, at its option, redeem not less than all of the outstanding
Preferred Stock at a price of 114.5% of the liquidation value; provided that
the aggregate redemption price of all the outstanding shares of Preferred Stock
do not exceed the net proceeds received by the Company from such Equity
Offering. After September 30, 2001, the Company may, at its option, redeem any
or all outstanding shares of 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 Preferred Stock at a redemption price equal to 101% of the liquidation
value. In addition, the Company is required to redeem all shares of Preferred
Stock on March 31, 2008 at a price equal to the liquidation value at such date.
There is no restriction on the repurchase or redemption of shares of Preferred
Stock by the Company while there is an arrearage in the payment of dividends.
The holders of 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 Preferred Stock on March 31, 2008, (iii) the Company has not offered to
redeem the 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 Preferred Stock or (v) the Company's Certificate of Incorporation
has been amended in a manner adverse to the holders of 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 in exchange for any or all
outstanding shares of Preferred Stock, at an exchange ratio of $1.00 of
liquidation value of 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 Preferred Stock and all rights of holders of the 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 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.
52
<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.
53
<PAGE>
DESCRIPTION OF NOTES
The Company issued $130.0 million aggregate principal amount of 10 1/4%
Senior Notes due 2008 (the "Notes") 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 offering of
the Notes (the "Old Note Offering") generated net proceeds of approximately
$125.6 million.
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. 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.
The Notes mature on February 15, 2008, and bear interest at 10 1/4% per
annum from February 25, 1998 (the "Note Issue Date") or from the most recent
interest payment date to which interest has been paid or provided for. Interest
on the Notes is payable semi-annually in arrears on February 15 and August 15
of each year, commencing August 15, 1998.
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 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 (as defined), 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 Note 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 offerings of capital stock of the Company 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 such offering.
Upon the occurrence of a Change of Control (as defined in the Indenture),
each holder will have the right to require the Company to repurchase all of
such holder's Notes in whole or in part at a purchase price in cash equal to
101% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon and Liquidated Damages, if any, to the repurchase date.
The Indenture contains covenants limiting the ability of the Company and
its Subsidiaries to, among other things, pay dividends or make certain other
payments, make certain investments, incur additional indebtedness, permit
liens, incur dividend and other payment restrictions affecting its
subsidiaries, enter into consolidation, merger, conveyance, lease or transfer
transactions, make asset sales, enter into transactions with its affiliates and
engage in unrelated lines of business. In addition, the Indenture imposes
restrictions on the ability of the Company's subsidiaries to issue guarantees.
In connection with the Old Note Offering, the Company entered into a
Registration Rights Agreement (the "Notes Registration Rights Agreement"). Upon
the failure to comply with certain provisions of the Notes Registration Rights
Agreement, the Company is obligated to pay holders of the Notes liquidated
damages ("Liquidated Damges").
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Preferred Stock for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Preferred Stock. This
Prospectus, as it may be amended or supplemented from time to time, may be used
54
<PAGE>
by a Participating Broker-Dealer in connection with resales of New Preferred
Stock received in exchange for Old Preferred Stock where such Old Preferred
Stock was 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 New Preferred Stock may
be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of New Preferred
Stock by Participating Broker-Dealers. New Preferred Stock 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 New Preferred Stock 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 New Preferred Stock.
Any Participating Broker-Dealer that resells New Preferred Stock that was
received by it for its own account pursuant to the Exchange Offer and any
broker or dealer that participates in a distribution of such New Preferred
Stock may be deemed to be an "underwriter" within the meaning of the Securities
Act and any profit on any such resale of New Preferred Stock 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 Preferred Stock) other than commissions or
concessions of any brokers or dealers and will indemnify the holders of the
Preferred Stock (including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the New Preferred Stock offered hereby will be passed upon
for the Company by Davis Polk & Wardwell.
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 New Preferred Stock. 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.
55
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<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 Three Months Ended March 31, 1997 (unaudited) and
1998 (unaudited)........................................................................ F-11
Consolidated Balance Sheets as of December 31, 1996, 1997 and March 31, 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 Three Months Ended March 31, 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 Three Months Ended March
31, 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>
<CAPTION>
<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 THREE MONTHS THREE MONTHS
ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1996 1997 1997 1998
-------------- -------------- -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenue ....................................... $44,412 $160,660 $43,203 $50,690
Operating expenses ............................ 34,170 122,638 31,751 38,814
-------------- -------------- -------------- --------------
Gross profit ................................. 10,242 38,022 11,452 11,876
Selling and administrative expenses............ 4,743 25,840 5,927 5,986
Nonrecurring start-up expenses ................ -- 2,498 -- --
-------------- -------------- -------------- --------------
Operating income ............................. 5,499 9,684 5,525 5,890
Interest expense .............................. 4,504 15,422 3,763 4,057
Interest income................................ (195) (397) (120) (125)
-------------- -------------- -------------- --------------
Pretax income (loss).......................... 1,190 (5,341) 1,882 1,958
Provision for income tax....................... 525 -- -- --
-------------- -------------- -------------- --------------
Income (loss) before extraordinary loss ..... 665 (5,341) 1,882 1,958
Extraordinary loss on debt extinguishment, net
of tax of $0 ................................. -- -- -- 4,329
-------------- -------------- -------------- --------------
Net income (loss)............................. $ 665 $ (5,341) $ 1,882 $(2,371)
============== ============== ============== ==============
</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 MARCH 31, 1998
----------------- ----------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................. $ 4,881 $ 2,217 $ 1,317
Trade accounts receivable, net of allowance for
doubtful accounts of $925 in 1996, $1,000 in 1997 and
$1,175 in 1998........................................ 22,581 23,672 31,568
Costs and estimated earnings in excess of billings on
uncompleted contracts................................. 2,254 2,145 1,531
Notes receivable, current portion ..................... 837 388 425
Note receivable from WMI, current portion ............. 2,200 2,700 2,750
Other current assets .................................. 1,949 2,374 3,044
----------------- ----------------- --------------
Total current assets ................................. 34,702 33,496 40,635
PROPERTY AND EQUIPMENT:
Land .................................................. 1,633 1,633 1,633
Buildings ............................................. 1,890 2,097 2,101
Vehicles and other equipment .......................... 3,576 5,383 6,167
Scaffolding equipment ................................. 151,289 160,576 163,136
Leasehold improvements ................................ 497 790 796
----------------- ----------------- --------------
Total property and equpment, at cost .................. 158,885 170,479 173,833
Less--Accumulated depreciation and amortization ...... 2,684 14,938 17,886
----------------- ----------------- --------------
Total property and equipment, net .................... 156,201 155,541 155,947
----------------- ----------------- --------------
OTHER ASSETS:
Deferred financing costs, net ......................... 6,544 5,575 5,440
Note receivable from WMI, net of current portion ..... 4,875 2,175 1,450
Notes receivable, net of current portion .............. 1,944 756 676
----------------- ----------------- --------------
Total other assets ................................... 13,363 8,506 7,566
----------------- ----------------- --------------
TOTAL ASSETS ........................................... $204,266 $197,543 $204,148
================= ================= ==============
</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 MARCH 31, 1998
----------------- ----------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDER'S
EQUITY (DEFICIT)
CURRENT LIABILITIES:
Revolving loan......................................... $ -- $ 4,500 $ 1,000
Current maturities of long term debt................... 8,250 9,500 2,750
Accounts payable ...................................... 2,562 4,186 3,603
Accrued expenses--
Payroll and related accruals ......................... 5,291 3,945 4,379
Workers compensation and health benefit liabilities . 795 3,717 4,531
Other ................................................ 4,512 2,696 4,140
Billings in excess of costs and estimated earnings on
uncompleted contracts................................. 636 745 691
----------------- ----------------- --------------
Total current liabilities ........................... 22,046 29,289 21,094
