<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 4, 1999
REGISTRATION NO. 333-81139
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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AMERICAN PLUMBING & MECHANICAL, INC.*
(Exact name of Registrant as specified in its charter)
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DELAWARE 1711 76-0577626
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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1905 LOUIS HENNA BLVD.
ROUND ROCK, TEXAS 78664
(512) 246-5200
(Address, including zip code, and telephone number,
including area code, of Registrant's Principal Executive Offices)
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DAVID C. BAGGETT
SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND SECRETARY
1950 LOUIS HENNA BLVD.
ROUND ROCK, TEXAS 78664
(512) 246-5200
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
DAVID P. OELMAN
ANDREWS & KURTH L.L.P.
600 TRAVIS, SUITE 4200
HOUSTON, TEXAS 77002
(713) 220-4200
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
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(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. [ ]
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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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
* The subsidiaries of American Plumbing & Mechanical, Inc. will guarantee the
securities being registered hereby and therefore are also registrants.
Information about these additional registrants appears on the following pages.
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<PAGE> 2
ADDITIONAL REGISTRANTS
CHRISTIANSON ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
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TEXAS 1711 74-1588887
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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CHRISTIANSON SERVICE COMPANY
(Exact name of registrant as specified in its charter)
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TEXAS 1711 74-2810094
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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G.G.R. LEASING CORPORATION
(Exact name of registrant as specified in its charter)
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TEXAS 1711 74-2250428
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
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R.C.R. PLUMBING, INC.
(Exact name of registrant as specified in its charter)
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CALIFORNIA 1711 95-3139393
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
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J.A. CROSON COMPANY
(Exact name of registrant as specified in its charter)
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OHIO 1711 31-0784594
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
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<PAGE> 3
FRANKLIN FIRE SPRINKLER COMPANY
(Exact name of registrant as specified in its charter)
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OHIO 1711 31-1232113
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
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J.A. CROSON COMPANY OF FLORIDA
(Exact name of registrant as specified in its charter)
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FLORIDA 1711 59-2944806
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
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TEEPE'S RIVER CITY MECHANICAL, INC.
(Exact name of registrant as specified in its charter)
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OHIO 1711 31-1056529
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
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KEITH RIGGS PLUMBING, INC.
(Exact name of registrant as specified in its charter)
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ARIZONA 1711 86-0265707
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
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POWER PLUMBING, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 1711 76-0255723
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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<PAGE> 4
NELSON MECHANICAL CONTRACTORS, INC.
(Exact name of registrant as specified in its charter)
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FLORIDA 1711 59-1266315
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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SHERWOOD MECHANICAL, INC.
(Exact name of registrant as specified in its charter)
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CALIFORNIA 1711 33-0085731
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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MILLER MECHANICAL CONTRACTORS, INC.
(Exact name of registrant as specified in its charter)
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GEORGIA 1711 58-1303603
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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<PAGE> 5
INFORMATION CONTAINED HEREIN is subject to completion or amendment. A
registration statement relating to these securities has been filed with the SEC.
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 registration or qualification
under the securities laws of any such state.
SUBJECT TO COMPLETION, DATED AUGUST , 1999
PROSPECTUS
$125,000,000
[AMERICAN PLUMBING & MECHANICAL, INC. LOGO]
AMERICAN PLUMBING & MECHANICAL, INC.
OFFER TO EXCHANGE
$1,000 PRINCIPAL AMOUNT OF 11 5/8% SERIES B NOTES DUE 2008
FOR EACH $1,000 PRINCIPAL AMOUNT OF EXISTING
11 5/8% SERIES A NOTES DUE 2008
($125,000,000 IN PRINCIPAL AMOUNT OUTSTANDING)
THE EXCHANGE OFFER
- - Expires 5:00 p.m., New York City time, , 1999, unless extended.
- - The exchange offer is not conditioned upon a minimum aggregate principal
amount of existing notes being tendered.
- - All existing notes tendered according to the procedures in this prospectus and
not withdrawn will be exchanged.
- - The exchange offer is not subject to any condition other than that it not
violate applicable laws or any applicable interpretation of the staff of the
SEC.
THE EXCHANGE NOTES
- - The terms of the exchange notes to be issued in the exchange offer are
substantially identical to the existing notes, except that we have registered
the exchange notes with the SEC. In addition, the exchange notes will not be
subject to the transfer restrictions the existing notes are subject to, and
provisions relating to an increase in the stated interest rate on the existing
notes will be eliminated.
- - The exchange notes will be senior subordinated obligations of American
Plumbing & Mechanical, Inc. They are subordinate to our senior debt. As of
, 1999, we had senior debt outstanding of approximately $
million.
- - Interest on the exchange notes will accrue from , 1999 at the rate
of 11 5/8% per year, payable semi-annually in arrears on each April 15 and
October 15, beginning October 15, 1999.
- - The exchange notes will be fully and unconditionally guaranteed by our
guarantor subsidiaries.
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YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 11 OF THIS
PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
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NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS , 1999.
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TABLE OF CONTENTS
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Summary..................................................... 1
Risk Factors................................................ 12
Forward-Looking Statements.................................. 22
The Exchange Offer.......................................... 23
The Company................................................. 33
Use of Proceeds............................................. 36
Capitalization.............................................. 37
Selected Historical Financial Data.......................... 38
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 40
Business.................................................... 58
Management.................................................. 71
Certain Transactions........................................ 75
Principal Stockholders...................................... 84
Description of Other Indebtedness........................... 85
Description of The Notes.................................... 87
Registration Rights......................................... 122
Plan of Distribution........................................ 122
Legal Matters............................................... 123
Experts..................................................... 123
Where You Can Find More Information......................... 123
Index to Financial Statements............................... F-1
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SUMMARY
This summary highlights some information from this prospectus. For a more
complete understanding of this exchange offer, we encourage you to read the
detailed information appearing elsewhere in this prospectus and to consult with
your own legal and tax advisors.
In this prospectus, the terms "we," "us," "our," "our company" and "AMPAM"
refer to American Plumbing & Mechanical, Inc., including the founding companies
unless the context otherwise requires. The term "founding companies" refers to
Christianson Enterprises, Inc., G.G.R. Leasing Corporation and Christianson
Service Company (collectively, "Christianson"), R.C.R. Plumbing, Inc. ("RCR"),
Teepe's River City Mechanical, Inc. ("Teepe's"), Keith Riggs Plumbing, Inc.
("Keith Riggs"), J.A. Croson Company and Franklin Fire Sprinkler Company,
(collectively, "Croson Ohio"), J.A. Croson Company of Florida ("Croson
Florida"), Power Plumbing, Inc. and subsidiaries ("Power"), Nelson Mechanical
Contractors, Inc. ("Nelson"), Sherwood Mechanical, Inc. ("Sherwood") and Miller
Mechanical Contractors, Inc. ("Miller"). The following summary contains basic
information about this exchange offer. It may not contain all the information
that is important to you.
THE EXCHANGE OFFER
On May 19, 1999, we completed a private offering of 11 5/8% Senior
Subordinated Notes due 2008. The notes were sold for a total purchase price of
$122,417,500.
We entered into a registration rights agreement with the initial purchasers
in the private offering in which we agreed to deliver to you this prospectus and
to use our best efforts to complete the exchange offer by November 15, 1999.
This exchange offer entitles you to exchange your notes for notes with identical
terms that are registered with the SEC. If the exchange offer is not completed
by November 15, 1999, the interest rate on the notes will be increased by 0.25%
per year for each 90-day period during which the exchange offer is not
completed. The maximum amount by which the interest rate will be increased is
0.5% in total. After the exchange offer is complete, you will no longer be
entitled to any exchange or registration rights for your notes. You should read
the discussion under the heading "The Exchange Offer" beginning on page and
"Description of the Notes" beginning on page 83 for further information about
the exchange notes.
The Exchange Offer......... We are offering to exchange up to $125,000,000 of
the exchange notes for up to $125,000,000 of the
existing notes. Existing notes may be exchanged
only in $1,000 increments.
The terms of the exchange notes are identical in
all material respects to the existing notes except
the exchange notes will not be subject to transfer
restrictions and holders of exchange notes will
have no registration rights. Also, the exchange
notes will not contain provisions for an increase
in their stated interest rate.
Resale..................... We believe the notes issued in the exchange offer
may be offered for resale, resold and otherwise
transferred by you without compliance with the
registration and prospectus delivery provisions of
the Securities Act provided that:
- the notes received in the exchange offer are
acquired in the ordinary course of your business;
- you are not participating and have no
understanding with any person to participate in
the distribution of the notes issued to you in
the exchange offer; and
- you are not an affiliate of ours.
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Each broker-dealer issued notes in the exchange
offer for its own account in exchange for notes
acquired by the broker-dealer as a result of
market-making or other trading activities must
acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in
connection with any resale of the notes issued in
the exchange offer. A broker-dealer may use this
prospectus for an offer to resell, resale or other
retransfer of the notes issued to it in the
exchange offer.
Expiration Date............ 5:00 p.m., New York City time, on , 1999,
unless we extend the exchange offer. It is possible
that we will extend the exchange offer until all
existing notes are tendered. You may withdraw
existing notes you tendered at any time before
, 1999. See "The Exchange
Offer -- Expiration Date; Extensions; Amendments."
Accrued Interest on the
Exchange Notes and the
Existing Notes........... The exchange notes will bear interest at a rate of
11 5/8% per year, payable semi-annually on April 15
and October 15, commencing October 15, 1999. April
1 and October 1 are the record dates for
determining holders entitled to interest payments.
Conditions to the Exchange
Offer...................... The exchange offer is subject only to the following
conditions:
- the compliance of the exchange offer with
securities laws;
- the tender of the existing notes;
- the representation by the holders of the existing
notes that the exchange notes they will receive
are being acquired by them in the ordinary course
of their business and that at the time the
exchange offer is completed the holder had no
plan to participate in the distribution of the
exchange notes; and
- No judicial or administrative proceeding shall
have been threatened that would limit us from
proceeding with the exchange offer.
Procedures for Tendering
Existing Notes Held in
the Form of Book-Entry
Interests................ The existing notes were issued as global securities
and were deposited with State Street Bank and Trust
Company when they were issued. State Street Bank
and Trust Company issued a certificate-less
depositary interest in each note, which represents
a 100% interest in the note, to The Depository
Trust Company. Beneficial interests in the notes
held by participants in DTC, which we will refer to
as notes held in book-entry form, are shown on, and
transfers of the notes can be made only through,
records maintained in book-entry form by DTC and
its participants.
If you are a holder of a note held in the form of a
book-entry interest and you wish to tender your
book-entry interest for exchange in the exchange
offer, you must transmit to State Street Bank and
Trust
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<PAGE> 9
Company, as exchange agent, before the expiration
date of the exchange offer:
EITHER
- a properly completed and executed letter of
transmittal, which accompanies this prospectus,
or a facsimile of the letter of transmittal,
including all other documents required by the
letter of transmittal, to the exchange agent at
the address on the cover page of the letter of
transmittal;
OR
- a computer-generated message transmitted by means
of DTC's Automated Tender Offer Program system
and received by the exchange agent and forming a
part of a confirmation of book entry transfer in
which you acknowledge and agree to be bound by
the terms of the letter of transmittal;
AND, EITHER
- a timely confirmation of book-entry transfer of
your outstanding notes into the exchange agent's
account at DTC, according to the procedure for
book-entry transfers described in this prospectus
under the heading "The Exchange
Offer -- Book-Entry Transfer" beginning on page
25, must be received by the exchange agent on or
prior to the expiration date;
OR
- the documents necessary for compliance with the
guaranteed delivery procedures described below.
Procedures for Tendering
Existing Notes........... If you wish to accept the exchange offer, sign and
date the letter of transmittal, and deliver the
letter of transmittal, along with the existing
notes and any other required documentation, to the
exchange agent. By executing the letter of
transmittal, you will represent to us that, among
other things:
- the exchange notes you receive will be acquired
in the ordinary course of your business;
- you have no arrangement with any person to
participate in the distribution of the exchange
notes; and
- you are not an affiliate of AMPAM or, if you are
an affiliate, you will comply with the
registration and prospectus delivery requirements
of the Securities Act to the extent applicable.
Special Procedures for
Beneficial Owners.......... If you are a beneficial owner whose existing notes
are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
wish to tender those existing notes in the exchange
offer, please contact the registered holder as soon
as possible and instruct them to tender on your
behalf and comply with the instructions in this
prospectus.
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Guaranteed Delivery
Procedures................. If you wish to tender your existing notes, you may
do so according to the guaranteed delivery
procedures described in this prospectus under the
heading "The Exchange Offer -- Guaranteed Delivery
Procedures."
Withdrawal Rights.......... You may withdraw existing notes you tender by
furnishing a notice of withdrawal to the exchange
agent containing the information described under
the heading "The Exchange Offer -- Withdrawal of
Tenders" at any time before 5:00 p.m. New York City
time on , 1999.
Acceptance of Existing
Notes and Delivery of
Exchange Notes........... We will accept for exchange any and all existing
notes that are properly tendered before the
expiration date. See "The Exchange
Offer -- Procedures for Tendering." The same
conditions described under the heading "The
Exchange Offer -- Conditions" will apply. The
exchange notes will be delivered promptly following
the expiration date.
Exchange Agent............. State Street Bank and Trust Company is serving as
exchange agent for the exchange offer.
See "The Exchange Offer" for more detailed information concerning the terms of
the exchange offer.
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SUMMARY OF TERMS OF EXCHANGE NOTES
The form and terms of the notes to be issued in the exchange offer are the
same as the form and terms of existing notes except that the notes to be issued
in the exchange offer will be registered under the Securities Act and,
accordingly, will not bear legends restricting their transfer. Also, the
exchange notes will not contain the penalty interest provisions related to the
registration of the existing notes that are in the existing notes. The notes
issued in the exchange offer will evidence the same debt as the outstanding
notes, and both the existing notes and the exchange notes are governed by the
same indenture.