----------------- ----------------- --------------
LONG-TERM DEBT ......................................... 149,750 140,250 157,250
----------------- ----------------- --------------
DEFERRED INCOME TAXES .................................. 2,317 2,040 2,078
----------------- ----------------- --------------
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 32,268
----------------- ----------------- --------------
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) (392)
Accumulated deficit ................................... (241) (9,754) (13,253)
----------------- ----------------- --------------
Total stockholder's equity (deficit) .................. 4,247 (5,176) (8,542)
----------------- ----------------- --------------
Total liabilities and stockholder's equity (deficit) $204,266 $197,543 $204,148
================= ================= ==============
</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 THREE MONTHS THREE MONTHS
ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1996 1997 1997 1998
-------------- -------------- -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss).................................... $ 665 $ (5,341) $ 1,882 $ (2,371)
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 3,137 3,334
Extraordinary loss ................................. -- -- -- 4,329
Changes in operating assets and liabilities--
Trade accounts receivable, net ..................... 1,960 (1,513) (3,281) (7,895)
Costs and estimated earnings in excess of billings
on uncompleted contracts........................... (1,643) 109 (47) 614
Notes receivable ................................... 176 1,973 125 38
Scaffolding......................................... 868 4,540 1,009 938
Accounts payable ................................... 737 1,624 1,033 (583)
Accrued expenses ................................... (1,182) (1,609) (3,163) 3,278
Billings in excess of costs and estimated earnings
on uncompleted contracts........................... (562) 109 208 (54)
Other............................................... (40) (1,036) (343) (1,799)
-------------- -------------- -------------- --------------
Net cash provided by (used for) operating
activities ...................................... 4,966 11,983 560 (171)
-------------- -------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment .................. (1,642) (14,733) (3,149) (3,747)
Receipts on note receivable from WMI................. 363 2,200 550 675
Proceeds from sales of property and equipment other
than scaffolding ................................... (17) 37 5 1
-------------- -------------- -------------- --------------
Net cash used for investing activities .......... (1,296) (12,496) (2,594) (3,071)
-------------- -------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt ........................ -- -- -- 130,000
Payments of long-term debt .......................... (2,000) (8,250) (2,000) (119,750)
Borrowings/(Payments) of revolving loans............. -- 4,500 2,500 (3,500)
Debt issuance financing costs ....................... -- -- -- (4,408)
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) 500 2,342
-------------- -------------- -------------- --------------
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS .... 1,670 (2,664) (1,534) (900)
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 $ 3,347 $ 1,317
============== ============== ============== ==============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid ....................................... $ 3,016 $ 14,138 $ 3,478 $ 3,113
Income taxes paid.................................... -- 113 -- --
============== ============== ============== ==============
NONCASH TRANSACTIONS:
Paid in-kind accretion of preferred stock dividends . $ 906 $ 4,172 $ 1,017 $ 1,128
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>
RECEIVABLES
COMMON STOCK ADDITIONAL FROM SALE PREDECESSOR COMPRE- CUMULATIVE
----------------- PAID- OF HOLDING'S BASIS HENSIVE ACCUMULATED TRANSLATION
SHARES DOLLARS IN CAPITAL COMMON STOCK ADJUSTMENT INCOME DEFICIT ADJUSTMENT TOTAL
-------- -------- ------------ ------------ ----------- ---------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, October 1, 1996 . 100 $ -- $17,604 $ -- $(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...................... 100 -- 17,604 -- (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. 873 873
Issuance of prommissory
notes from officers and
employees ................ (336) (336)
-------- -------- ------------ ------------ ----------- ----------- ---------- -------
Balance, December 31,
1997...................... 100 -- 18,477 (336) (13,038) (9,754) (525) (5,176)
Comprehensive Income:
Net Income (Loss) ........ $(2,371) (2,371) (2,371)
Translation Adjustment .. 133 133 133
----------
Comprehensive Income .... $(2,238)
==========
Paid-in-kind accretion of
preferred dividends ...... (1,128) (1,128)
-------- -------- ------------ ------------ ----------- ----------- ---------- -------
Balance, March 31, 1998 .. 100 $ -- $18,477 $(336) $(13,038) $(13,253) $(392) $(8,542)
======== ======== ============ ============ =========== =========== ========== =======
</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 March 31,
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
March 31, 1997 and March 31, 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 18.4% 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>
<CAPTION>
<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 three months ended March 31, 1997 and
March 31, 1998. Such revenues were $10,152,000 (unaudited) and $12,089,000
(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; $1,576,000
(unaudited) and $566,000 (unaudited) for the three months ended March 31,
1997 and $1,513,000 (unaudited) and $576,000 (unaudited), respectively, for
the three months ended March 31, 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>
<CAPTION>
<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 three months ended March 31, 1997 and March 31, 1998, such expense
was $2,896,000 (unaudited) and $3,119,000 (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, were $668,000 and $969,000,
respectively. For the three months ended March 31, 1997 and March 31, 1998,
such amortization expense was $242,000 (unaudited) and $214,000 (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. 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.
6. DEBT AND BORROWING ARRANGEMENTS
At December 31, 1996, December 31, 1997 and March 31, 1998, long term debt
consisted of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, DECEMBER 31, 1998
1996 1997 (UNAUDITED)
-------------- -------------- -----------
<S> <C> <C> <C>
Term Loans ........... $158,000 $149,750 $ 30,000
10 1/4% Senior Notes -- -- 130,000
Less Current Portion 8,250 9,500 2,750
-------------- -------------- -----------
Long-Term Debt ....... $149,750 $140,250 $157,250
============== ============== ===========
</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 March 31, 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) $ 1,500
1999................ 5,000
2000................ 6,000
2001................ 8,500
2002 ............... 9,000
-----------
$30,000
===========
</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 March 31, 1997 and
March 31, 1998 were 8.7% (unaudited) and 9.02% (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 March 31, 1997 and March 31,
1998, such base was $16,487,000 (unaudited) and $16,206,000 (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 March 31, 1997 and March 31, 1998, such amounts were $2,500,000
(unaudited) and $1,000,000 (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 three
months ended March 31, 1997 and March 31, 1998, such interest expense was $0
(unaudited) and $128,000 (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.
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
F-21
<PAGE>
BRAND SCAFFOLD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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
March 31, 1997 and March 31, 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 March 31, 1997 and March 31, 1998,
such fees were $27,000 (unaudited) and $51,000 (unaudited), respectively.
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
F-22
<PAGE>
BRAND SCAFFOLD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996 and the year ended December 31, 1997, dividends of $906,250
and $4,172,000 were accreted. For the three months ended March 31, 1997 and
March 31, 1998, such accreted amounts were $1,017,000 (unaudited) and
$1,142,000 (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
three months ended March 31, 1997 and March 31, 1998, such income (loss) was
$865,000 (unaudited) and $(3,499,000) (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
March 31, 1997 and March 31, 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
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
F-23
<PAGE>
BRAND SCAFFOLD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 end 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 three months ended March 31, 1997 and March 31, 1998, such reductions
were $175,000 (unaudited) and $50,000 (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 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 three months ended March 31,
1998, the Company contributed $318,000 and $94,000 (unaudited) to the Plan.
F-24
<PAGE>
BRAND SCAFFOLD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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>
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
PAGE
----
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 ............................................................... 37
Management ............................................................. 43
Principal Stockholders ................................................. 48
Certain Relationships and Related Transactions ......................... 50
Description of Bank Facility ........................................... 51
Description of Preferred Stock ......................................... 52
Description of Notes ................................................... 54
Plan of Distribution ................................................... 54
Legal Matters .......................................................... 55
Independent Public Accountants ......................................... 55
Available Information .................................................. 55
Index to Consolidated Financial Statements ............................. F-1
===============================================================================
===============================================================================
[BRAND SCAFFOLD SERVICES, INC. LOGO]
BRAND SCAFFOLD
SERVICES, INC.
OFFER TO EXCHANGE 14.5% SENIOR EXCHANGEABLE
PREFERRED STOCK DUE 2008, $0.01 PAR
VALUE PER SHARE WHICH HAS BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OF ITS OUTSTANDING
14.5% SENIOR EXCHANGEABLE PREFERRED STOCK
DUE 2008, $0.01 PAR VALUE PER SHARE
------------------
PROSPECTUS
------------------
, 1998
===============================================================================
<PAGE>
[Alternate Front Cover]
PROSPECTUS
[BRAND SCAFFOLD SERVICES, INC. LOGO]
BRAND SCAFFOLD SERVICES, INC.
14.5% SENIOR EXCHANGEABLE PREFERRED STOCK DUE 2008, $0.01 PAR VALUE PER SHARE
The 14.5% Senior Exchangeable Preferred Stock due 2008, $0.01 par value
per share (the "New Preferred Stock"), which has been registered under the
Securities Act of 1933, as amended (the "Securities Act"), was issued in
exchange for the 14.5% Senior Exchangeable Preferred Stock due 2008, $0.01 par
value per share (the "Old Preferred Stock," and together with the New Preferred
Stock, the "Preferred Stock") by Brand Scaffold Services, Inc., a Delaware
corporation (the "Company").
Holders of the Preferred Stock are entitled to receive dividends, when, as
and if, declared by the Board (as defined) at a rate of 14.5% per annum on the
liquidation value (initially $25.00 per share). Dividends on the Preferred
Stock accrete to the liquidation value of the Preferred Stock. At March 31,
1998, the liquidation value was $30.95 per share. Subject to certain
conditions, the Company may issue 14.5% Junior Subordinated Exchange Debentures
due 2008 (the "Exchange Debentures") in exchange for any or all outstanding
Preferred Stock, at an exchange ratio of $1.00 of liquidation value of
Preferred Stock for $1.00 principal amount of Exchange Debentures. After
September 30, 2001, the Company may redeem any or all outstanding shares of the
Preferred Stock at the redemption prices set forth herein. Subject to certain
conditions, in the event of an Equity Offering (as defined) prior to September
30, 1999, the Company may redeem not less than all of the outstanding Preferred
Stock at a price of 114.5% of liquidation value. 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 the Preferred Stock at a
redemption price equal to 101% of the liquidation value. The Company is
required to redeem all shares of the Preferred Stock on March 31, 2008 at a
price equal to the liquidation value at such date. See "Description of
Preferred Stock."
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 New Preferred Stock, 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 New Preferred Stock 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.
continued on following page
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 PREFERRED STOCK
OLD PREFERRED STOCK......... The Old Preferred Stock was originally issued
and sold on September 30, 1996 in transactions
not registered under the Securities Act, in
reliance upon the exemption provided in Section
4(2) of the Securities Act. Accordingly, the Old
Preferred Stock may not be reoffered, resold or
otherwise pledged, hypothecated or transferred in
the United States unless so registered or unless
an applicable exemption from the registration
requirements of the Securities Act is available.
SUMMARY DESCRIPTION OF THE PREFERRED STOCK AND EXCHANGE DEBENTURES
THE PREFERRED STOCK
DIVIDENDS................... The holders of the Preferred Stock are entitled
to receive dividends, when, as and if declared by
the Board at the rate of 14.5% per annum on the
liquidation value. Dividends on the Preferred
Stock accrete to the liquidation value of the
Preferred Stock until the Cash Pay Date (as
defined). 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 Preferred Stock. See
"Description of Preferred Stock."
LIQUIDATION PREFERENCE...... Liquidation value plus accrued and unpaid
dividends. At March 31, 1998, the liquidation
value was $30.95 per share.
VOTING...................... Holders of the Preferred Stock have no general
voting rights except as provided by law and as
provided in the Certificate of Designations (as
defined) therefor. The holders of Preferred Stock
voting as a class are entitled to elect two
directors if and whenever (i) six consecutive
quarterly dividends after the Fifth Anniversary
(as defined) have not been paid in full, (ii) the
Company has not redeemed the Preferred Stock on
March 31, 2008, (iii) the Company has not offered
to redeem the 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 Preferred Stock or (v) the
Company's Certificate of Incorporation has been
amended in a manner adverse to the holders of
Preferred Stock without such holder's consent.
MANDATORY REDEMPTION........ 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 Preferred Stock at a redemption price equal to
101% of the liquidation value. In addition, the
Company is required to redeem all shares of
Preferred Stock on March 31, 2008 at a price
equal to the liquidation value at such date.
A-2
<PAGE>
[Alternate Page]
OPTIONAL REDEMPTION......... 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 Preferred Stock at a
price of 114.5% of the liquidation value;
provided that the aggregate redemption price of
all the outstanding shares of Preferred Stock
does 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 Preferred Stock at a price
of 107.25% of the liquidation value in 2001
declining annually ratably to 100% in 2004 and
thereafter.
RANKING..................... The Preferred Stock shall, with respect to
dividend rights and rights on liquidation,
dissolution and winding up, rank senior to all
classes or series of equity securities of the
Company, including the Company's common stock,
$0.01 par value ("Common Stock"), and each other
class of capital stock of the Company, the terms
of which provide that such class shall rank
junior to the Preferred Stock or the terms of
which do not specify any rank relative to the
Preferred Stock.
EXCHANGE FEATURE............ Subject to certain conditions, the Company may
issue 14.5% Junior Subordinated Exchange
Debentures in exchange for any or all outstanding
Preferred Stock, at an exchange ratio of $1.00 of
liquidation value of Preferred Stock for $1.00
principal amount of Exchange Debentures.
THE EXCHANGE DEBENTURES
MATURITY DATE............... March 31, 2008
INTEREST RATE............... 14.5% effective annual rate payable quarterly.
Prior to the Cash Pay Date, quarterly interest
will be payable solely in the form of additional
Exchange Debentures. After the Cash Pay Date,
interest will be payable in cash.
OPTIONAL REDEMPTION......... The Securities are redeemable at any time after
September 30, 2001 at the option of the Company,
in whole or in part, at certain redemption prices
set forth herein. In addition, at the option of
the Company, prior to September 30, 1999, the
Company may redeem outstanding Exchange
Debentures, in whole or in part (pro rata from
each holder thereof), at a purchase price equal
to 114.5% of the principal amount of the Exchange
Debentures so redeemed plus accrued and unpaid
cash interest, if any, to the date of redemption
with the proceeds of an Equity Offering.
CHANGE OF CONTROL........... In the event of a Change of Control that
constitutes a Repurchase Event (each, as defined
in the Certificate of Designations), each holder
of Exchange Debentures will have the right to
require the Company to repurchase its Exchange
Debentures
A-3
<PAGE>
[ALTERNATE PAGE]
at a purchase price equal to 101% of the
principal amount of the Exchange Debentures so
redeemed plus accrued and unpaid interest, if
any.
RANKING..................... 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.
CERTAIN COVENANTS........... The Exchange Debentures, if issued, will be
issued pursuant to an indenture which will
contain certain customary covenants which, among
other things, relate to (i) the payment of
principal, premium and interest on the Exchange
Debentures, (ii) the maintenance of an office for
payments, (iii) the appointment of a paying
agent, (iv) lists of Exchange Debenture holders,
(v) the filing of reports, (vi) limitations on
certain payments by the Company and (vii)
limitations on the Company's ability to merge,
consolidate or sell all or substantially all its
assets.
RISK FACTORS
Prospective investors in the Preferred Stock should carefully consider the
factors discussed in detail elsewhere in this Prospectus under the caption
"Risk Factors."
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 New Preferred Stock 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 New Preferred Stock, 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
intermediate purchase of the Old Preferred Stock pursuant to the Resale
Agreement.
The Company will receive no portion of the proceeds of the sales of the
New Preferred Stock 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
PAGE
----
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
===============================================================================
===============================================================================
[BRAND SCAFFOLD SERVICES, INC. LOGO]
BRAND SCAFFOLD
SERVICES, INC.