Issuer..................... American Plumbing & Mechanical, Inc.
1950 Louis Henna Blvd.
Round Rock, Texas 78664
(512) 246-5200
Total Amount............... $125,000,000 total principal amount of 11 5/8%
Senior Subordinated Notes due 2008.
Maturity................... October 15, 2008.
Interest Payment Dates..... April 15 and October 15, beginning October 15,
1999.
Guarantees................. Each of our direct subsidiaries will jointly and
severally guarantee the exchange notes. Future
subsidiaries also may be required to guarantee the
exchange notes. The guarantees are full and
unconditional. If we cannot make payments on the
notes when they are due, our guarantor subsidiaries
must make them. See "Description of the
Notes -- The Guarantees."
Ranking.................... The exchange notes and the subsidiary guarantees
are referred to as senior subordinated debt because
they are, by their terms, ranked behind our
existing and future senior indebtedness and ranked
ahead of our existing and future subordinated
indebtedness in right of payment. Because the
exchange notes are subordinated, in the event of
bankruptcy, liquidation or dissolution, holders of
the exchange notes will not receive any payment
until holders of senior indebtedness and guarantor
senior indebtedness have been paid in full. The
exchange notes and the subsidiary guarantees:
- rank equally with our other senior subordinated
debt;
- rank ahead of all of our subordinated debt; and
- rank below our senior indebtedness.
The terms "senior indebtedness" and "guarantor
senior indebtedness" are defined in the
"Description of the Notes -- Certain Definitions"
section of this prospectus.
As of March 31, 1999, we had $3.1 million of
consolidated senior indebtedness outstanding.
Optional Redemption........ We may redeem some or all of the exchange notes at
any time on or after April 15, 2004 at the
redemption prices listed under the heading
"Description of the Notes -- Optional Redemption."
Optional Redemption
Following Sales of
Equity................... Before April 15, 2002, we may redeem up to 35% of
the total principal amount of the exchange notes
with the net proceeds of sales of equity in AMPAM
at the price listed in the section "Description of
the
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Notes" under the heading "Optional Redemption," if
at least 65% of the total principal amount of the
exchange notes originally issued remains
outstanding after the redemption.
Change of Control.......... If we sell assets or if a change of control occurs,
we may be required to offer to repurchase the
exchange notes at the prices listed in the section
"Description of the Notes," under the heading
"Change of Control."
Defeasance of the Notes.... AMPAM may, at its option and at any time, terminate
the obligations of AMPAM and the guarantors with
respect to the outstanding notes and with respect
to the covenants in the indenture. In this event,
AMPAM will be deemed to have paid and discharged
(or "defeased") the entire indebtedness represented
by the outstanding notes.
In order for this defeasance to occur, various
conditions must be met including, but not limited
to:
- AMPAM or any guarantor depositing cash or U.S.
government obligations in trust for the benefit
of the holders of the notes,
- the defeasance not resulting in a breach of any
agreement to which AMPAM is bound by or a party
to, and
- AMPAM delivering an opinion of counsel to the
trustee stating that the conditions of the
indenture for this defeasance have been complied
with.
See "Description of the Notes -- Legal Defeasance
or Covenant Defeasance of the Indenture."
Basic Covenants of the
Indenture.................. The indenture governing the exchange notes contains
covenants that, among other things, restrict our
ability and the ability of our restricted
subsidiaries to:
- borrow money;
- pay dividends on stock or purchase stock;
- make investments;
- use our assets as security in other transactions;
- sell material assets or merge with or into other
companies;
- sell stock in our subsidiaries; and
- restrict the ability of our subsidiaries to pay
dividends and make other payments.
These covenants are subject to important exceptions
and qualifications, which are described in the
section "Description of the Notes" under the
heading "Material Covenants" in this prospectus.
Use of Proceeds from Sale
of Existing Notes.......... We used the $117.7 million net proceeds from the
private placement of the existing notes to repay
outstanding indebtedness we incurred to finance the
cash portion of the consideration for the
acquisition of the founding companies. See "Use of
Proceeds of Note Issuance" under the heading
"Certain Transactions" in this prospectus.
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Risk Factors............... See "Risk Factors" for a discussion of factors you
should carefully consider before deciding to invest
in the notes.
OUR COMPANY
We believe we are the largest company in the United States focused
primarily on the plumbing and mechanical contracting services industry. On April
1, 1999, we combined the operations of the ten founding companies, which
individually are leading regional providers of plumbing and mechanical
contracting services, and commenced operations as one company. We believe that
by combining these regional leaders into one professional organization, we have
created a national provider which we expect to strengthen and broaden our
relationships with our consolidating customer base and enhance our operating
efficiency. The ten founding companies have been in business for an average of
approximately 31 years and, in 1998, performed plumbing and mechanical
contracting services in 24 states. On a pro forma basis for the fiscal year
ended December 31, 1998, we generated revenues and EBITDA of $322.2 million and
$39.6 million, respectively.
Almost all construction and renovation in the United States creates demand
for plumbing and mechanical contracting services. Depending upon the exact scope
of the work, we estimate that the plumbing and mechanical contracting services
work we perform generally accounts for approximately 8% to 12% of the total
construction cost of a commercial and institutional project and approximately 5%
to 10% of the total construction cost of a residential project. In 1992, the
most recent year for which data are available from the United States Department
of Commerce, the value of new construction and repair and maintenance work
completed by plumbing and mechanical contractors totaled approximately $28
billion, including approximately $17 billion from plumbing services and $11
billion from mechanical services.
OUR COMPETITIVE STRENGTHS
We believe several factors give us a competitive advantage in our industry,
including our:
- strong customer relationships and market leadership;
- geographically diverse operations;
- large and highly skilled work force;
- diverse business mix; and
- experienced management team.
OUR BUSINESS STRATEGY
Our goal is to build on our position as a leading provider of plumbing and
mechanical contracting services in the residential and commercial/institutional
markets by:
- increasing our market share and the profitability of our operations; and
- pursuing a selective acquisition strategy.
OUR OPERATING STRATEGY
We intend to leverage the geographical presence and competitive strengths
of our founding and subsequently acquired companies with the objective of
continuing strong internal growth. The key elements of our operating strategy
are:
- achieve purchasing savings and other economies of scale;
- continue to attract, develop and retain qualified plumbers and management
personnel;
- increase off-site prefabrication of plumbing and mechanical systems and
components;
- emphasize "value engineering" and design-and-build capability;
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<PAGE> 14
- increase use of technology;
- leverage geographic presence to obtain and retain multi-location
customers; and
- broaden scope of specialty services.
OUR ACQUISITION STRATEGY
We believe that the highly fragmented nature of the plumbing and mechanical
contracting services industry offers significant opportunities for us to pursue
our acquisition strategy. Key elements of our acquisition strategy include:
- increase geographic coverage; and
- expand our service capabilities.
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SUMMARY PRO FORMA COMBINED FINANCIAL DATA
The following summary unaudited pro forma financial data for AMPAM, is
adjusted for
- the effects of the acquisition of the founding companies;
- the effects of other pro forma adjustments to our historical financial
statements; and
- the original issuance of the notes and our use of the proceeds from that
sale.
For financial reporting purposes, Christianson is considered to be the
accounting acquiror. This data includes our results of operations as if the
acquisitions and related transactions were closed on January 1 of the respective
period presented. This data does not necessarily indicate the results that we
would have obtained had these events actually occurred on January 1 of the
respective period presented, or our future results. During the periods presented
below, our founding companies were not under common control or management and,
therefore, the data presented may not be comparable to or indicative of future
performance. The unaudited pro forma financial data is based on preliminary
estimates, available information and some assumptions that our management deems
appropriate. Since the information in this table is only a summary and does not
provide all of the information contained in our financial statements, including
the related notes, you should read "-- Selected Individual Founding Company
Financial Data," "Capitalization," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial Statements and
Unaudited Pro Forma Combined Financial Statements and related notes thereto
included elsewhere in this prospectus.
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YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1998(A) MARCH 31, 1999(A)
-------------------- ------------------
($ IN THOUSANDS) ($ IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................. $322,203 $ 88,479
Cost of revenues (including depreciation)................. 255,461 67,178
-------- --------
Gross profit.............................................. 66,742 21,301
Selling, general and administrative expenses(b)........... 31,255 9,682
Goodwill amortization(c).................................. 2,693 673
-------- --------
Income from operations.................................... 32,794 10,946
Other income (expenses)(d)................................ (14,081) (3,183)
-------- --------
Income before provision for income taxes.................. 18,713 7,763
Provision for income taxes(e)............................. 8,249 3,556
-------- --------
Net income................................................ $ 10,464 $ 4,207
======== ========
OTHER FINANCIAL DATA AND RATIOS:
EBITDA(f)................................................. $ 39,583 $ 12,977
EBITDA margin............................................. 12.3% 14.7%
Total interest expense.................................... 15,453 3,863
Interest expense on net debt(g)........................... 14,701 3,675
Depreciation and amortization............................. 6,169 1,539
Capital expenditures...................................... 2,838 899
Ratio of EBITDA to total interest expense................. 2.6x 3.4x
Ratio of EBITDA to interest expense on net debt(g)........ 2.7x 3.5x
Ratio of earnings to fixed charges(h)..................... 2.1x 2.8x
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1999(A)
------------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 10,858
Working capital........................................... 30,867
Total assets.............................................. 210,044
Total debt (including current maturities)................. 125,486
Redeemable preferred stock(i)............................. 13,635
Total stockholders' equity................................ 17,684
</TABLE>
Footnotes on following page
9
<PAGE> 16
- ---------------
(a) Gives effect to the acquisitions of the founding companies and other
related pro forma adjustments, as if all of these transactions had occurred
on January 1 of the respective periods presented and to the portion of the
proceeds from the private placement of notes to be used to repay existing
outstanding indebtedness, as if these transactions had occurred on January
1 of the respective period presented for purposes of the Statement of
Operations Data and Other Financial Data and Ratios and on March 31, 1999
for purposes of Balance Sheet Data.
(b) Reflects an aggregate of approximately $14.7 million and $0.3 million in
pro forma reductions for the year ended December 31, 1998, and the three
months ended March 31, 1999, respectively, in salary, bonus and benefits of
the owners of the founding companies to which they have agreed
prospectively and the effect of revisions to various lease agreements
between the founding companies and stockholders of the founding companies.
Also, for the three months ended March 31, 1999, reflects the reduction of
other income to eliminate the gain on disposal of assets related to AMPAM's
acquisition of the founding companies.
Certain members of management and founders received stock and/or stock
options in connection with the organization of our company. The applicable
accounting rules require that the stock issued to some members of our
management be treated as compensation expense. As a result of this
treatment, we recorded a non-recurring non-cash charge on April 1, 1999 of
approximately $6.7 million which will reduce our EBITDA and net income and
will be reflected in our second quarter results. See "Unaudited Pro Forma
Combined Financial Statements" and the Notes thereto.
(c) Reflects amortization of the goodwill to be recorded as a result of the
acquisitions over a 40-year period and computed on the basis described in
the notes to the unaudited pro forma combined financial statements.
(d) Reflects the reduction in historical interest expense related to historical
debt of the founding companies which was transferred to stockholders of the
founding companies, along with the related nonoperating assets of the
founding companies, in connection with the acquisitions. Also reflects the
interest cost on the debt incurred on April 1, 1999 to finance the
acquisitions.
(e) Assumes that all pre-tax income before non-deductible goodwill and other
permanent items is subject to a 39% overall tax rate.
(f) "EBITDA" means net income before interest expense, taxes, depreciation and
amortization. EBITDA should not be considered in isolation from or as an
alternative to net income as an indicator of our operating performance, or
as an alternative to cash flow from operating activities and other
consolidated income or cash flow statement data prepared in accordance with
generally accepted accounting principles or as a measure of profitability
or liquidity. EBITDA measures presented may not be comparable to other
similarly titled measures of other companies. We believe EBITDA is a widely
accepted financial indicator of a company's ability to service debt.
(g) For the purpose of this calculation "net debt" represents total debt
(excluding redeemable preferred stock) less cash and cash equivalents.
(h) For the purpose of this calculation, "earnings" represents income from
operations before income tax expense, plus fixed charges. "Fixed charges"
consist of interest, whether expensed or capitalized, amortization of debt
expense and an estimated portion of rentals representing interest expense.
Approximately $114.6 million of indebtedness assumed for pro forma purposes
to be outstanding at March 31, 1999 was retired with a portion of the
proceeds from the original issuance of notes.
(i) The redeemable preferred stock has a $0.01 par value per share. Currently,
there are 1,048,820 shares of Series A Preferred Stock issued and
outstanding with a liquidation preference of $13.6 million.
10
<PAGE> 17
SELECTED INDIVIDUAL FOUNDING COMPANY FINANCIAL DATA
The following table presents some summary historical statement of
operations data of the founding companies for each of the three most recent
fiscal years. The historical statement of operations data below have not been
adjusted for the pro forma adjustments related to contractually agreed
reductions in salaries, bonuses and benefits, or any other pro forma
adjustments, reflected in the Unaudited Pro Forma Combined Financial Statements
included elsewhere in this prospectus. The statement of operations data
presented below have been audited for the periods reflected in their historical
financial statements. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED(A) MARCH 31
------------------------------ -------------------
1996(B) 1997 1998 1998 1999
-------- -------- -------- ------- -------
($ IN THOUSANDS) ($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Christianson:
Revenues.................................................. $ 50,330 $ 50,909 $ 63,374 $12,744 $16,824
Gross profit.............................................. 12,127 13,405 17,670 3,720 5,434
RCR:
Revenues.................................................. $ 40,430 $ 49,738 $ 63,293 $13,200 $19,815
Gross profit.............................................. 5,328 7,361 11,689 2,456 4,080
Teepe's:
Revenues.................................................. $ 35,400 $ 42,687 $ 50,627 $11,449 $10,546
Gross profit.............................................. 4,990 5,517 6,579 1,383 1,259
Keith Riggs:
Revenues.................................................. $ 27,080 $ 29,680 $ 34,464 $ 7,279 $ 8,917
Gross profit.............................................. 3,097 3,815 4,499 1,084 1,460
Croson Ohio:
Revenues.................................................. $ 26,185 $ 27,029 $ 25,234 $ 5,927 $ 7,247
Gross profit.............................................. 3,880 4,059 4,796 827 1,166
Croson Florida:
Revenues.................................................. $ 11,722 $ 18,095 $ 28,142 $ 6,148 $ 8,274
Gross profit.............................................. 2,422 4,179 7,659 1,490 2,792
Power:
Revenues.................................................. $ 14,039 $ 17,010 $ 17,109 $ 3,501 $ 5,620
Gross profit.............................................. 1,853 2,330 2,738 327 1,598
Nelson:
Revenues.................................................. $ 12,507 $ 12,844 $ 15,058 $ 4,110 $ 4,670
Gross profit.............................................. 3,397 3,960 4,951 1,641 2,160
Sherwood:
Revenues.................................................. $ 8,261 $ 11,482 $ 13,556 $ 3,721 $ 4,069
Gross profit.............................................. 1,628 1,615 2,490 976 517
Miller:
Revenues.................................................. $ 10,603 $ 8,042 $ 11,346 $ 2,791 $ 2,497
Gross profit.............................................. 1,845 2,236 3,671 822 835
COMBINED:
Total revenues............................................ $236,557 $267,516 $322,203 $70,870 $88,479
Gross profit.............................................. 40,567 48,477 66,742 14,726 21,301
</TABLE>
- ---------------
(a) The fiscal years presented are the years ended December 31, 1996, 1997 and
1998 for all founding companies, except for Croson Ohio, Sherwood and
Miller, for which the fiscal years presented are the years ended September
30, 1996, 1997 and 1998; Nelson, for which the fiscal years presented are
the years ended April 30, 1997 and December 31, 1997 and 1998; and
Christianson, for which the fiscal years presented are August 31, 1996 and
December 31, 1997 and 1998. For the three months ended December 31, 1998,
Croson Ohio, Sherwood, and Miller had combined revenues of $16,329 and gross
profit of $3,341.
(b) With respect to some of the founding companies, the statement of operations
data for the 1996 fiscal year was derived from internal company financial
records that have not been audited by any independent accountants.
Accordingly, you are cautioned not to place undue reliance on this
information. Nevertheless, management believes that the financial
information shown in this table may be helpful in understanding the past
operations of the founding companies.
11
<PAGE> 18
RISK FACTORS
You should carefully consider the following factors as well as the other
information contained in this registration statement before deciding to invest
in the notes.
- -- WE RECENTLY ACQUIRED THE FOUNDING COMPANIES AND CONDUCTED NO BUSINESS UNTIL
APRIL 1, 1999. IF TOO MUCH OF MANAGEMENT'S TIME IS SPENT ATTENDING TO
INTEGRATING THE OPERATIONS, OUR OPERATIONS COULD SUFFER.
Our company was founded in June 1998 but we had not conducted any
operations or generated any revenues until April 1, 1999 when we acquired the
founding companies. As a result, we have no combined historical financial
results as one company for investors to evaluate. The unaudited pro forma
combined financial results of the founding companies cover periods during which
the founding companies and AMPAM were not under common control or management
and, therefore, may not accurately depict our future financial or operating
results. In addition, historical financial results for the individual founding
companies do not necessarily indicate the future results of our combined
company.
- -- AS A RESULT OF OUR AGGRESSIVE ACQUISITION PROGRAM, WE HAVE GENERATED WHAT WE
BELIEVE IS A SUBSTANTIAL AMOUNT OF DEBT. OUR CURRENT DEBT LEVEL COULD LIMIT
OUR ABILITY TO FUND FUTURE WORKING CAPITAL NEEDS AND INCREASE OUR EXPOSURE
DURING ADVERSE ECONOMIC CONDITIONS. ADDITIONALLY, OUR DEBT LEVEL COULD
PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE NOTES.
We have now and, after the offering, will continue to have a significant
amount of debt. The following chart, with dollar amounts in thousands, shows
some important credit statistics and is presented assuming we had completed the
original issuance of the notes and applied the proceeds from such sale as of
March 31, 1999:
<TABLE>
<S> <C>
Total indebtedness.......................................... $125,486
Redeemable preferred stock.................................. $ 13,635
Stockholders' equity........................................ $ 17,684
Ratio of earnings to fixed charges.......................... 2.8x
</TABLE>
Our substantial indebtedness could have important consequences to you. For
example, it could:
- make it more difficult for us to satisfy our obligations with respect to
the notes;
- increase our vulnerability to general adverse economic and industry
conditions;
- limit our ability to fund future working capital, capital expenditures
and other general corporate requirements;
- limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
- place us at a disadvantage compared to our competitors that have less
debt; and
- limit, along with the financial and other restrictive covenants in our
indebtedness, among other things, our ability to borrow additional funds.
Additionally, failing to comply with those covenants could result in an
event of default which, if not cured or waived, could have a material
adverse effect on us.
See "Description of the Notes -- Optional Redemption" and "-- Change of
Control" and "Description of Other Indebtedness."
- -- YOUR RIGHT TO RECEIVE PAYMENTS ON THESE NOTES IS JUNIOR TO OUR EXISTING
INDEBTEDNESS AND POSSIBLY ALL OF OUR FUTURE BORROWINGS. FURTHER, THE
GUARANTEES OF THESE NOTES ARE JUNIOR TO ALL OUR GUARANTORS' EXISTING
INDEBTEDNESS AND POSSIBLY TO ALL THEIR FUTURE BORROWINGS.
The notes and the subsidiary guarantees rank behind all of our and our
subsidiary guarantors' existing indebtedness and all of our and their future
borrowings, except any future indebtedness that expressly provides that it ranks
equal with, or subordinated in right of payment to, the notes and the
guarantees. As
12
<PAGE> 19
a result, upon any distribution to our creditors or the creditors of the
guarantors in a bankruptcy, liquidation or reorganization or similar proceeding
relating to us or the guarantors or our or their property, the holders of senior
indebtedness of our company and the subsidiary guarantors will be entitled to be
paid in full in cash before any payment may be made with respect to the notes or
the subsidiary guarantees.
In addition, all payments on the notes and the subsidiary guarantees will
be blocked in the event of a payment default on senior indebtedness and may be
blocked for up to 179 consecutive days in the event of non-payment defaults on
senior indebtedness.
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to our company or the guarantors, holders of the notes will
participate with trade creditors and all other holders of subordinated
indebtedness of our company and the guarantors in the assets remaining after we
and the subsidiary guarantors have paid all of the senior indebtedness. However,
because the indenture requires that amounts otherwise payable to holders of the
notes in a bankruptcy or similar proceeding be paid to holders of senior
indebtedness instead, holders of the notes may receive less, ratably, than
holders of trade payables in any proceeding of this type. In any of these cases,
we and the subsidiary guarantors may not have sufficient funds to pay all of our
creditors and holders of notes may receive less, ratably, than the holders of
senior indebtedness.
Assuming we completed the original issuance of the notes and applied the
proceeds on March 31, 1999, these notes and the subsidiary guarantees would have
been subordinated to approximately $3.1 million of senior indebtedness and
approximately $95 million would have been available for borrowing as senior
indebtedness under our credit facility. We will be permitted to borrow
substantial additional indebtedness, including senior indebtedness, in the
future under the terms of the indenture.
- -- TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH.
OUR ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL.
Our ability to make payments on and to refinance our indebtedness,
including the exchange notes, and to fund planned capital expenditures will
depend on our ability to generate cash in the future. This, to an extent, is
subject to general economic, financial, competitive, legislative, regulatory and
other factors that are beyond our control.
We cannot assure you that our business will generate sufficient cash flow
from operations, that currently anticipated cost savings and operating
improvements will be realized on schedule or that future borrowings will be
available to us under our credit facility in an amount sufficient to enable us
to pay our indebtedness, including the exchange notes, or to fund our other
liquidity needs. We may need to refinance all or a portion of our indebtedness,
including the notes, on or before maturity. We cannot assure you that we will be
able to refinance any of our indebtedness, including our credit facility and the
exchange notes, on commercially reasonable terms or at all.
- -- FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO
VOID GUARANTEES AND REQUIRE NOTEHOLDERS TO RETURN PAYMENTS RECEIVED FROM
GUARANTORS. THESE STATUTES COULD CAUSE THE GUARANTEES TO BE WORTHLESS TO YOU.
ALSO, IF YOU HAVE RECEIVED PAYMENTS FROM OUR GUARANTORS, YOU COULD BE
REQUIRED TO FORFEIT THOSE PAYMENTS.
Under the federal bankruptcy laws and comparable provisions of state
fraudulent transfer laws, a guarantee could be voided, or claims in respect of a
guarantee could be subordinated to all other debts of that guarantor if, among
other things, the guarantor, at the time it incurred the indebtedness evidenced
by its guarantee received less than reasonably equivalent value or fair
consideration for the incurrence of this guarantee, and;
- was insolvent or rendered insolvent by reason of the incurrence;
- or was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital; or
13
<PAGE> 20
- intended to incur, or believed that it would incur, debts beyond its
ability to pay these debts as they mature.
In addition, any payment by that guarantor under the terms of its guarantee
could be voided and required to be returned to the guarantor or to a fund for
the benefit of the creditors of the guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, a guarantor would be
considered insolvent if:
- the sum of its debts, including contingent liabilities, were greater than
the fair saleable value of all of its assets; or
- if the present fair saleable value of its assets were less than the
amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become absolute
and mature; or
- it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, we believe that each subsidiary guarantor, after giving
effect to its guarantee of these notes, will not be insolvent, will not have
unreasonably small capital for the business in which it is engaged and will not
have incurred debts beyond its ability to pay these debts as they mature. There
can be no assurance, however, as to what standard a court would apply in making
these determinations or that a court would agree with our conclusions in this
regard.
- -- YOU CANNOT BE SURE THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THESE
NOTES.
Prior to this offering, there was no public market for these notes. Firms
making a market in these notes may cease their market-making at any time. In
addition, the liquidity of the trading market in these notes, and the market
price quoted for these notes, may be adversely affected by changes in the
overall market for high yield securities and by changes in our financial
performance or prospects or in the prospects for companies in our industry
generally. As a result, you cannot be sure than an active trading market will
develop for these notes.
- -- THE FAILURE OF A NOTEHOLDER TO EXCHANGE THEIR NOTES IN THE EXCHANGE OFFER
COULD CAUSE THAT HOLDER'S INVESTMENT IN THE NOTES TO BECOME ILLIQUID.
The purpose of this exchange offer is to give the holders of the original
privately issued notes the opportunity to exchange those notes for publicly
registered exchange notes with identical terms. If a noteholder fails to
exchange their original notes for exchange notes, they would find themselves in
the position of holding restricted securities which are not freely tradeable.
This failure to exchange would have the effect of rendering illiquid this
holder's investment in the notes and that holder would face impediments in
trying to sell or transfer their original notes.
- -- DESPITE CURRENT INDEBTEDNESS LEVELS, WE AND OUR SUBSIDIARIES MAY STILL BE
ABLE TO INCUR SUBSTANTIALLY MORE DEBT. THIS COULD FURTHER EXACERBATE THE
RISKS DESCRIBED ABOVE.
We may be able to incur substantial additional indebtedness in the future.
Although the indenture contains limitations on our ability to incur additional
indebtedness, it does not prohibit us from doing so and any and all additional
indebtedness could be senior indebtedness. In addition, we have a credit
facility that provides for borrowings up to $95 million, all of which would
constitute senior indebtedness. The senior status of this additional debt means
that if we were to dissolve, all senior indebtedness would be repaid in full
before any amount would be paid to the holders of the notes. If new debt is
added to our current debt levels and the current debt levels of our
subsidiaries, the related risks that we and they now face could intensify.
14
<PAGE> 21
See "Capitalization," "Selected Historical Financial Data," "Description of
the Notes -- Optional Redemption" and "-- Change of Control" and "Description of
Other Indebtedness."
- -- DOWNTURNS IN CONSTRUCTION COULD ADVERSELY AFFECT OUR BUSINESS BECAUSE A
SIGNIFICANT PORTION OF OUR BUSINESS IS DEPENDENT ON LEVELS OF NEW
CONSTRUCTION ACTIVITY.
Our business primarily involves the installation of plumbing and mechanical
systems in newly constructed and renovated residential, commercial, industrial
and institutional structures. The level of new commercial and institutional
installations is affected by fluctuations in the level of new construction of
commercial and institutional buildings in the markets in which we operate. The
commercial/institutional market is impacted by local economic conditions,
changes in interest rates, changes in governmental and institutional
appropriations for construction and other related factors. The residential
market is similarly affected by changes in general and local economic
conditions, such as the following:
- employment and income levels;
- interest rates and other factors affecting the availability and cost of
financing;
- tax implications for home buyers;
- consumer confidence; and
- housing demand.
In addition, economic growth in our areas of operations has increased
substantially in the last several years, enabling us to achieve historic levels
of revenue and net income for the 1998 fiscal year. We can provide no assurances
that these levels of growth can be sustained in the future. A material downturn
in our areas of operations would result in a decline in the number of
residential and commercial housing starts, which could negatively affect our
business, financial condition and results of operations.