14.5% SENIOR EXCHANGEABLE PREFERRED
STOCK 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>
*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>
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 -- Purhcase 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 between the Company and Ian R. Alexander
12 -- Statement of Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends
*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 (included on signature page)
*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>
- ----------
* Incorporated herein by reference to exhibit of the same number in the
Registrant's Registration Statement on Form S-1, Registration Number
.
II-2
<PAGE>
(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.
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 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, JUNE 3, 1998.
BRAND SCAFFOLD SERVICES, INC.
June 3, 1998
By: /s/ Ian R. Alexander
-------------------------------------
Ian R. Alexander
Chief Financial Officer,
Vice President, Finance and Secretary
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John M. Monter, Ian R. Alexander and Jeffrey W.
Peterson, jointly and severally, his true and lawful attorneys-in-fact, with
full power of substitution and resubstitution for him and in his name, place
and stead, in any and all capacities, to sign, pursuant to the requirements of
the Securities Act of 1933, the Registration Statement on Form S-1 for BRAND
SCAFFOLD SERVICES, INC. in connection with the Company's registration of its
New Preferred Stock issuable in exchange for the Company's 14.5% Senior
Exchangeable Preferred Stock due 2008, $0.01 par value per share, along with
the Company's 14.5% Junior Subordinated Exchange Debentures due 2008 issuable
upon exchange of the Preferred Stock, and to file the same with the Securities
and Exchange Commission, together with all exhibits thereto and other documents
in connection therewith, and to sign on his behalf and in his stead, in any and
all capacities, any amendments (including post-effective amendments) and
supplements to said Registration Statement, incorporating such changes as any
of the said attorneys-in-fact deems appropriate, in the matter of the proposed
offering by the Company of the securities registered pursuant to said
Registration Statement, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
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 and June 3, 1998
- ----------------------------- President (Principal Executive
John M. Monter Officer)
/s/ Ian R. Alexander Chief Financial Officer, Vice June 3, 1998
- ----------------------------- President, Finance and Secretary
Ian R. Alexander (Principal Financial Officer and
Principal Accounting Officer)
/s/ David L. Jaffe Chairman of the Board June 3, 1998
- -----------------------------
David L. Jaffe
/s/ Robert Bonczek Director June 3, 1998
- -----------------------------
Robert Bonczek
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ James S. Carlisle Director June 3, 1998
- -----------------------------
James S. Carlisle
/s/ Vincent Langone Director June 3, 1998
- -----------------------------
Vincent Langone
/s/ D.P. "Pat" Payne Director June 3, 1998
- -----------------------------
D.P. "Pat" Payne
/s/ Karl R. Wyss Director June 3, 1998
- -----------------------------
Karl R. Wyss
*By:/s/ Ian R. Alexander June 3, 1998
----------------------
Ian R. Alexander
as Attorney-in-fact
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <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 -- Purhcase 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
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
*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 between the Company and Ian R. Alexander
12 -- Statement of Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends
*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 (included on signature page)
*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>
- ----------
* Incorporated herein by reference to exhibit of the same number in the
Registrant's Registration Statement on Form S-1, Registration Number .
E-2
<PAGE>
[Davis Polk & Wardwell Letterhead]
June 15, 1998
Brand Scaffold Services, Inc.
15450 South Outer Highway 40, #270
Chesterfield, Missouri 63017
Ladies and Gentlemen:
We have acted as special counsel to Brand Scaffold Services, Inc. (the
"Company") in connection with (i) the Company's offer (the "Exchange Offer") to
exchange one share of its 14.5% Senior Exchangeable Preferred Stock due 2008,
$0.01 par value per share (the "New Preferred Stock"), which has been
registered under the Securities Act of 1933, as amended, for each outstanding
share of its 14.5% Senior Exchangeable Preferred Stock due 2008, $0.01 par
value per share (the "Old Preferred Stock" and together with the New Preferred
Stock, the "Preferred Stock") and (ii) the registration of $134,081,362
aggregate principal amount of the Company's 14.5% Junior Subordinated Exchange
Debentures due 2008 (the "Exchange Debentures") issuable upon exchange of the
Preferred Stock.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments as we have deemed
necessary or advisable for the purpose of rendering this opinion.
Upon the basis of the foregoing we are of the opinion that:
1. The New Preferred Stock has been duly and validly authorized
by the Company for issuance and when delivered in exchange
for the Old Preferred Stock in accordance with the Exchange
Offer, will be validly issued, fully paid and non-assessable.
<PAGE>
Brand Scaffold Services, Inc. 2 June 15, 1998
2. The Exchange Debentures issuable upon exchange of the
Preferred Stock, when issued in accordance with the terms of
the Certificate of Designations and validly executed,
authorized and delivered in exchange for the Preferred Stock,
will be valid and binding obligations of the Company
enforceable against the Company in accordance with their
terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or similar
laws affecting creditors' rights generally and equitable
principles of general applicability.
We are members of the Bar of the State of New York and the foregoing
opinion is limited to the laws of the State of New York, the federal laws of
the United States of America and the General Corporation Law of the State of
Delaware.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement relating to the Exchange Offer. We also consent to the
reference to us under the caption "Legal Matters" in the Prospectus contained
in such Registration Statement.
Very truly yours,
Davis Polk & Wardwell
<PAGE>
BRAND SCAFFOLD SERVICES, INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
Three Months Ended
Year Ended March 31, 1998
December 31, 1997 (unaudited)
----------------- ------------------
<S> <C> <C>
Income (loss) before income taxes $(5,341) $(1,958)
Interest expense 15,422 4,057
Capitalized interest -- --
One-third of rents payable in the next year 445 116
Preferred stock dividends
------- -------
Income (loss) before income taxes, interest, one-third
rents and preferred stock dividends 10,526 6,131
------- -------
Interest expense 15,422 4,057
One-third of rents payable in the next year 445 116
Preferred stock dividends 4,172 1,128
------- -------
Interest expense plus one-third rents plus preferred
stock dividends 20,039 5,301
------- -------
Ratio of earnings to fixed charges and preferred
stock dividends .52x 1.16x
</TABLE>
<PAGE>
Exhibit 23.1
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.
/s/ ARTHUR ANDERSEN LLP
St. Louis, Missouri
June 10, 1998
<PAGE>
LETTER OF TRANSMITTAL
OFFER TO EXCHANGE
14.5% SENIOR EXCHANGEABLE PREFERRED STOCK
DUE 2008, $0.01 PAR VALUE PER SHARE,
WHICH HAS BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OUTSTANDING
14.5% SENIOR EXCHANGEABLE PREFERRED STOCK DUE 2008,
OF
BRAND SCAFFOLD SERVICES, INC.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL
EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON
______________, 1998 (THE "EXPIRATION DATE")
UNLESS EXTENDED BY BRAND SCAFFOLD SERVICES, INC.
EXCHANGE AGENT:
U.S. TRUST COMPANY OF TEXAS, N.A.
<TABLE>
<CAPTION>
<S> <C> <C>
By Hand or Overnight Facsimile Transmissions: By Registered or Certified
Delivery: (Eligible Institutions Only) Mail:
U.S. Trust Company of (214) 754-1303 U.S. Trust Company of
Texas, N.A. Texas, N.A.
2001 Ross Avenue To Confirm by Telephone 2001 Ross Avenue
Suite 2700 or for Information Call: Suite 2700
Dallas, TX 75201 (214) 754-1255 Dallas, TX 75201
Attention: Corporate Trust Attention: Corporate Trust
Division Division
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA A FACSIMILE
TRANSMISSION TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
The undersigned acknowledges receipt of the Prospectus dated
__________, 1998 (the "PROSPECTUS") of Brand Scaffold Services, Inc. (the
"COMPANY") which, together with this Letter of Transmittal (the "LETTER OF
TRANSMITTAL"), describes the Company's offer (the "EXCHANGE OFFER") to exchange
one share of 14.5% Senior Exchangeable Preferred Stock due 2008, $0.01
<PAGE>
par value per share (the "NEW PREFERRED STOCK") for each share of outstanding
14.5% Senior Exchangeable Preferred Stock due 2008, $0.01 par value per share
(the "OLD PREFERRED STOCK"). The terms of the New Preferred Stock are identical
in all material respects to the terms of the Old Preferred Stock for which they
may be exchanged pursuant to the Exchange Offer, except that the offering of
the New Preferred Stock will have been registered under the Securities Act of
1933, as amended, and, therefore, the New Preferred Stock will not be subject
to certain transfer restrictions and registration rights applicable to the Old
Preferred Stock.