- -- OUR PRO FORMA FINANCIAL STATEMENTS ASSUME A RATE AT WHICH WE WILL WRITE OFF
THE SIGNIFICANT GOODWILL ON OUR BALANCE SHEET AND THIS MAY OVERSTATE OUR PRO
FORMA EARNINGS. THIS AND OTHER ACQUISITION RELATED ACCOUNTING ISSUES COULD
HAVE A MATERIAL ADVERSE EFFECT ON OUR FUTURE FINANCIAL RESULTS.
The acquisition of the founding companies has been accounted for using the
purchase method of accounting, and the total purchase price has been allocated
to the assets and liabilities of the companies acquired based upon the fair
values of the assets and liabilities. As a result, we will have significant non-
cash charges for depreciation and amortization expense related to the fixed
assets and "goodwill" that were acquired in the acquisition. Our balance sheet
includes an amount designated as "goodwill" that on a pro forma as adjusted
basis at March 31, 1999 represented 51% of assets and 609% of stockholders'
equity. In addition, we will pay additional consideration in the form of cash
and stock in the event that adjusted net income of the founding companies for
the year ended December 31, 1999 exceeds targeted levels. These payments, if
any, would result in additional "goodwill." Goodwill arises when an acquiror
pays more for a business than the fair value of the tangible and separately
measurable intangible net assets. Generally accepted accounting principles
require that this and all other intangible assets be amortized over the period
benefited. AMPAM's management has determined that the period to be benefitted by
the amounts designated as goodwill is 40 years and will write off that goodwill
as a noncash operating expense over this period.
- -- OUR REPORTED EARNINGS COULD DECREASE FOR A PERIOD OF TIME IF THE FINANCIAL
ACCOUNTING STANDARDS BOARD DECREASES THE MAXIMUM WRITE-OFF PERIOD FOR
GOODWILL.
On May 19, 1999, the Financial Accounting Standards Board tentatively
decided to reduce the current maximum write-off period of 40 years for goodwill
to 20 years for most companies. We understand the 20-year write-off period may
apply only to acquisitions occurring after a future date the FASB will set. We
understand the FASB will issue a formal proposal on this subject for public
comment later in the year.
15
<PAGE> 22
If this FASB proposal results in a retroactive change in generally accepted
accounting principles we may be required to accelerate the rate at which we
recognize expense resulting from our goodwill. Any such acceleration would cause
our reported earnings to decrease for some period of time.
In addition to the goodwill amortization issue described above, some
members of management and founders received stock in connection with the
organization of our company. The applicable accounting rules require that the
stock issued to some of these members of our management be treated as
compensation expense. As a result of this treatment, we recorded a non-recurring
non-cash charge on April 1, 1999 of approximately $6.7 million which will reduce
our EBITDA and net income and is reflected in our second quarter results. See
"Unaudited Pro Forma Combined Financial Statements" and the Notes thereto.
- -- A FAILURE ON OUR PART TO SUCCESSFULLY INTEGRATE THE FOUNDING COMPANIES COULD
HAVE A MATERIAL ADVERSE EFFECT ON OUR FUTURE FINANCIAL RESULTS.
The founding companies have been operating and will continue to operate as
separate independent entities, and we cannot guarantee that we will be able to
integrate these businesses on an economic basis. In addition, we cannot
guarantee that the recently assembled management group will be able to oversee
the combined entity and effectively implement our operating or growth
strategies. Until we establish centralized accounting and other administrative
systems, we will rely on the systems used by the founding companies. If we are
unable to successfully coordinate and integrate the founding companies and
future acquisitions into AMPAM, including their accounting and administrative
functions and other banking and insurance functions and computer systems, then
our business, financial condition and results of operations may be materially
and adversely affected.
- -- OUR GROWTH COULD BE DIFFICULT TO MANAGE. AN ACTIVELY GROWING COMPANY LIKE
OURS REQUIRES THE CONSTANT ATTENTION OF ITS MANAGEMENT. IF TOO MUCH OF OUR
MANAGEMENT'S TIME IS SPENT ATTENDING TO THE GROWTH OF AMPAM, OUR OPERATIONS
COULD SUFFER.
If we are unable to manage our growth, or if we are unable to attract and
retain additional qualified management, there could be a material adverse effect
on our financial condition and results of operations. As we continue to grow,
there can be no assurance that our management group will be able to oversee
AMPAM and effectively implement our operating or growth strategies. We expect
our management will expend time and effort in evaluating, completing and
integrating acquisitions and opening new facilities. We cannot guarantee that
our systems, procedures and controls will be adequate to support our expanding
operations, including the timely receipt of financial information from acquired
companies.
A key point of our business strategy is to grow by acquiring other plumbing
and mechanical contracting service companies. We cannot guarantee that we will
be able to acquire additional businesses or integrate and manage them
successfully. We cannot assure you that the businesses we acquire will achieve
sales and profitability that justify our investment.
Acquisitions we make may involve additional issues, including:
- adverse short-term effects on our financial results;
- diversion of our management's attention;
- dependence on retention, hiring and training of key personnel; and
- risks associated with unanticipated problems or legal liabilities.
Although we believe we are the first company to focus primarily on
consolidating the plumbing and mechanical contracting service industry, we also
believe that the industry will continue to experience consolidation on both a
national and a regional level as existing consolidators focusing on related
industries pursue their acquisition strategies or as other companies develop
acquisition objectives similar to those of our company. In addition, we cannot
guarantee that other existing companies consolidating related
16
<PAGE> 23
industries or yet-to-be-formed companies will not also adopt a similar focus and
compete with our company for acquisition candidates in plumbing and mechanical
contracting services and related industries. These competitors may have greater
financial resources than our company to finance acquisitions and internal growth
opportunities and might be willing to pay higher prices for the same acquisition
opportunities. This competition could have the effect of increasing the price
for acquisitions or reducing the number of suitable acquisition candidates. If
these types of acquisitions can be made, we cannot give any assurance that
businesses acquired will achieve sales and profitability that justify the
investment.
- -- IF WE ARE UNABLE TO OBTAIN A SIGNIFICANT AMOUNT OF ADDITIONAL CAPITAL, WE MAY
NOT BE ABLE TO SUCCESSFULLY IMPLEMENT OUR GROWTH STRATEGY WHICH COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR FUTURE FINANCIAL RESULTS.
The expansion of our company through our acquisition program will require
significant capital. The timing, size and success of our acquisition efforts and
the associated capital commitments cannot be readily predicted. We currently
intend to use common stock for a portion of the consideration used in future
acquisitions. If potential acquisition candidates are unwilling to accept common
stock as part of the consideration for the sale of their businesses, we may be
required to use more of our cash resources, if available, to pursue our
acquisition program. If we do not have enough cash resources, our growth could
be limited unless we are able to obtain additional capital through future debt
or equity financings, including borrowings under existing credit facilities. If
incurred, this indebtedness would increase our leverage, may make us more
vulnerable to economic downturns and may limit our ability to withstand
competitive pressures.
We have put into place a credit facility to be used for working capital,
capital expenditures and other general corporate purposes. Although we believe
this credit facility will be sufficient, we cannot guarantee that it will be
able to entirely fund our acquisition program. Additionally, this credit
facility includes financial covenants that limit our operations and financial
flexibility. As a result, we might be limited in our ability to pursue our
acquisition strategy successfully which could have a negative impact on our
financial results.
- -- FUTURE ACQUISITIONS COULD CHANGE OUR CAPITAL AND DEBT STRUCTURE AND COULD
HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS.
Although AMPAM does not currently have any agreements or understandings
with respect to the acquisition of any company or business, AMPAM may in the
future enter into discussions or negotiations with potential acquisition
candidates engaged in the plumbing, mechanical, utility installation or HVAC or
related businesses. Negotiations may result in agreements to acquire one or more
companies or businesses or their assets. In connection with any acquisition of
this type, the consideration payable by AMPAM may consist of shares of common
stock, cash, promissory notes or other securities of AMPAM or a combination of
these types of consideration. Accordingly, if AMPAM enters into agreements to
acquire one or more companies or businesses after the date of this prospectus,
the capitalization of AMPAM is likely to differ, possibly significantly, from
the capitalization reflected in this prospectus. In particular, the number of
shares of common stock that would be issued and outstanding, the amount of
indebtedness and the amount of working capital as of the date of the closing of
any future acquisitions may be significantly different from the amounts
reflected in this prospectus. In addition, if AMPAM enters into agreements to
acquire one or more companies or businesses after the date of this prospectus,
the pro forma financial statements of AMPAM are likely to differ from the pro
forma financial statements included in this prospectus.
- -- THERE IS CURRENTLY A SHORTAGE OF QUALIFIED PLUMBERS AND TECHNICIANS. SINCE
THE MAJORITY OF OUR WORK IS PERFORMED BY PLUMBERS AND TECHNICIANS, THIS
SHORTAGE COULD LIMIT OUR ABILITY TO GROW.
We are dependent upon an adequate supply of skilled personnel to complete
our plumbing and mechanical contracts on time. The supply of skilled personnel
is sensitive to economic and competitive conditions and the level of demand for
plumbing and mechanical contracting services. Many companies in
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the plumbing and mechanical contracting services industry are currently
experiencing shortages of qualified personnel, and as a result there is
significant competition for skilled labor. Accordingly, our ability to increase
productivity and profitability may be limited by our ability to employ, train
and retain the skilled personnel necessary to meet our service requirements. In
addition, labor shortages could result in wage increases, which could reduce our
operating margins and have a negative effect on our financial condition and
results of operations. We cannot guarantee that, among other things:
- we will be able to maintain the skilled labor force necessary to operate
efficiently;
- our labor expenses will not increase as a result of a shortage in the
skilled labor supply; or
- we will not have to curtail internal growth as a result of labor
shortages.
- -- THE LOSS OF A GROUP OF KEY PERSONNEL, EITHER AT THE CORPORATE OR OPERATING
LEVEL, COULD ADVERSELY AFFECT OUR BUSINESS.
Because we intend to continue to operate on a decentralized basis, our
operations will continue to depend on the efforts and experience of our
executive officers and the senior management of the founding companies.
Furthermore, we will depend on the senior management of companies that may be
acquired in the future. Although we have entered into employment agreements with
some of our executive officers, we cannot guarantee that any individual will
continue in their capacity for any particular period of time. We have not
entered into employment agreements with some of the members of management of the
founding companies. Also, we may not enter into employment agreements with
members of management of additional companies that we may acquire in the future.
The loss of key personnel or the inability to hire and retain qualified
employees could have a material adverse effect on our business, financial
condition and results of operations. We do not maintain key man life insurance.
- -- THE HIGHLY COMPETITIVE NATURE OF OUR INDUSTRY COULD AFFECT OUR PROFITABILITY
BY REDUCING OUR PROFIT MARGINS.
The plumbing and mechanical contracting services industry is highly
fragmented and competitive. The industry is generally served by a large number
of small, owner-operated private companies and by several large companies that
provide plumbing and mechanical contracting services (often on an ancillary
basis to an HVAC business) on a regional or national basis. We will compete with
other consolidators, including those focused on the HVAC business, that also
provide some plumbing and mechanical contracting services. We could also face
competition in the future from other competitors entering the market. Some of
our competitors may have greater financial resources or may achieve greater
efficiencies which may allow these competitors the ability to provide a greater
range of services, provide services in a larger number of locations or offer
services at lower prices. In some geographic regions, we may not be eligible to
compete for contracts because our employees are not subject to collective
bargaining agreements.
- -- THE ESTIMATES WE USE IN PLACING BIDS COULD BE MATERIALLY INCORRECT. THE USE
OF INCORRECT ESTIMATES COULD RESULT IN LOSSES ON A FIXED PRICE CONTRACT.
THESE LOSSES COULD BE MATERIAL TO OUR BUSINESS.
Nearly all of our plumbing and mechanical contracting services are
performed under fixed price contracts, so the risk of cost overruns on a given
project is generally borne by our company. Our ability to remain profitable
depends in part on our ability to accurately estimate the material and labor
costs of completing plumbing and mechanical installation projects. From time to
time, market conditions in a given geographic area can cause increases in
skilled labor costs, and disruptions in the supply of plumbing and mechanical
materials can cause cost increases, either directly or through delays in
delivery of materials. Costs can also be affected by delays caused by weather,
other contractors working on a given project or other factors beyond our
control. Increases in costs caused by any of these factors could have material
adverse effects on our business, financial condition and results of operation.
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- -- OUR INDUSTRY EXPERIENCES UPTURNS AND DOWNTURNS, DEPENDING ON THE SEASON OF
THE YEAR AND THIS COULD HAVE AN ADVERSE EFFECT ON OUR QUARTERLY OPERATING
RESULTS.
The plumbing and mechanical contracting services industry is influenced by
seasonal declines in operations and demand that affect the construction
business. These declines can result in lower activity levels during the first
and fourth quarters than in other periods. There can be no assurance that our
combined geographic, service and product mix will be sufficient to overcome any
declines that may occur in the future or that seasonal patterns will not emerge.
Quarterly results may also be materially affected by the timing of acquisitions,
the timing and magnitude of costs relating to the assimilation of acquired
companies and regional economic conditions. Accordingly, performance in any
particular quarter may not indicate the results which can be expected for any
other quarter or for the entire year.
- -- THE FOUNDING COMPANIES HAVE SIGNIFICANT CUSTOMER CONCENTRATION AND IF A
FOUNDING COMPANY WERE TO LOSE A SIGNIFICANT CUSTOMER, THIS COULD HAVE A
MATERIAL ADVERSE EFFECT ON THE RESULTS OF OPERATIONS OF THAT PARTICULAR
SUBSIDIARY.
Although no individual customer of AMPAM accounts for more than 5% of our
revenues, some founding companies have customers that account for up to 63% of
their revenues. Although the loss of anyone of these customers would not have a
material adverse affect on us, this type of loss could significantly and
negatively affect the business, financial condition and results of operations of
a founding company.