The undersigned has checked the appropriate boxes below and signed
this Letter of Transmittal (unless the undersigned has acknowledged receipt of
and agreed to be bound by this Letter of Transmittal through the ATOP of DTC)
to indicate the action the undersigned desires to take with respect to the
Exchange Offer.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE
PROSPECTUS CAREFULLY BEFORE CHECKING ANY BOX BELOW.
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE
FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE
PROSPECTUS AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE
AGENT.
List below the shares of Old Preferred Stock to which this Letter of
Transmittal relates. If the space provided below is inadequate, the Certificate
Numbers and Number of Shares should be listed on a separate signed schedule
affixed hereto.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD PREFERRED STOCK TENDERED HEREWITH
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NAME(S) AND CERTIFICATE AGGREGATE NUMBER AGGREGATE NUMBER
ADDRESS(ES) OF NUMBERS(S)* OF SHARES OF SHARES
REGISTERED HOLDER(S) REPRESENTED TENDERED**
(PLEASE FILL IN) BY CERTIFICATE(S)*
-------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Total
- ----------------------------------------------------------------------------------------------------------
*Need not be completed by book-entry holders.
**Unless otherwise indicated, the number of shares represented by all Old Preferred Stock Certificates
identified herein or delivered to the Exchange Agent herewith shall be deemed tendered. See Instruction
2.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
This Letter of Transmittal is to be used if certificates for Old
Preferred Stock are to be forwarded herewith.
Unless the context requires otherwise, the term "Holder" for purposes
of this Letter of Transmittal means any person in whose name shares of Old
Preferred Stock are registered on the
2
<PAGE>
books of the Company or any other person who has obtained a properly completed
stock power from the registered holder or any person whose shares of Old
Preferred Stock are held of record by DTC or its nominee who desire to deliver
such shares of Old Preferred Stock by book-entry transfer at DTC.
Holders whose shares of Old Preferred Stock are not immediately
available or who cannot deliver their shares of Old Preferred Stock and all
other documents required hereby to the Exchange Agent on or prior to the
Expiration Date may tender their shares of Old Preferred Stock according to the
guaranteed delivery procedure set forth in the Prospectus under the caption
"The Exchange Offer--Guaranteed Delivery Procedures."
[ ] CHECK HERE IF TENDERED SHARES OF OLD PREFERRED STOCK ARE
BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s)
------------------------------
----------------------------------------------------------
Name of Eligible Institution that Guaranteed Delivery
----------------------------------------------------------
IF DELIVERED BY BOOK-ENTRY TRANSFER:
Account Number
--------------------------------------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE
10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY
AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
------------------------------------------------------
Address:
----------------------------------------------------
-----------------------------------------------------------
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer,
the undersigned hereby tenders to the Company the above-described shares of Old
Preferred Stock. Subject to, and effective upon, the acceptance for exchange of
the shares of Old Preferred Stock tendered herewith, the undersigned hereby
exchanges, assigns and transfers to, or upon the order of, the Company all
right, title and interest in and to such shares of Old Preferred Stock. The
undersigned hereby irrevocably constitutes and appoints the Exchange Agent as
the true and lawful agent and attorney-in-fact of the undersigned (with full
knowledge that said Exchange Agent acts as the agent of the undersigned in
connection with the Exchange Offer) to cause the shares of Old Preferred Stock
to be assigned, transferred and exchanged. The undersigned represents and
warrants that it has full power and authority to tender, exchange, assign and
transfer the shares of Old Preferred Stock and to acquire shares of New
Preferred Stock issuable
3
<PAGE>
upon the exchange of such tendered shares of Old Preferred Stock, and that,
when the same are accepted for exchange, the Company will acquire good and
unencumbered title to the tendered shares of Old Preferred Stock, free and
clear of all liens, restrictions, charges and encumbrances and not subject to
any adverse claim. The undersigned also warrants that it will, upon request,
execute and deliver any additional documents deemed by the Exchange Agent or
the Company to be necessary or desirable to complete the exchange, assignment
and transfer of tendered shares of Old Preferred Stock or transfer ownership of
such shares of Old Preferred Stock on the account books maintained by The
Depository Trust Company.
The Exchange Offer is subject to certain conditions as set forth in
the Prospectus under the caption "The Exchange Offer." The undersigned
recognizes that as a result of these conditions (which may be waived, in whole
or in part, by the Company), as more particularly set forth in the Prospectus,
the Company may not be required to exchange any of the shares of Old Preferred
Stock tendered hereby and, in such event, the shares of Old Preferred Stock not
exchanged will be returned to the undersigned at the address shown below the
signature of the undersigned.
By tendering, each holder of Old Preferred Stock represents to the
Company that (i) the New Preferred Stock acquired pursuant to the Exchange
Offer is being obtained in the ordinary course of business of the person
receiving such Preferred Stock, whether or not such person is such holder, (ii)
neither the holder of Old Preferred Stock nor any such other person has an
arrangement or understanding with any person to participate in the distribution
of such New Preferred Stock, (iii) if the holder is not a broker-dealer or is a
broker-dealer but will not receive shares of New Preferred Stock for its own
account in exchange for shares of Old Preferred Stock, neither the holder nor
any such other person is engaged in or intends to participate in a distribution
of the New Preferred Stock 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 of 1933, as amended (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 shares of New Preferred Stock for its
own account in exchange for shares of Old Preferred Stock, it represents that
the shares of Old Preferred Stock to be exchanged for the shares of New
Preferred Stock were acquired by it as a result of market-making activities or
other trading activities, and acknowledges that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such shares of New Preferred Stock. By acknowledging that it will deliver and
by delivering a prospectus meeting the requirements of the Securities Act in
connection with any resale of such shares of New Preferred Stock, the
undersigned is not deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
All authority herein conferred or agreed to be conferred shall survive
the death, bankruptcy or incapacity of the undersigned and every obligation of
the undersigned hereunder shall be binding upon the heirs, personal
representatives, successors and assigns of the undersigned. Tendered shares of
Old Preferred Stock may be withdrawn at any time prior to the Expiration Date.
Certificates for all New Preferred Stock delivered in exchange for
tendered Old Preferred Stock and any Old Preferred Stock delivered herewith but
not exchanged, in each case registered in the name of the undersigned, shall be
delivered to the undersigned at the address shown below the signature of the
undersigned.
4
<PAGE>
TENDERING HOLDER(S) SIGN HERE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Signature(s) of Holder(s)
Dated: ______________, 1998
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
certificate(s) for shares of Old Preferred Stock or by any person(s) authorized
to become registered holder(s) by endorsements and documents transmitted
herewith or, if the shares of Old Preferred Stock are held of record by DTC or
its nominee, the person in whose name such shares of Old Preferred Stock are
registered on the books of DTC. If signature by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, please set forth the
full title of such person.) See Instruction 3.
Name(s):
-----------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Please print)
Capacity (full title):
---------------------------------------------------------
Address:
-----------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Including Zip Code)
Area Code and Telephone No.
----------------------------------------------------
- -------------------------------------------------------------------------------
Tax Identification No.
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED--SEE INSTRUCTION 3)
Authorized Signature:
----------------------------------------------------------
Name:
--------------------------------------------------------------------------
Title:
-------------------------------------------------------------------------
Address:
-----------------------------------------------------------------------
Name of Firm:
------------------------------------------------------------------
Area Code and Telephone No.
----------------------------------------------------
5
<PAGE>
Dated: ____________, 1998
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1 DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES.