- -- WE ARE REQUIRED TO COMPLY WITH A NUMBER OF OPERATIONAL AND LICENSING
REQUIREMENTS. IF WE WERE TO LOSE A LICENSE OR WERE UNABLE TO OBTAIN A RENEWAL
OF A LICENSE, OUR ABILITY TO OPERATE IN A PARTICULAR AREA MAY BE IMPAIRED
Our business and the activities of our plumbing and mechanical contracting
service providers are subject to various federal, state and local laws,
regulations, ordinances and policies. Areas of governmental involvement include:
- the licensing and certification of plumbers and technicians;
- our advertising, warranties and disclosures to its customers;
- the bidding process required to obtain plumbing and mechanical contracts;
and
- the applicable plumbing, mechanical and building codes with which we must
comply.
Most states require at least one of our employees to be a licensed master
plumber, and many jurisdictions regulate the number and level of license holders
who must be present on a construction site during the installation of plumbing
and mechanical systems. Some jurisdictions require us to obtain a building
permit for each plumbing or mechanical project. In addition, we must comply with
labor laws and regulations, including those that relate to verification by
employers of legal immigration or work permit status of employees.
We believe that each of the founding companies holds all of the licenses
and permits required to conduct business in the jurisdictions in which we
operate, and our employees in each of these jurisdictions have knowledge of the
specifications of the applicable construction codes. However, as a result of our
expansion, in the future we may operate in jurisdictions where we will need to
employ persons with the required licenses and knowledge and we cannot guarantee
that we will be able to do so. Furthermore, applicable regulations may change
and may increase expenses or cause project delays. We cannot guarantee that
existing or new laws or regulations applicable to our business will not have a
material adverse effect on our business, financial condition and results of
operations.
- -- COMPLIANCE WITH OR ENVIRONMENTAL, HEALTH AND SAFETY REGULATIONS COULD HAVE A
SIGNIFICANT NEGATIVE EFFECT ON OUR FINANCIAL RESULTS.
We are subject to safety standards established and enforced by the
Occupational Safety and Health Administration and environmental laws and
regulations relating to the use, storage, transportation and
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disposal of various materials. To the extent that we perform work involving air
conditioning and refrigeration systems, we are subject to additional
restrictions and regulations governing the availability, handling and recycling
of refrigerants. While we believe that we are in substantial compliance with all
applicable laws and regulations, these regulations may change and may increase
expenses or cause project delays. We cannot guarantee that existing or new laws
or regulations applicable to our business will not have a material adverse
effect on our business, financial condition and results of operations.
Some of the founding companies utilize underground or aboveground storage
tanks for motor fuels and other materials. Many of the founding companies'
facilities are located in industrial sectors, where contamination may result
from the activities of prior occupants or neighbors. Some environmental laws and
regulations impose liability on the operator of a tank or a facility at which
contamination is present, regardless of fault. While we know of no contamination
affecting any of the tanks or facilities which it will operate, we cannot
guarantee that undiscovered contamination does not exist, and that this
contamination will not have a material adverse effect on our business, financial
condition and results of operations.
- -- OUR OPERATIONS ARE SUBJECT TO NUMEROUS PHYSICAL HAZARDS ASSOCIATED WITH THE
CONSTRUCTION OF PLUMBING AND MECHANICAL SYSTEMS. IF AN ACCIDENT OCCURS,
CLAIMS AGAINST US COULD EXCEED LEVELS COVERED BY OUR INSURANCE AND COULD
SIGNIFICANTLY HARM OUR BUSINESS.
The nature of our business exposes us to potential claims for personal
injury or death resulting from injuries to our employees and other persons,
property damage and negligence, intentional misconduct or defective materials or
workmanship in connection with the installation, repair or maintenance of
plumbing, mechanical and maintenance systems. Claims made by our customers may
be based on the warranties we provide with respect to materials or workmanship
or may be based on common law or state statutes relating to the conduct of
contractors. Although each of the founding companies is covered by comprehensive
insurance, subject to deductibles, various types of claims, such as claims for
punitive damages or damages arising from intentional misconduct, are generally
not covered by insurance. We cannot guarantee that existing or future claims
would not exceed our level of insurance or the level of insurance of the
founding companies, or that insurance will continue to be available on
economically reasonable terms, if at all.
- -- WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE THE
CHANGE OF CONTROL OFFER REQUIRED BY THE INDENTURE AND TO SIMULTANEOUSLY REPAY
THE CREDIT FACILITY. ADDITIONALLY, WE MAY NOT HAVE THE ABILITY TO RAISE THE
FUNDS NECESSARY TO REPAY THE NOTES AND THE CREDIT FACILITY SIMULTANEOUSLY IF
PAYMENT UNDER THE CREDIT FACILITY IS ACCELERATED FOLLOWING AN EVENT OF
DEFAULT THAT IN TURN CAUSES AN EVENT OF DEFAULT UNDER THE INDENTURE.
On the occurrence of specific kinds of change of control events we will be
required to offer to repurchase all outstanding notes and may also be required
to repay all amounts outstanding under our credit facility. Similarly, if we are
in default under our credit facility, it could trigger a default under the
notes, requiring us to both repay all amounts outstanding under the credit
facility as well as all of the outstanding notes. It is possible that we will
not have sufficient funds at the time of the change of control to make the
required repurchase of notes or that restrictions in our credit facility will
not allow these repurchases. The same applies in the case of an event of
default. In addition, important corporate events, like leveraged
recapitalizations that would increase the level of our indebtedness, would not
constitute a "Change of Control" under the indenture. See "Description of the
Notes -- Change of Control" and "--Events of Default."
- -- COMPUTER SYSTEMS WE RELY ON MAY FAIL TO RECOGNIZE YEAR 2000. A FAILURE COULD
RESULT IN DISRUPTIONS OF OUR OPERATIONS AND OUR ACCOUNTING SYSTEMS.
We are in the process of identifying and evaluating potential issues for
its information technology and third party relationships associated with the
date change in the year 2000. We have not yet fully assessed any year 2000
remedial costs, but we are in the process of identifying and developing
solutions to the year 2000 issues. Although we are not currently able to
quantify the cost of corrective actions, we do not
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expect that these actions will materially exceed the cost of normal software
upgrades and replacements expected to occur through the year 2000. We believe
that all necessary work will be completed in a timely fashion, but we cannot
guarantee that the systems of other companies on which we rely will be converted
within the same time frame. We are attempting to obtain assurances from vendors,
business partners, and others with which we conduct business that their systems
will be year 2000 compliant. If as a result of foregoing process we determine
that a material business interruption may occur due to the year 2000 issue, we
will attempt to implement an appropriate contingency plan. Any material failure
of our company or others to bring the computer systems on which we rely into
compliance with year 2000 requirements could result in additional costs of
corrective actions and delays in preparing contract bids, receiving payment on
completed contracts, integrating the reporting systems of the founding companies
and implementing our strategies. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Year 2000."
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FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties, and assumptions about our company, including, among other things:
- Our anticipated growth strategies,
- Our ability to make acquisitions,
- Our ability to integrate acquired businesses,
- Our ability to gain efficiencies through consolidation,
- Anticipated trends in our businesses,
- Future expenditures for capital projects,
- Our ability to continue to control costs and maintain quality, and
- Our ability to compete.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties, and assumptions, the forward-looking
events discussed in this prospectus might not occur.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
We sold the existing notes on May 19, 1999, to Fleet Securities, Inc.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Banc One Capital Markets,
Inc. and Credit Lyonnais Securities (USA), Inc. under a purchase agreement.
These initial purchasers then sold the existing notes to qualified institutional
buyers in reliance on Rule 144A under the Securities Act. As a condition to the
purchase of the existing notes by the initial purchasers, AMPAM and the
guarantors entered into a registration rights agreement with the initial
purchasers, which requires, among other things, that promptly following the sale
of the existing notes, AMPAM and the guarantors:
- file with the Commission the registration statement related to the
exchange notes;
- use their reasonable best efforts to cause the registration statement to
become effective under the Securities Act; and
- offer to the holders of the existing notes the opportunity to exchange
their existing notes for a like principal amount of exchange notes upon
the effectiveness of the registration statement.
The exchange notes will be issued without a restrictive legend and may be
reoffered and resold without restrictions or limitations under the Securities
Act. 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 term "holder"
means any person in whose name existing notes are registered on AMPAM's books.
Based on existing interpretations of the Securities Act by the staff of the
SEC described in several no-action letters to third parties, and subject to the
following sentence, we believe that the exchange notes issued in the exchange
offer may be offered for resale, resold and otherwise transferred by their
holders, other than broker-dealers or "affiliates" of AMPAM, without further
compliance with the registration and prospectus delivery provisions of the
Securities Act. However, any purchaser of notes who is an affiliate of AMPAM or
who intends to participate in the exchange offer for the purpose of distributing
the exchange notes, or any broker-dealer who purchased the notes from AMPAM to
resell under Rule 144A or any other available exemption under the Securities
Act:
- will not be able to rely on the interpretations by the staff of the
Commission described in the above-mentioned no-action letters;
- will not be able to tender its notes in the exchange offer; and
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any sale or transfer of the notes
unless the sale or transfer is made under an exemption from these
requirements.
We do not intend to seek our own no-action letter, and there is no
assurance that the staff of the Commission would make a similar determination
regarding the exchange notes as it has in these no-action letters to third
parties. See "Plan of Distribution."
As a result of the filing and effectiveness of the registration statement
of which this prospectus is a part, AMPAM and the guarantors will not be
required to pay an increased interest rate on the existing notes. Following the
closing of the exchange offer, holders of existing notes not tendered will not
have any further registration rights except in limited circumstances requiring
the filing of a shelf registration statement, and the existing notes will
continue to be subject to restrictions on transfer. Accordingly, the liquidity
of the market for the existing notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions stated in this prospectus and
in the letter of transmittal, we will accept all existing notes properly
tendered and not withdrawn prior to 5:00 p.m. New York City
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time, on the expiration date. After authentication of the exchange notes by the
trustee or an authenticating agent, we will issue $1,000 principal amount of
exchange notes in exchange for each $1,000 principal amount of outstanding
existing notes accepted in the exchange offer. Holders may tender some or all of
their existing notes in denominations of $1,000 or any integral multiple of
$1,000.
Each holder of the notes who wishes to exchange notes in the exchange offer
will be required to represent that:
- it is not an affiliate of AMPAM or any guarantor;
- any exchange notes to be received by it were acquired in the ordinary
course of its business; and
- it has no arrangement with any person to participate in the distribution
of the exchange notes.
Each broker-dealer that receives exchange notes for its own account under
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of the exchange notes. The letter of transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be judged to have admitted that it is an "underwriter" within the
meaning of the Securities Act. The SEC has taken the position that participating
broker-dealers may fulfill their prospectus delivery requirements related to the
exchange notes with the prospectus contained in the exchange offer registration
statement, other than a resale of an unsold allotment from the original sale of
the notes. AMPAM will be required to allow participating broker-dealers to use
the prospectus contained in the exchange offer registration statement following
the exchange offer, in connection with the resale of exchange notes received in
exchange for notes acquired by participating broker-dealers for their own
account as a result of market-making or other trading activities. We will not be
required to allow participating broker-dealers to use this prospectus if we
determine, after being advised by our attorneys, that the continued use of the
prospectus would (1) require us to disclose material information that we have a
legitimate business reason for keeping confidential or (2) interfere with a
material transaction in which AMPAM or our subsidiaries is involved. See "Plan
of Distribution."
The form and terms of the exchange notes are identical in all material
respects to the form and terms of the existing notes except that:
- the exchange notes will be issued in a transaction registered under the
Securities Act;
- the exchange notes will not be subject to transfer restrictions; and
- provisions relating to an increase in the stated interest rate on the
existing notes provided for in some circumstances will be eliminated.
The exchange notes will evidence the same debt as the existing notes. The
exchange notes will be issued under and entitled to the benefits of the
indenture.
As of the date of this prospectus, $125,000,000 aggregate principal amount
of the existing notes was outstanding. In connection with the issuance of the
existing notes, we arranged for the existing notes, which were initially
purchased by qualified institutional buyers as defined under Rule 144A under the
Securities Act, to be issued and transferable in book-entry form through the
facilities of the depositary, acting as depositary. The exchange notes will also
be issuable and transferable in book-entry form through the depositary.
This prospectus, together with the accompanying letter of transmittal, is
initially being sent to all registered holders as of the close of business on
, 1999. We intend to conduct the exchange offer as required by the
Exchange Act, and the rules and regulations of the Commission under the Exchange
Act, including Rule 14e-1, to the extent applicable.
Rule 14e-1 describes unlawful tender practices under the Exchange Act. This
section requires us, among other things:
- to hold our exchange offer open for twenty business days;
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- to give ten days notice of any change in the terms of this offer; and
- to issue a press release in the event of an extension of the exchange
offer.
The exchange offer is not conditioned upon any minimum aggregate principal
amount of existing notes being tendered, and holders of the existing notes do
not have any appraisal or dissenters' rights under the General Corporation Law
of the State of Delaware or under the indenture in connection with the exchange
offer. We shall be considered to have accepted existing notes tendered according
to the procedures in this prospectus when, as and if we have given oral or
written notice of acceptance to the exchange agent. See "-- Exchange Agent." The
exchange agent will act as agent for the tendering holders for the purpose of
receiving exchange notes from us and delivering exchange notes to those holders.
If any tendered existing notes are not accepted for exchange because of an
invalid tender or the occurrence of other events described in this prospectus,
certificates for these unaccepted existing notes will be returned, at our cost,
to the tendering holder of the existing notes as promptly as practicable after
the expiration date.
Holders who tender existing notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes related to the exchange of existing
notes in the exchange offer. We will pay all charges and expenses, other than
applicable taxes, in connection with the exchange offer. See "-- Solicitation of
Tenders; Fees and Expenses."