Certificates for all physically delivered shares of Old Preferred Stock or
confirmation of any book-entry transfer to the Exchange Agent's account at The
Depository Trust Company of shares of Old Preferred Stock tendered by
book-entry transfer, as well as a properly completed and duly executed copy of
this Letter of Transmittal or facsimile thereof (unless the holder of such
shares of Old Preferred Stock acknowledges receipt of and agrees to be bound by
this Letter of Transmittal through the ATOP of DTC), and any other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
at any of its addresses set forth herein on or prior to the Expiration Date.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE SHARES OF
OLD PREFERRED STOCK AND ANY OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND
RISK OF THE HOLDER AND, EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL
BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF SUCH
DELIVERY IS BY MAIL, IT IS SUGGESTED THAT REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, BE USED.
Holders whose shares of Old Preferred Stock are not immediately
available or who cannot deliver their shares of Old Preferred Stock and all
other required documents to the Exchange Agent on or prior to the Expiration
Date or comply with book-entry transfer procedures on a timely basis may tender
their shares of Old Preferred Stock pursuant to the guaranteed delivery
procedure set forth in the Prospectus under "The Exchange Offer--Guaranteed
Delivery Procedures." Pursuant to such procedure: (i) such tender must be made
by or through an Eligible Institution (as defined therein); (ii) on or prior to
the Expiration Date the Exchange Agent must have received from such Eligible
Institution, a letter, telegram or facsimile transmission setting forth the
name and address of the tendering holder, the names in which such shares of Old
Preferred Stock are registered, and, if possible, the certificate numbers of
the shares of Old Preferred Stock to be tendered; and (iii) all tendered shares
of Old Preferred Stock (or a confirmation of any book-entry transfer of such
shares of Old Preferred Stock into the Exchange Agent's account at The
Depository Trust Company) as well as this Letter of Transmittal (unless the
holder of such shares of Old Preferred Stock acknowledges receipt of and agrees
to be bound by this Letter of Transmittal through the ATOP of DTC) and all
other documents required by this Letter of Transmittal must be received by the
Exchange Agent within five trading days after the date of execution of such
letter, telegram or facsimile transmission, all as provided in the Prospectus
under the caption "The Exchange Offer--Guaranteed Delivery Procedures."
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders, by execution of this Letter of Transmittal (or
facsimile thereof), shall waive any right to receive notice of the acceptance
of the shares of Old Preferred Stock for exchange.
2 PARTIAL TENDERS; WITHDRAWALS. If less than the entire number of
shares of Old Preferred Stock evidenced by a submitted certificate is tendered,
the tendering holder must fill in the aggregate number of shares tendered in
the box entitled "Aggregate Number of Shares Tendered." A newly issued
certificate for the aggregate number of shares of Old Preferred Stock submitted
but not tendered will be sent to such holder as soon as practicable after the
Expiration
6
<PAGE>
Date. All shares of Old Preferred Stock delivered to the Exchange Agent will be
deemed to have been tendered unless otherwise indicated.
Tenders of shares of Old Preferred Stock pursuant to the Exchange
Offer are irrevocable, except that shares of Old Preferred Stock tendered
pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date. To be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Exchange
Agent. Any such notice of withdrawal must specify the person named in the
Letter of Transmittal as having tendered shares of Old Preferred Stock to be
withdrawn, the number of shares of Old Preferred Stock delivered for exchange,
a statement that such holder is withdrawing its election to have such shares of
Old Preferred Stock exchanged, and the name of the registered holder of such
shares of Old Preferred Stock, and must be signed by the holder in the same
manner as the original signature on the Letter of Transmittal (including any
required signature guarantees) or be accompanied by evidence satisfactory to
the Company that the person withdrawing the tender has succeeded to the
beneficial ownership of the shares of Old Preferred Stock being withdrawn. The
Exchange Agent will return the properly withdrawn shares of Old Preferred Stock
promptly following receipt of notice of withdrawal. If shares of Old Preferred
Stock have been tendered pursuant to the procedure for book-entry transfer, any
notice of withdrawal must specify the name and number of the account at The
Depository Trust Company to be credited with the withdrawn shares of Old
Preferred Stock or otherwise comply with The Depository Trust Company's
procedures.
3 SIGNATURE ON THIS LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed
by the registered holder(s) of the shares of Old Preferred Stock tendered
hereby, the signature must correspond with the name(s) as written on the face
of certificates without alteration, enlargement or any change whatsoever.
If any of the shares of Old Preferred Stock tendered hereby are owned
of record by two or more joint owners, all such owners must sign this Letter of
Transmittal.
If a number of shares of Old Preferred Stock registered in different
names are tendered, it will be necessary to complete, sign and submit as many
separate copies of this Letter of Transmittal as there are different
registrations of shares of Old Preferred Stock.
When this Letter of Transmittal is signed by the registered holder or
holders of shares of Old Preferred Stock listed and tendered hereby, no
endorsements of certificates or separate written instruments of transfer or
exchange are required.
If this Letter of Transmittal is signed by a person other than the
registered holder or holders of the shares of Old Preferred Stock listed, such
shares of Old Preferred Stock must be endorsed or accompanied by separate
written instruments of transfer or exchange in form satisfactory to the Company
and duly executed by the registered holder, in either case signed exactly as
the name or names of the registered holder or holders appear(s) on the shares
of Old Preferred Stock.
If this Letter of Transmittal, any certificates or separate written
instruments of transfer or exchange 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, proper evidence
satisfactory to the Company of their authority so to act must be submitted.
7
<PAGE>
Endorsements on certificates or signatures on separate written
instruments of transfer or exchange required by this Instruction 3 must be
guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal need not be guaranteed by an
Eligible Institution, provided the shares of Old Preferred Stock are tendered:
(i) by a registered holder of such shares of Old Preferred Stock and the
certificates for shares of New Preferred Stock to be issued in exchange
therefor are to be issued (or any untendered shares of Old Preferred Stock are
to be reissued) to the registered holder; or (ii) for the account of any
Eligible Institution.
4 TRANSFER TAXES. The Company shall pay all transfer taxes, if any,
applicable to the transfer and exchange of shares of Old Preferred Stock to it
or its order pursuant to the Exchange Offer. If, however, New Preferred Stock
is to be delivered to, or is to be registered or issued in the name of, any
person other than the registered holder of the Old Preferred Stock tendered
hereby, or if a transfer tax is imposed for any reason other than the transfer
of Old Preferred Stock to the Company or its order pursuant to the Exchange
Offer, the amount of any such transfer taxes (whether imposed on the registered
holder or any other person) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exception therefrom is not
submitted herewith the amount of such transfer taxes will be billed directly to
such tendering holder.
Except as provided in this Instruction 4, it will not be necessary for
transfer tax stamps to be affixed to the shares of Old Preferred Stock listed
in this Letter of Transmittal.
5 WAIVER OF CONDITIONS. The Company reserves the absolute right to
waive, in whole or in part, any of the conditions to the Exchange Offer set
forth in the Prospectus.
6 MUTILATED, LOST, STOLEN OR DESTROYED SHARES OF OLD PREFERRED STOCK.
Any holder whose shares of Old Preferred Stock have been mutilated, lost,
stolen or destroyed should contact the Exchange Agent at the address indicated
below for further instructions.
7 REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to
the procedure for tendering, as well as requests for additional copies of the
Prospectus and this Letter of Transmittal, may be directed to the Exchange
Agent at the address and telephone number set forth below. In addition, all
questions relating to the Exchange Offer, as well as requests for assistance or
additional copies of the Prospectus and this Letter of Transmittal, may be
directed to the Company at 15450 South Outer Highway 40, #270, Chesterfield,
Missouri 63017, Attention:
Jeff Peterson.