NEITHER THE BOARD OF DIRECTORS OF AMPAM NOR AMPAM MAKES ANY RECOMMENDATION
TO HOLDERS OF EXISTING NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING
ALL OR ANY PORTION OF THEIR EXISTING NOTES UNDER TO THE EXCHANGE OFFER.
MOREOVER, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION. HOLDERS OF
EXISTING NOTES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER IN THE EXCHANGE
OFFER AND, IF SO, THE AMOUNT OF EXISTING NOTES TO TENDER AFTER READING THIS
PROSPECTUS AND THE LETTER OF TRANSMITTAL AND CONSULTING WITH THEIR ADVISORS, IF
ANY, BASED ON THEIR OWN FINANCIAL POSITION AND REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "expiration date" shall mean 5:00 p.m., New York City time, on
, 1999, unless we, in our sole discretion, extend the exchange offer,
in which case the term "expiration date" shall mean the latest date to which the
exchange offer is extended.
We expressly reserve the right, in our sole discretion:
(1) to delay acceptance of any existing notes, to extend the exchange
offer or to terminate the exchange offer and to refuse to accept existing
notes not previously accepted, if any of the conditions described in this
prospectus under "-- Conditions" shall have occurred and shall not have
been waived by us (if permitted to be waived by us), by giving oral or
written notice of the delay, extension or termination to the exchange
agent; and
(2) to amend the terms of the exchange offer in any manner.
Any delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice of the delay in
acceptance by us to the registered holders of the existing notes. If the
exchange offer is amended in a manner determined by us to constitute a material
change, we will promptly disclose the amendment in a manner reasonably
calculated to inform the holders of the amendment.
Without limiting the manner in which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the exchange offer, we shall have no obligation to publish, advise, or otherwise
communicate any public announcement, other than by making a timely release to
the Dow Jones News Service.
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You are advised that AMPAM may extend the exchange offer because some
portion of the notes may not tender on a timely basis. In order to give these
noteholders the ability to participate in the exchange and to avoid the
significant reduction in liquidity associated with holding an unexchanged note,
AMPAM may elect to extend the exchange offer.
INTEREST ON THE EXCHANGE NOTES
The exchange notes will bear interest from the date of issuance of the
existing notes that are tendered in exchange for the exchange notes (or the most
recent date on which interest was paid or provided for on the existing notes
surrendered for the exchange notes). Accordingly, holders of existing notes that
are accepted for exchange will not receive interest that is accrued but unpaid
on the existing notes at the time of tender. Interest on the exchange notes will
be payable semi-annually on each April 15 and October 15, commencing on October
15, 1999.
PROCEDURES FOR TENDERING
Only a holder may tender its existing notes in the exchange offer. To
tender in the exchange offer, a holder must complete, sign and date the letter
of transmittal or a facsimile of the letter of transmittal, have the signatures
guaranteed if required by the letter of transmittal, and mail or otherwise
deliver the letter of transmittal or the facsimile, together with the existing
notes (unless the tender is being effected under 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.
Any financial institution that is a participant in the depositary's
book-entry transfer facility system may make book-entry delivery of the existing
notes by causing the depositary to transfer the existing notes into the exchange
agent's account using the depositary's procedure for the transfer. Although
delivery of existing notes may be effected through book-entry transfer into the
exchange agent's account at the depositary, the letter of transmittal (or
facsimile), with any required signature guarantees and any other required
documents, must, in any case, be transmitted to and received by the exchange
agent at its address listed in this prospectus under "-- Exchange Agent" prior
to 5:00 p.m., New York City time, on the expiration date. DELIVERY OF DOCUMENTS
TO THE DEPOSITARY USING ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE
EXCHANGE AGENT.
The tender by a holder will constitute an agreement between the holder,
AMPAM and the exchange agent according to the terms and subject to the
conditions described in this prospectus and in the letter of transmittal.
In the case of a broker-dealer that receives exchange notes for its own
account in exchange for existing notes which were acquired by it as a result of
market-making or other trading activities, the letter of transmittal will also
include an acknowledgment that the broker-dealer will deliver a copy of this
prospectus in connection with the resale by it of exchange notes received in the
exchange offer. See "Plan of Distribution."
THE METHOD OF DELIVERY OF EXISTING NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDERS. 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 PRIOR TO THE EXPIRATION DATE.
NO LETTER OF TRANSMITTAL OR EXISTING NOTES SHOULD BE SENT TO US. HOLDERS MAY
ALSO REQUEST THAT THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES EFFECT THE TENDER FOR HOLDERS IN EACH CASE AS DESCRIBED IN
THIS PROSPECTUS AND IN THE LETTER OF TRANSMITTAL.
Any beneficial owner whose existing notes are registered in the name of his
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on his behalf. If the beneficial owner wishes to
tender on his own behalf, the beneficial owner must, prior to completing and
executing the letter of transmittal and delivering his existing notes, either
make appropriate arrangements to register ownership of
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the existing notes in the owner's name or obtain a properly completed bond power
from the registered holder. The transfer of record ownership may take
considerable time.
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.
or a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act unless the existing notes tendered with the
letter of transmittal are tendered (1) by a registered holder who has not
completed the box entitled "Special Registration Instructions" or "Special
Delivery Instructions" of the letter of transmittal or (2) for the account of an
eligible institution. If the letter of transmittal is signed by a person other
than the registered holder, the existing notes must be endorsed or accompanied
by appropriate bond powers which authorize the person to tender the existing
notes on behalf of the registered holder, in either case signed as the name of
the registered holder or holders appears on the existing notes. If the letter of
transmittal or any existing notes or bond powers are signed or endorsed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, those
persons should so indicate when signing, and unless waived by us, evidence
satisfactory to us of their authority to so act must be submitted with the
letter of transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered existing notes will be
determined by us in our sole discretion. This determination will be final and
binding. We reserve the absolute right to reject any and all existing notes not
properly tendered or any existing notes our acceptance of which would, in the
opinion of our counsel, be unlawful. We also reserve the absolute right to waive
any irregularities or conditions of tender as to particular existing notes. Our
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 existing notes must be cured within the time as we shall determine. Although
we intend to notify holders of defects or irregularities related to tenders of
existing notes, neither we, the exchange agent nor any other person shall be
under any duty to give notification of defects or irregularities related to
tenders of existing notes nor shall any of them incur liability for failure to
give notification. Tenders of existing notes will not be considered to have been
made until the irregularities have been cured or waived. Any existing notes
received by the exchange agent that we determine are not properly tendered or
the tender of which is otherwise rejected by us and as to which the defects or
irregularities have not been cured or waived by us will be returned by the
exchange agent to the tendering holder unless otherwise provided in the letter
of transmittal, as soon as practicable following the expiration date.
In addition, we reserve the right in our sole discretion to (1) purchase or
make offers for any existing notes that remain outstanding subsequent to the
expiration date, or, as described under "-- Termination," to terminate the
exchange offer and (2) to the extent permitted by applicable law, purchase
existing notes in the open market, in privately negotiated transactions or
otherwise. The terms of these purchases or offers may differ from the terms of
the exchange offer.
BOOK-ENTRY TRANSFER
We understand that the exchange agent will make a request promptly after
the date of this prospectus to establish accounts for the existing notes at the
DTC for the purpose of facilitating the exchange offer, and subject to their
establishment, any financial institution that is a participant in the book-entry
transfer facility's system may make book-entry delivery of existing notes by
causing the book-entry transfer facility to transfer the existing notes into the
exchange agent's account for the existing notes using the book-entry transfer
facility's procedures for transfer. Although delivery of existing notes may be
effected through book-entry transfer into the exchange agent's account at the
book-entry transfer facility, an appropriate letter of transmittal properly
completed and duly executed with any required signature guarantee and all other
required documents must in each case be transmitted to and received or confirmed
by the exchange agent at its address listed below on or prior to the expiration
date, or, if the guaranteed delivery procedures
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<PAGE> 34
described below are complied with, with the time period provided under the
procedures. Delivery of documents to the book-entry transfer facility does not
constitute delivery to the exchange agent.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their existing notes and (1) whose existing
notes are not immediately available, or (2) who cannot deliver their existing
notes, the letter of transmittal or any other required documents to the exchange
agent prior to the expiration date, or if the holder cannot complete the
procedure for book-entry transfer on a timely basis, may effect a tender if:
- the tender is made through an eligible institution;
- prior to the expiration date, the exchange agent receives from an
eligible institution a properly completed and duly executed notice of
guaranteed delivery (by facsimile transmittal, mail or hand delivery)
setting forth the name and address of the holder, the certificate number
or numbers of the holder's existing notes and the principal amount of the
existing notes tendered, stating that the tender is being made, and
guaranteeing that, within five business days after the expiration date,
the letter of transmittal (or facsimile), together with the
certificate(s) representing the existing notes to be tendered in proper
form for transfer and any other documents required by the letter of
transmittal will be deposited by the eligible institution with the
exchange agent; and
- the properly completed and executed letter of transmittal (or a
facsimile), together with the certificate(s) representing all tendered
existing notes in proper form for transfer (or confirmation of a
book-entry transfer into the exchange agent's account at the depositary
of existing notes delivered electronically) and all other documents
required by the letter of transmittal are received by the exchange agent
within three business 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 existing notes according to the
guaranteed delivery procedures described above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, tenders of existing notes
may be withdrawn at any time prior to 5:00 p.m., New York City time, on the
expiration date.
To withdraw a tender of existing notes in the exchange offer, a written or
facsimile transmission notice of withdrawal must be received by the exchange
agent at its address listed below prior to 5:00 p.m., New York City time, on the
expiration date. Any notice of withdrawal must:
- specify the name of the person having deposited the existing notes to be
withdrawn (the "depositor");
- identify the existing notes to be withdrawn (including the certificate
number or numbers and principal amount of the existing notes or, in the
case of existing notes transferred by book-entry transfer, the name and
number of the account at the depositary to be credited);
- be signed by the depositor in the same manner as the original signature
on the letter of transmittal by which the existing notes were tendered
(including any required signature guarantee) or be accompanied by
documents of transfer sufficient to permit the trustee for the existing
notes to register the transfer of the existing notes into the name of the
depositor withdrawing the tender; and
- specify the name in which any of these existing notes are to be
registered, if different from that of the depositor.
All questions as to the validity, form and eligibility (including time of
receipt) of the withdrawal notices will be determined by us, whose determination
shall be final and binding on all parties. Any existing notes so withdrawn will
be judged not to have been tendered according to the procedures in this
prospectus for purposes of the exchange offer, and no exchange notes will be
issued in exchange for those
28
<PAGE> 35
existing notes unless the existing notes so withdrawn are validly retendered.
Any existing notes that have been tendered but are not accepted for exchange
will be returned to the holder of the existing notes without cost to the holder
as soon as practicable after withdrawal, rejection of tender or termination of
the exchange offer. Properly withdrawn existing notes may be retendered by
following one of the procedures described above under "-- Procedures for
Tendering" at any time prior to the Expiration Date.
CONDITIONS
The exchange offer is subject only to the following conditions:
- the compliance of the exchange offer with securities laws;
- the tender of the existing notes;
- the representation by the holders of the existing notes that the exchange
notes they will receive are being acquired by them in the ordinary course
of their business and that at the time the exchange offer is completed
the holder had no plan to participate in the distribution of the exchange
notes; and
- no judicial or administrative proceeding shall have been threatened that
would limit us from proceeding with the exchange offer.
EXCHANGE AGENT
State Street Bank and Trust Company, the trustee under the indenture, has
been appointed as exchange agent for the exchange offer. In this capacity, the
exchange agent has no fiduciary duties and will be acting solely on the basis of
our directions. Requests for assistance and requests for additional copies of
this prospectus or of the letter of transmittal should be directed to the
exchange agent addressed as follows:
<TABLE>
<S> <C>
By Mail: State Street Bank and Trust Company
Corporate Trust Department
P.O. Box 778
Boston, Massachusetts 02102-0778
By Hand Delivery or Overnight Courier: State Street Bank and Trust Company
Corporate Trust
Window, Fifth Floor
2 Avenue DeLafayette
Boston, Massachusetts 02111-1724
Facsimile Transmission: (617) 664-5395
Confirm by Telephone: (617) 664-5587
</TABLE>
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS LISTED
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS DESCRIBED
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF THE LETTER OF TRANSMITTAL.
SOLICITATION OF TENDERS; FEES AND EXPENSES
We will bear the expenses of requesting that holders of existing notes
tender those notes for exchange notes. The principal solicitation under the
exchange offer is being made by mail. Additional solicitations may be made by
our officers and regular employees and our affiliates in person, by telegraph,
telephone or telecopier.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer. We, however, will pay the exchange
agent reasonable and customary fees for its services and will reimburse the
exchange agent for its reasonable out-of-pocket costs and expenses in connection
with the exchange offer and will indemnify the exchange agent for all losses and
claims incurred by it as a result of the exchange
29
<PAGE> 36
offer. We may also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding
copies of this prospectus, letters of transmittal and related documents to the
beneficial owners of the existing notes and in handling or forwarding tenders
for exchange.
We will pay the expenses to be incurred in connection with the exchange
offer, including fees and expenses of the exchange agent and trustee and
accounting and legal fees and printing costs.
You will not be obligated to pay any transfer tax in connection with the
exchange, except if you instruct us to register new notes in the name of, or
request that notes not tendered or not accepted in the exchange offer be
returned to, a person other than you, you will be responsible for the payment of
any applicable transfer tax.
ACCOUNTING TREATMENT
The exchange notes will be recorded at the same carrying value as the
existing notes, as reflected in our accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by us upon the closing of the exchange offer. We will amortize the
expenses of the exchange offer over the term of the exchange notes.
FEDERAL INCOME TAX CONSEQUENCES
The following general discussion is a summary of the material United States
federal income tax consequences of owning a note and applies to you if you are a
United States holder, you acquired existing notes at original issue for cash and
you exchange those existing notes for exchange notes in the exchange offer. This
discussion only applies to you if you purchased existing notes in the private
placement for an amount equal to the "issue price" of the notes and hold the
exchange notes as a "capital asset," generally, for investment, under Section
1221 of the Internal Revenue Code. This summary, however, does not consider
state, local or foreign tax laws. In addition, it does not include all of the
rules which may affect the United States tax treatment of your investment in the
exchange notes. For example, special rules not discussed here may apply to you
if you are, including without limitation:
- a broker-dealer, a dealer in securities or a financial institution;
- an insurance company;
- a tax-exempt organization;
- holding the exchange notes through partnerships or other pass-through
entities; or
- holding the exchange notes as part of a hedge, straddle or other risk
reduction or constructive sale transaction.
This discussion only represents our best attempt to describe and summarize
some federal income tax consequences that may apply to you based on current
United States federal tax law. This discussion may in the end inaccurately
describe the federal income tax consequences which are applicable to you because
the law may change, possibly retroactively, and because the IRS or any court may
disagree with this discussion.
This summary may not cover your particular circumstances because it does
not consider foreign, state or local tax rules, disregards federal tax rules,
and does not describe future changes in federal tax rules. Please consult your
tax advisor concerning the application of United States federal income tax laws,
as well as the laws of any state, local or foreign taxing jurisdiction, to your
particular situation rather than relying on this general description.
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<PAGE> 37
UNITED STATES HOLDER
You are a United States holder if you hold notes and you are:
- a citizen or resident of the United States;
- a corporation or partnership created or organized in the United States or
under the laws of the United States or of any political subdivision;
- an estate the income of which is subject to United States federal income
tax regardless of its source; or
- a trust, if (1) a United States court can exercise primary supervision
over the administration of the trust and one or more United States
persons can control all substantial decisions of the trust, or (2) the
trust was in existence on August 20, 1996 and has properly elected to
continue to be treated as a United States person.
RECEIPT OF EXCHANGE NOTES
Because the economic terms of the exchange notes and the existing notes are
identical, your exchange of existing notes for exchange notes under the exchange
offer will not constitute a taxable exchange of the existing notes. As a result:
- you will not recognize taxable gain or loss when you receive exchange
notes in exchange for existing notes;
- your holding period in the exchange notes will include your holding
period in the existing notes; and
- your basis in the exchange notes will equal your basis in the existing
notes.
SALE OR OTHER TAXABLE DISPOSITION OF EXCHANGE NOTES
You must recognize taxable gain or loss on the sale, exchange, redemption,
retirement or other taxable disposition of an exchange note. The amount of your
gain or loss equals the difference between the amount you receive for the
exchange note in cash or other property, valued at fair market value, minus the
amount attributable to accrued qualified stated interest on the exchange note,
minus your adjusted tax basis in the exchange note. Your initial tax basis in an
exchange note equals the price you paid for the existing note which you
exchanged for the exchange note increased by amounts previously includable in
income as original issue discount and reduced by any payments other than
payments of qualified stated interest made on the notes.
Your gain or loss will generally be a long-term capital gain or loss if
your holding period in the exchange note is more than one year. Otherwise, it
will be a short-term capital gain or loss. Payments attributable to accrued
qualified stated interest which you have not yet included in income will be
taxed as ordinary interest income.
BACKUP WITHHOLDING
You may be subject to a 31% backup withholding tax on payments of interest,
principal and premium on, and any proceeds upon the sale or disposition of, an
exchange note. Some holders, including, among others, corporations and some
tax-exempt organizations, are generally not subject to backup withholding. In
addition, the 31% backup withholding tax will not apply to you if you provide
your taxpayer identification number in the prescribed manner unless:
- the IRS notifies us or our agent that the taxpayer identification number
you provided is incorrect;
- you fail to report interest and dividend payments that you receive on
your tax return and the IRS notifies us or our agent that withholding is
required; or
- you fail to certify under penalties of perjury that you are not subject
to backup withholding.
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<PAGE> 38
You should consult your tax advisor as to your qualification for exemption
from backup withholding and the procedure for obtaining an exemption. If the 31%
backup withholding tax does apply to you, you may use the amounts withheld as a
refund or credit against your federal income tax liability as long as you
provide necessary information to the IRS.
PARTICIPATION IN THE EXCHANGE OFFER; UNTENDERED NOTES
Participation in the exchange offer is voluntary. Holders of the existing
notes are urged to consult their financial and tax advisors in making their own
decisions on what action to take.
As a result of the making of, and upon acceptance for exchange of all
existing notes tendered under the terms of, this exchange offer, we will have
fulfilled a covenant contained in the terms of the registration rights
agreement. Holders of the existing notes who do not tender their certificates in
the exchange offer will continue to hold the certificates and will be entitled
to all the rights, and subject to the limitations applicable to the existing
notes, under the indenture, except for any rights under the registration rights
agreement that by their term terminate or cease to have further effect as a
result of the making of this exchange offer. See "Description of the Notes." All
untendered existing notes will continue to be subject to the restrictions on
transfer described in the indenture. To the extent that existing notes are
tendered and accepted in the exchange offer, the trading market for untendered
existing notes could be adversely affected. This is because there will probably
be many fewer remaining existing notes outstanding following the exchange,
significantly reducing the liquidity of the untendered notes.
We may in the future seek to acquire untendered existing notes in the open
market or through privately negotiated transactions, through subsequent exchange
offers or otherwise. We intend to make any acquisitions of existing notes
following the applicable requirements of the Exchange Act, and the rules and
regulations of the Commission under the Exchange Act, including Rule 14e-1, to
the extent applicable. We have no present plan to acquire any existing notes
that are not tendered in the exchange offer or to file a registration statement
to permit resales of any existing notes that are not tendered in the exchange
offer.
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<PAGE> 39
THE COMPANY
We believe we are the largest company in the United States focused
primarily on the plumbing and mechanical contracting services industry. On April
1, 1999, we combined the operations of the ten founding companies, which
individually are leading regional providers of plumbing and mechanical
contracting services, and commenced operations as one company. A brief
description of each of the founding companies is set forth below.
CHRISTIANSON ENTERPRISES, INC., G.G.R. LEASING CORPORATION AND CHRISTIANSON
SERVICE COMPANY. Christianson Enterprises was founded as a sole proprietorship
in 1950, was originally incorporated as W. G. Christianson Co. in 1968 and was
reorganized as Christianson Enterprises, Inc. in 1988. G.G.R. Leasing
Corporation was founded in 1982 and does business as "Professional Services,
Inc." Christianson Service Company was founded in 1997. Christianson is
headquartered outside Austin, Texas, with additional facilities in San Antonio
and San Marcos, Texas, and operates principally in central Texas. For the 1998
fiscal year, Christianson had revenues of approximately $63.4 million,
principally from the residential market, with projects including new home and
apartment complex work. Christianson also has specialized expertise in providing
maintenance and repair services. At December 31, 1998, Christianson had
approximately 461 employees. Robert A. Christianson, the Chief Executive Officer
of Christianson, is expected to sign a five-year employment contract with AMPAM
to act as its Chief Executive Officer and became a director of AMPAM following
the acquisitions.
R.C.R. PLUMBING, INC. RCR was founded in 1977 and is headquartered in
Riverside, California, east of Los Angeles, with additional facilities in Las
Vegas, Nevada and in Canoga Park, California in the San Fernando Valley. RCR
operates principally in southern California and southern Nevada. For the 1998
fiscal year, RCR had revenues of approximately $63.3 million from both the
commercial/institutional and residential markets, with projects including new
home and apartment complex construction. In addition to plumbing contracting
services, RCR has specialized expertise in residential and commercial HVAC
systems installation, fire sprinkler installation and various other mechanical
contracting services. At December 31, 1998, RCR had approximately 770 employees.
Robert C. Richey the Chief Executive Officer of RCR, is expected to sign a
five-year employment agreement with AMPAM to act as its Chief Operating Officer
and became a director of AMPAM following the acquisitions.
TEEPE'S RIVER CITY MECHANICAL, INC. Teepe's was founded in 1953 and is
headquartered in Cincinnati, Ohio, with an additional facility in Columbus,
Ohio. Teepe's operates principally in the Cincinnati, Columbus and Dayton, Ohio
metropolitan areas and in northern Kentucky and southeastern Indiana. For the
1998 fiscal year, Teepe's had revenues of approximately $50.6 million,
principally from the commercial/institutional new construction market, with
projects including schools, dormitories, hotels, prisons and office buildings.
At March 31, 1999, Teepe's had approximately 200 employees. Steven M. Teepe, the
Chief Executive Officer of Teepe's and Scott W. Teepe, Sr., the President of
Teepe's, each signed a five-year employment agreement with AMPAM to continue in
their present positions with Teepe's and Scott W. Teepe, Sr. also became a
director of AMPAM following the acquisitions. Since the date of their
acquisition by AMPAM, Teepe's and Croson Ohio have combined their businesses and
operations.
KEITH RIGGS PLUMBING, INC. Keith Riggs was founded in 1948 and is
headquartered outside Phoenix, Arizona with an additional facility also outside
Phoenix. Keith Riggs operates throughout the Phoenix metropolitan area. For the
1998 fiscal year, Keith Riggs had revenues of approximately $34.5 million,
principally from the residential market. Keith Riggs also has specialized
expertise in providing maintenance and repair services. At December 31, 1998,
Keith Riggs had approximately 350 employees. Gerald M. Riggs, the President, Sam
Sherwood, the Vice President and Gary N. Goodman, the Assistant Secretary and
Assistant Treasurer of Keith Riggs each signed a five-year employment agreement
with AMPAM to continue in their present positions with Keith Riggs and Sam
Sherwood also became a director of AMPAM following the acquisitions.
J. A. CROSON COMPANY AND FRANKLIN FIRE SPRINKLER COMPANY. J. A. Croson
Company was founded in 1959, and Franklin Fire Sprinkler Company was founded in
1988. Croson Ohio is headquartered in
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<PAGE> 40
Columbus, Ohio and operates principally in the Columbus metropolitan area and
central and southern Ohio. For the 1998 fiscal year, Croson Ohio had revenues of
approximately $25.2 million, principally from plumbing and mechanical
contracting services provided to commercial/institutional market with
contracting projects including office buildings, penal facilities, schools,
university buildings, hospitals and waste water and water purification projects.
Croson Ohio also has specialized expertise in designing and building fire
protection systems in the institutional and commercial/institutional markets. At
March 31, 1999, Croson Ohio had approximately 165 employees. David Croson, the
President of Croson Ohio, signed a five-year employment agreement with AMPAM to
continue in his present position with Croson Ohio and became a director or AMPAM
following the acquisitions. Since the date of their acquisition by AMPAM, Croson
Ohio and Teepe's have combined their business and operations.
J. A. CROSON COMPANY OF FLORIDA. Croson Florida was founded in 1989, is
headquartered in Orlando, Florida, with additional offices in Mount Dora and
Tampa, Florida, and operates principally in Orlando, Tampa, Naples/Ft. Myers and
other areas of southern and central Florida. For the 1998 fiscal year, Croson
Florida had revenues of approximately $28.1 million, principally from plumbing
and mechanical contracting services provided to the commercial/institutional
market, with projects including time-share condominiums, apartment complexes,
hotels and assisted-living facilities. At December 31, 1998, Croson Florida had
280 employees. James A. Croson, the Chief Executive Officer of Croson Florida,
and Mark F. LaTourelle, the President of Croson Florida, each signed a five-year
employment agreement with AMPAM to continue in their present positions with
Croson Florida, and James A. Croson became a director of AMPAM following the
acquisitions. James A. Croson is the father of David A. Croson, the President of
Croson Ohio.
POWER PLUMBING INC. Power was founded in 1988 and is headquartered in
Houston, Texas. It operates principally in Houston, Dallas and Austin, Texas,
but also performs services in the area outside Washington, D.C. on a
project-by-project basis. For the 1998 fiscal year, Power had revenues of
approximately $17.1 million, principally from plumbing and mechanical
contracting services provided to the residential and commercial/institutional
markets, with projects including apartment complexes and assisted-living
facilities. In addition, Power offers on-site utility services for private
developers. At December 31, 1998, Power had approximately 72 employees. James N.
Power, the President of Power, and Guy N. Mathieu, the Vice President of Power,
each signed a five-year employment agreement with AMPAM to continue in their
present positions with Power following the acquisitions.
NELSON MECHANICAL CONTRACTORS, INC. Nelson was founded in 1964 and is
headquartered in Pensacola, Florida, with a branch office in northern Virginia
outside Washington D.C. Nelson operates principally along the Florida and
Alabama Gulf Coast, but also performs services in other parts of the
southeastern United States on a project-by-project basis. For the 1998 calendar
year, Nelson had revenues of approximately $15.1 million, principally from
plumbing and mechanical contracting services provided to the
commercial/institutional market, with projects including apartment complexes,
motels, hotels, nursing homes, office buildings, highrise condominiums, dental
and medical clinics, shopping centers and various buildings at the U.S. Naval
Air Station in Pensacola, Florida and Elgin Air Force Base in Ft. Walton Beach,
Florida. In addition, Nelson offers on-site utility services for private
developers including underground work on water and sewer systems, well pumping
stations, natural gas distribution systems, and communication and power
conduits. At December 31, 1998, Nelson had approximately 180 employees. Gilbert
Nelson, the President of Nelson, signed a five-year employment agreement with
AMPAM to continue in his present position with Nelson following the
acquisitions.