8 IRREGULARITIES. All questions as to the validity, form, eligibility
(including time of receipt), and acceptance of Letters of Transmittal or shares
of Old Preferred Stock will be resolved by the Company, whose determination
will be final and binding. The Company reserves the absolute right to reject
any or all Letters of Transmittal or tenders that are not in proper form or the
acceptance of which would, in the opinion of the Company's counsel, be
unlawful. The Company also reserves the right to waive any irregularities or
conditions of tender as to the particular shares of Old Preferred Stock covered
by any Letter of Transmittal or tendered pursuant to such letter. None of the
Company, the Exchange Agent or any other person will be under any duty to give
notification of any defects or irregularities in tenders or incur any liability
for failure to give any such notification. The Company's interpretation of the
terms and conditions of the Exchange Offer shall be final and binding.
8
<PAGE>
9 DEFINITIONS. Capitalized terms used in this Letter of Transmittal
and not otherwise defined have the meanings given in the Prospectus.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE THEREOF (TOGETHER
WITH CERTIFICATES FOR SHARES OF OLD PREFERRED STOCK OR CONFIRMATION OF
BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS) OR A NOTICE OF GUARANTEED
DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION
DATE UNLESS THE EXCHANGE OFFER IS ACCEPTED THROUGH THE ATOP OF DTC.
9
<PAGE>
NOTICE OF GUARANTEED DELIVERY
FOR
OFFER TO EXCHANGE
14.5% SENIOR EXCHANGEABLE PREFERRED STOCK
DUE 2008, $0.01 PAR VALUE PER SHARE
WHICH HAS BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OUTSTANDING
14.5% SENIOR EXCHANGEABLE PREFERRED STOCK
DUE 2008, $0.01 PAR VALUE PER SHARE
OF
BRAND SCAFFOLD SERVICES, INC.
Registered holders of outstanding 14.5% Senior Exchangeable Preferred
Stock due 2008, $0.01 par value per share (the "OLD PREFERRED STOCK") who wish
to tender their shares of Old Preferred Stock in exchange for a like amount of
shares of 14.5% Senior Exchangeable Preferred Stock due 2008, $0.01 par value
per share (the "NEW PREFERRED STOCK"), which have been registered under the
Securities Act of 1933, as amended, and, in each case, whose shares of Old
Preferred Stock are not immediately available or who cannot deliver their
shares of Old Preferred Stock, Letter of Transmittal (or any other required
documents) to U.S. Trust Company of Texas, N.A. (the "EXCHANGE AGENT") prior to
the Expiration Date, may use this Notice of Guaranteed Delivery or one
substantially equivalent hereto. This Notice of Guaranteed Delivery may be
delivered by hand, sent by facsimile transmission (receipt confirmed by
telephone and an original delivered by guaranteed overnight delivery) or mailed
to the Exchange Agent. See "The Exchange Offer--Guaranteed Delivery Procedures"
in the Prospectus.
<TABLE>
<CAPTION>
<S> <C> <C>
By Hand or Overnight Facsimile Transmissions: By Registered or Certified
Delivery: (Eligible Institutions Only) Mail:
U.S. Trust Company of (214) 754-1303 U.S. Trust Company of
Texas, N.A. Texas, N.A.
2001 Ross Avenue To Confirm by Telephone 2001 Ross Avenue
Suite 2700 or for Information Call: Suite 2700
Dallas, TX 75201 (214) 754-1255 Dallas, TX 75201
Attention: Corporate Trust Attention: Corporate Trust
Division Division
</TABLE>
Delivery of this Notice of Guaranteed Delivery to an address other
than as set forth above or transmission of instructions via a facsimile
transmission to a number other than as set forth above will not constitute a
valid delivery.
<PAGE>
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on the Letter of Transmittal is required to be
guaranteed by an Eligible Institution, such signature guarantee must appear in
the applicable space provided on the Letter of Transmittal for Guarantee of
Signatures.
THE FOLLOWING GUARANTEE MUST BE COMPLETED
GUARANTEE OF DELIVERY
(NOTE TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm that is a member of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc. or
a commercial bank or trust company having an office, branch, agency or
correspondent in the United States, hereby guarantees to deliver to the
Exchange Agent at one of its addresses set forth above, the certificates
representing the shares of Old Preferred Stock, together with a properly
completed and duly executed Letter of Transmittal (or facsimile thereof)
(unless the undersigned has acknowledged receipt of and agreed to be bound by
such Letter of Transmittal through ATOP OF DTC), with any required signature
guarantees, and any other documents required by the Letter of Transmittal
within five trading days after the date of execution of this Notice of
Guaranteed Delivery.
Name of Firm:
------------------ ------------------------------
Authorized Signature
Address: Title:
----------------------- -------------------------
Name:
- ------------------------------- -------------------------
(Zip Code) (Please type or print)
Area Code and Telephone Number: Date:
-------------------------
- -------------------------------
NOTE: DO NOT SEND SHARES OF OLD PREFERRED STOCK WITH THIS NOTICE
OF GUARANTEED DELIVERY. SHARES OF OLD PREFERRED STOCK SHOULD
BE SENT WITH YOUR LETTER OF TRANSMITTAL.
2
<PAGE>
INSTRUCTION TO REGISTERED HOLDER AND/OR
BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM OWNER
OF
BRAND SCAFFOLD SERVICES, INC.
14.5% SENIOR EXCHANGEABLE PREFERRED STOCK
DUE 2008, $0.01 PAR VALUE PER SHARE
TO REGISTERED HOLDER AND/OR PARTICIPANT OF THE BOOK-ENTRY TRANSFER FACILITY:
The undersigned hereby acknowledges receipt of the Prospectus dated
____________, 1998 (the "PROSPECTUS") of Brand Scaffold Services, Inc., a
Delaware corporation (the "COMPANY"), and the accompanying Letter of
Transmittal (the "LETTER OF TRANSMITTAL"), together constituting the Company's
offer (the "EXCHANGE OFFER"). Capitalized terms used but not defined herein
have the meaning ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or book-entry
transfer facility participant, as to the action to be taken by you relating to
the Exchange Offer with respect to the Old Preferred Stock held by you for the
account of the undersigned.
The aggregate number of shares of Old Preferred Stock held by you for
the account of the undersigned is (fill in amount):
___________ shares of the 14.5% Senior Exchangeable Preferred Stock
due 2008, $0.01 par value per share
With respect to the Exchange Offer, the undersigned hereby instructs
you (check appropriate box):
[ ] To TENDER the following shares of Old Preferred Stock held by you
for the account of the undersigned (insert number of shares of Old Preferred
Stock to be tendered, if any):
___________ shares of the 14.5% Senior Exchangeable Preferred Stock
due 2008, $0.01 par value per share
[ ] NOT to TENDER any shares of Old Preferred Stock held by you for
the account of the undersigned.
If the undersigned instructs you to tender the shares of Old Preferred
Stock held by you for the account of the undersigned, it is understood that you
are authorized to make, on behalf of the undersigned (and the undersigned, by
its signature below, hereby makes to you), the representations and warranties
contained in the Letter of Transmittal that are to be made with respect to the
undersigned as a beneficial owner, including but not limited to the
representations, that (i) the shares of New Preferred Stock acquired pursuant
to the Exchange Offer are being obtained in the ordinary course of business of
the undersigned, (ii) neither the undersigned nor any such other person has an
arrangement or understanding with any person to participate in the distribution
of such shares of New Preferred Stock, (iii) if the undersigned is not a
broker-dealer,
<PAGE>
or is a broker-dealer but will not receive shares of New Preferred Stock for
its own account in exchange for shares of Old Preferred Stock, neither the
undersigned nor any such other person is engaged in or intends to participate
in the distribution of such shares of New Preferred Stock and (iv) neither the
undersigned nor any such person is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act of 1933, as amended (the
"SECURITIES ACT") or if the undersigned is an "affiliate", that the undersigned
will comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable. If the undersigned is a broker-dealer
(whether or not it is also an "affiliate") that will receive shares of New
Preferred Stock for its own account in exchange for shares of Old Preferred
Stock, it represents that such shares of Old Preferred Stock were acquired as a
result of market-making activities or other trading activities, and it
acknowledges that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such shares of New Preferred
Stock. By acknowledging that it will deliver and by delivering a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such shares of New Preferred Stock, the undersigned is not deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
SIGN HERE
Name of beneficial owner(s):
------------------------------------------------
Signature(s):
-----------------------------------------------------------------
Name(s) (please print):
-----------------------------------------------------
Address:
-------------------------------------------------------------------
- -------------------------------------------------------------------------------
Telephone Number:
-----------------------------------------------------------
Taxpayer Identification or Social Security Number:
----------------------------
- -------------------------------------------------------------------------------
Date:
-----------------------------------------------------------------------
2
<PAGE>
OFFER TO EXCHANGE
14.5% SENIOR EXCHANGEABLE PREFERRED STOCK
DUE 2008, $0.01 PAR VALUE PER SHARE,
WHICH HAS BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OUTSTANDING
14.5% SENIOR EXCHANGEABLE PREFERRED STOCK
DUE 2004, $0.01 PAR VALUE PER SHARE,
OF
BRAND SCAFFOLD SERVICES, INC.
To Our Clients:
We are enclosing herewith a Prospectus, dated ____________, 1998, of
Brand Scaffold Services, Inc. (the "COMPANY"), a Delaware corporation, and a
related Letter of Transmittal (which together constitute the "EXCHANGE OFFER")
relating to the offer by the Company to exchange its 14.5% Senior Exchangeable
Preferred Stock due 2008, $0.01 par value per share (the "NEW PREFERRED
STOCK"), pursuant to an offering registered under the Securities Act of 1933,
as amended (the "SECURITIES ACT"), for a like number of shares of its issued
and outstanding 14.5% Senior Exchangeable Preferred Stock due 2008, $0.01 par
value per share (the "OLD PREFERRED STOCK") upon the terms and subject to the
conditions set forth in the Exchange Offer.
PLEASE NOTE THAT THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON _________, 1998, UNLESS EXTENDED.
The Exchange Offer is not conditioned upon any minimum number of
shares of Old Preferred Stock being tendered.
We are the holder of record and/or participant in the book-entry
transfer facility of Old Preferred Stock held by us for your account. A tender
of such Old Preferred Stock can be made only by us as the record holder and/or
participant in the book-entry transfer facility and pursuant to your
instructions. The Letter of Transmittal is furnished to you for your
information only and cannot be used by you to tender Old Preferred Stock held
by us for your account.
We request instructions as to whether you wish to tender any or all of
the shares of Old Preferred Stock held by us for your account pursuant to the
terms and conditions of the Exchange Offer. We also request that you confirm
that we may on your behalf make the representations contained in the Letter of
Transmittal.
Pursuant to the Letter of Transmittal, each holder of Old Preferred
Stock will represent to the Company that (i) the shares of New Preferred Stock
acquired in the Exchange Offer are being obtained in the ordinary course of
business of the person receiving such New Preferred Stock,
<PAGE>
whether or not such person is such holder, (ii) neither the holder of the Old
Preferred Stock nor any such other person has an arrangement or understanding
with any person to participate in the distribution of such New Preferred Stock,
(iii) if the holder is not a broker-dealer or is a broker-dealer but will not
receive shares of New Preferred Stock for its own account in exchange for
shares of Old Preferred Stock, neither the holder nor any such other person is
engaged in or intends to participate in a distribution of the shares of New
Preferred Stock 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 for its own account in exchange
for shares of Old Preferred Stock, we will represent on behalf of such
broker-dealer that the shares of Old Preferred Stock to be exchanged for the
shares of New Preferred Stock were acquired by it as a result of market-making
activities or other trading activities, and acknowledged on behalf of such
broker-dealer that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such shares of New Preferred
Stock. By acknowledging that it will deliver and by delivering a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such shares of New Preferred Stock, the undersigned is not deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
Very truly yours,
2
<PAGE>
OFFER TO EXCHANGE
14.5% SENIOR EXCHANGEABLE PREFERRED STOCK
DUE 2008, $0.01 PAR VALUE PER SHARE
WHICH HAS BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OUTSTANDING
14.5% SENIOR EXCHANGEABLE PREFERRED STOCK
DUE 2008, $0.01 PAR VALUE PER SHARE
OF
BRAND SCAFFOLD SERVICES, INC.
To Registered Holders and The Depository
Trust Company Participants:
We are enclosing herewith the material listed below relating to the
offer by Brand Scaffold Services, Inc., a Delaware corporation (the "COMPANY"),
to exchange its 14.5% Senior Exchangeable Preferred Stock due 2008, $0.01 par
value per share (the "NEW PREFERRED STOCK"), pursuant to an offering registered
under the Securities Act of 1933, as amended (the "SECURITIES ACT"), for a like
number of shares of its issued and outstanding shares of 14.5% Senior
Exchangeable Preferred Stock due 2008, $0.01 par value per share (the "OLD
PREFERRED STOCK") upon the terms and subject to the conditions set forth in the
Company's Prospectus, dated _________, 1998, and the related Letter of
Transmittal (which together constitute the "EXCHANGE OFFER").
Enclosed herewith are copies of the following documents:
1. Prospectus dated ____________, 1998;
2. Letter of Transmittal;
3. Notice of Guaranteed Delivery;
4. Instruction to Registered Holder and/or Book-Entry Transfer Participant
from Owner; and
5. Letter which may be sent to your clients for whose account you hold
shares of Old Preferred Stock in your name or in the name of your
nominee, to accompany the instruction form referred to above, for
obtaining such client's instruction with regard to the Exchange Offer.
WE URGE YOU TO CONTACT YOUR CLIENTS PROMPTLY. PLEASE NOTE THAT THE
EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ____________,
UNLESS EXTENDED.
<PAGE>
The Exchange Offer is not conditioned upon any minimum number of
shares of Old Preferred Stock being tendered.
Pursuant to the Letter of Transmittal, each holder of shares of Old
Preferred Stock will represent to the Company that (i) the shares of New
Preferred Stock acquired in the Exchange Offer are being obtained in the
ordinary course of business of the person receiving such shares of New
Preferred Stock, whether or not such person is such holder, (ii) neither the
holder of the shares of Old Preferred Stock nor any such other person has an
arrangement or understanding with any person to participate in the distribution
of such shares of New Preferred Stock, (iii) if the holder is not a
broker-dealer or is a broker-dealer but will not receive shares of New
Preferred Stock for its own account in exchange for shares of Old Preferred
Stock, neither the holder nor any such other person is engaged in or intends to
participate in a distribution of the shares of New Preferred Stock 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 shares of New Preferred Stock for its own account in exchange
for shares of Old Preferred Stock, you will represent on behalf of such
broker-dealer that the shares of Old Preferred Stock to be exchanged for the
shares of New Preferred Stock were acquired by it as a result of market-making
activities or other trading activities, and acknowledge on behalf of such
broker-dealer that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such shares of New Preferred
Stock. By acknowledging that it will deliver and by delivering a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such shares of New Preferred Stock, the undersigned is not deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
The enclosed Instruction to Registered Holder and/or Book-Entry
Transfer Participant from Owner contains an authorization by the beneficial
owners of the shares of Old Preferred Stock for you to make the foregoing
representations.
The Company will not pay any fee or commission to any broker or dealer
or to any other persons (other than the Exchange Agent) in connection with the
solicitation of tenders of shares of Old Preferred Stock pursuant to the
Exchange Offer. The Company will pay or cause to be paid any transfer taxes
payable on the transfer of shares of Old Preferred Stock to it, except as
otherwise provided in Instruction 4 of the enclosed Letter of Transmittal.
Additional copies of the enclosed material may be obtained from the
undersigned.
Very truly yours,
U.S. TRUST COMPANY OF TEXAS, N.A.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU THE
AGENT OF BRAND SCAFFOLD SERVICES, INC. OR U.S. TRUST COMPANY OF TEXAS, N.A. OR
AUTHORIZE YOU TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON THEIR BEHALF IN
CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH
AND THE STATEMENTS CONTAINED THEREIN.
2