SHERWOOD MECHANICAL, INC. Sherwood was founded in 1976, is headquartered
outside San Diego, California, and operates principally in southern California,
but also performs services in other parts of the southwestern United States on a
project-by-project basis. For the 1998 fiscal year, Sherwood had revenues of
approximately $13.6 million, principally from the commercial/institutional
market, with projects including hotels, apartment complexes, hospitals, medical
laboratories, prisons and waste water and water purification plants. In addition
to plumbing contracting services, Sherwood offers on-site utility services for
private developers. At December 31, 1998, Sherwood had approximately 170
employees. Robert W. Sherwood, the President of Sherwood, signed a five-year
employment agreement with AMPAM to
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<PAGE> 41
continue in his present position with Sherwood and became a director of AMPAM
following the acquisitions.
MILLER MECHANICAL CONTRACTORS, INC. Miller was founded in 1977, is
headquartered in Marietta, Georgia, and operates principally in the Atlanta,
Georgia metropolitan area, but also performs services in other parts of the
southeastern United States on a project-by-project basis. For the 1998 fiscal
year, Miller had revenues of approximately $11.3 million, principally from the
multifamily residential and commercial/institutional markets, with specialized
expertise in apartment complexes and extended-stay motels. At December 31, 1998,
Miller had approximately 80 employees. Joseph E. Miller, Vice President of
Miller, signed a five-year employment agreement with AMPAM to continue his
employment with Miller and became a director of AMPAM following the
acquisitions.
------------------------
Sterling City Capital, LLC is a private investment firm that focuses on
selective investments in companies which plan to execute consolidation
strategies within fragmented industries. Sterling City Capital, LLC and its
principal, C. Byron Snyder, have founded or invested in numerous public and
private companies, including Carriage Services, Inc., a publicly traded death
care company, and Integrated Electrical Services, Inc., a publicly traded
electrical service company. C. Byron Snyder is also an active member on boards
of directors for several private companies as well as Carriage Services, Inc.
and Integrated Electrical Services, Inc.
------------------------
American Plumbing & Mechanical, Inc. was incorporated in Delaware in June
1998. Its executive offices are located at 1950 Louis Henna Blvd., Round Rock,
Texas 78664, and its telephone number is (512)246-5200.
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<PAGE> 42
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the exchange
notes. In consideration for issuing the exchange notes as contemplated in this
prospectus, we will receive in exchange existing notes in like principal amount.
The existing notes surrendered in exchange for exchange notes will be retired
and canceled and cannot be reissued. Issuance of the exchange notes will not
result in a change in our amount of outstanding debt.
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<PAGE> 43
CAPITALIZATION
The following table sets forth the capitalization of AMPAM as of March 31,
1999 on a pro forma combined basis after giving effect to the acquisitions and
related transactions and giving effect to the original issuance of the notes and
the application of the proceeds therefrom. This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Combined Liquidity and Capital Resources" and the
Unaudited Pro Forma Financial Statements of AMPAM and the notes thereto,
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF
MARCH 31,
1999
--------------
PRO FORMA(A)
--------------
(IN THOUSANDS)
<S> <C>
Cash........................................................ $ 10,858
========
Long-term obligations (including current maturities):
Credit facility........................................... $ --
Senior Notes.............................................. 122,418(b)
Other debt................................................ 3,068(c)
--------
Total debt.................................................. 125,486
--------
Redeemable preferred stock(d)............................... 13,635
--------
Stockholders' equity(e)..................................... 17,684
--------
Total capitalization.............................. $156,805
========
</TABLE>
- ---------------
(a) Gives effect to the acquisition of the founding companies and other
related pro forma adjustments, as if all of these transactions had
occurred on March 31, 1999 and to the private placement of the notes and
the application of the net proceeds to repay outstanding indebtedness, as
if these transactions had occurred on March 31, 1999.
(b) Net of unamortized discount of $2,582,000.
(c) Consists of capital lease obligations.
(d) The redeemable preferred stock has a $0.01 par value per share. Currently,
there are 1,048,820 shares of Series A Preferred Stock issued and
outstanding with a liquidation preference of $13.6 million.
(e) Consists of common stock with a $0.01 par value per share. There are
105,000,000 shares authorized and 12,207,207 shares issued and
outstanding. This includes 2,423,517 issued and outstanding shares of
Class B common stock (5,000,000 authorized). All of these shares of Class
B common stock have been issued to Sterling City Capital, LLC, the
management of AMPAM and other individuals. See "Certain
Transactions -- Organization of AMPAM." Excludes (i) any additional shares
that may be issued as additional consideration to the former stockholders
of the founding companies and (ii) 2,142,115 shares which may be issued
upon exercise of stock options which were granted upon consummation of the
acquisitions. See "Certain Transactions -- Acquisition of Founding
Companies." Also includes common stock and additional paid-in capital of
$22.6 million and a retained deficit of $4.9 million. Pro forma adjusted
amount of stockholders equity reflects the write-off of deferred loan
costs and the extinguishment of recorded warrant value associated with the
repayment of the subordinated loan.
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<PAGE> 44
SELECTED HISTORICAL FINANCIAL DATA
AMPAM acquired the founding companies simultaneously on April 1, 1999. For
financial statement presentation purposes, Christianson has been identified as
the "accounting acquirer." As the accounting acquiror, for accounting purposes
under SEC SAB No. 97, Christianson is treated as
- having acquired all the other founding companies (even though AMPAM
legally made these acquisitions),
- having merged with AMPAM (with purchase accounting reflected for
AMPAM's non-management stock ownership) and
- representing the financial history of AMPAM prior to April 1, 1999.
The following selected historical financial data for Christianson (not combined
or pro forma for the acquisition of the founding companies) as of December 31,
1997 and 1998 and August 31, 1996, and for the years ended August 31, 1995 and
1996, the four-month period ended December 31, 1996 and the years ended December
31, 1997 and 1998 and for the three months ended March 31, 1999, have been
derived from the audited financial statements of Christianson included elsewhere
in this Prospectus and reflect all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of such data. The selected
historical financial data as of March 31, 1999 and for the three months ended
March 31, 1998, and as of August 31, 1993, 1994 and 1995 and for the years ended
August 31, 1993 and 1994, have been derived from the unaudited financial
statements of Christianson and, in the opinion of the Company management,
reflect all adjustments consisting of normal recurring adjustments necessary for
a fair presentation of such data. The results of operations for the three months
ended March 31, 1999 should not be regarded as indicative of the results that
may be expected for the full year.
<TABLE>
THREE
MONTHS
ENDED
FOUR MONTHS FOUR MONTHS YEAR ENDED MARCH
YEARS ENDED AUGUST 31, ENDED ENDED DECEMBER 31, 31,
--------------------------- DECEMBER 31, DECEMBER 31, ----------------- -------
1994 1995 1996 1995 1996 1997 1998 1998
------- ------- ------- ------------ ------------- ------- ------- -------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
(CHRISTIANSON):
Revenues....................... $43,284 $39,449 $50,330 $14,619 $15,576 $50,909 $63,374 $12,744
Cost of revenues (including
depreciation)................ 31,327 29,805 38,203 11,044 11,868 37,504 45,704 9,024
------- ------- ------- ------- ------- ------- ------- -------
Gross profit................... 11,957 9,644 12,127 3,575 3,708 13,405 17,670 3,720
Selling, general and
administrative expenses...... 11,834 8,977 11,051 3,430 5,142 11,497 17,078 3,253
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations(a)................ 123 667 1,076 145 (1,434) 1,908 592 467
Interest and other income,
net.......................... 133 171 267 225 32 59 56 (18)
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before provision
for income taxes............. 256 838 1,343 370 (1,402) 1,967 648 449
Provision (benefit) for income
taxes........................ 67 258 345 74 (56) 77 32 20
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)(a)........... $ 189 $ 580 $ 998 $ 296 $(1,346) $ 1,890 $ 616 $ 429
======= ======= ======= ======= ======= ======= ======= =======
OTHER FINANCIAL DATA AND RATIOS
(CHRISTIANSON):
Ratio of earnings to fixed
charges(b)................... 3.7x 7.3x 9.9x 8.6x -- 8.8x 3.4x 3.7x
Income (loss) from operations
per common share............. $ 2.39 $ 7.32 $ 13.59 $ 3.74 $(18.11) $ 23.21 $ 7.20 $ 5.22
<CAPTION>
1999
-------
<S> <C>
STATEMENT OF OPERATIONS DATA
(CHRISTIANSON):
Revenues....................... $16,824
Cost of revenues (including
depreciation)................ 11,390
-------
Gross profit................... 5,434
Selling, general and
administrative expenses...... 1,863
-------
Income (loss) from
operations(a)................ 3,571
Interest and other income,
net.......................... (7)
-------
Income (loss) before provision
for income taxes............. 3,564
Provision (benefit) for income
taxes........................ 162
-------
Net income (loss)(a)........... $ 3,402
=======
OTHER FINANCIAL DATA AND RATIOS
(CHRISTIANSON):
Ratio of earnings to fixed
charges(b)................... 19.1x
Income (loss) from operations
per common share............. $ 41.39
</TABLE>
38
<PAGE> 45
<TABLE>
<CAPTION>
AS OF AUGUST 31, AS OF DECEMBER 31, AS OF
------------------------- ------------------ MARCH 31,
1994 1995 1996 1997 1998 1999
------ ------ ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT END OF PERIOD) (CHRISTIANSON):
Working capital........................................... $2,967 $3,343 $ 9,891 $4,279 $ 4,792 $ 8,256
Total assets.............................................. 6,718 5,822 11,607 7,634 11,210 15,876
Long-term obligations, net of current maturities.......... 699 584 425 329 349 532
Total stockholders' equity................................ $3,560 $4,140 $ 3,792 $5,685 $ 6,301 $ 9,703
</TABLE>
- ---------------
(a) The loss from operations and the level of net income in historical periods
is primarily attributable to the level of owner's compensation paid during
those periods.
(b) For the purpose of this calculation "earnings" represents income from
operations before income tax expense, plus fixed charges. "Fixed charges"
consist of interest, whether expensed or capitalized, amortization of debt
expense and an estimated portion of rentals representing interest expense.
As a result of the loss incurred for the four months ended December 31,
1996, earnings were insufficient to cover fixed charges by $1.4 million in
that period.
39
<PAGE> 46
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion should be read in conjunction with the Unaudited
Pro Forma Combined Financial Statements and the founding companies' Financial
Statements and related notes thereto and "Selected Historical Financial Data"
appearing elsewhere in this prospectus.
AMPAM's revenues are derived primarily from plumbing and mechanical
contracting services provided to residential, commercial and institutional
customers. Revenues from construction contracts are generally accounted for on a
percentage-of-completion basis. Maintenance and repair revenues are recognized
as the services are performed. Of AMPAM's 1998 pro forma revenues, approximately
54% were derived from residential services and approximately 46% were derived
from commercial and institutional services. Costs and estimated earnings in
excess of billings on uncompleted contracts are recorded as an asset and
billings in excess of costs and estimated earnings on uncompleted contracts are
recorded as a liability on the balance sheet. Provisions for estimated losses on
uncompleted contracts are made in the period in which the losses are determined.
Changes in job performance, job conditions, estimated profitability and final
contract settlements may result in revisions to costs and income, and their
effects are recognized in the period in which the revisions are determined.
Cost of revenues consists primarily of salaries and benefits of employees
and materials, which represented approximately 28% and 51% of pro forma cost of
revenues in 1998 respectively, as well as, subcontracted services, depreciation,
fuel and other vehicle expenses and equipment rentals. A number of the founding
companies also include salaries of estimators, insurance and other indirect
costs in the cost of revenues. AMPAM's gross margin, which is gross profit
expressed as a percentage of revenues, depends on the relative proportions of
costs related to labor and materials. On projects in which a higher percentage
of the cost of revenues consists of labor costs, AMPAM typically achieves higher
gross margins than on projects in which materials represent more of the cost of
revenues. Selling, general and administrative expenses consist primarily of
compensation and related benefits for owners, management and administrative
salaries and benefits, insurance, advertising, office rent and utilities,
communications and professional fees. In connection with the acquisitions, some
owners and some key employees of the founding companies agreed to reductions in
their compensation and related benefits that would have totaled $14.7 million
for the 1998 fiscal year. Such reductions in salaries, bonuses and benefits have
been reflected as a pro forma adjustment in the Unaudited Pro Forma Combined
Statement of Operations and are reflected in the terms of employment agreements
with AMPAM. See "Unaudited Pro Forma Combined Financial Statements" and the
Notes thereto.
AMPAM believes that it will realize savings from:
- greater volume discounts from suppliers of materials, parts and supplies;
- lower labor costs resulting from scheduling efficiencies and reduced down
time;
- increased use of off-site prefabricated components; and
- increased use of technology.
Offsetting these savings will be costs related to AMPAM's new corporate
management, costs of being a reporting company and costs of integrating the
companies acquired in the acquisitions. See "Business -- Operating Strategy."
The plumbing and mechanical contracting services industry is influenced by
seasonal factors, which generally result in lower activity levels during colder
winter months than other periods. As a result, AMPAM expects that its revenues
and results of operations will generally be lower in the first and fourth
quarters of each fiscal year, and higher in the second and third quarters. See
"Risk Factors -- Our industry experiences upturns and downturns, depending on
the season of the year and this could have an adverse effect on our quarterly
operating results."
40
<PAGE> 47
Members of management and founders received stock and/or stock options in
connection with the organization of AMPAM. The applicable accounting rules
require that the stock issued to some members of our management be treated as
compensation expense. As a result of this treatment, we recorded a non-
recurring, non-cash charge on April 1, 1999 of approximately $6.7 million which
will reduce our EBITDA and net income and will be reflected in our second
quarter results. See "Unaudited Pro Forma Combined Financial Statements" and the
Notes thereto.
SUPPLEMENTAL UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
To facilitate a comparison, the following discussion and analysis is based
on the unaudited pro forma financial statements included elsewhere in this
registration statement. This data includes our results of operations as if the
acquisitions and related transactions were closed on January 1 of the respective
period presented. This data does not necessarily indicate the results that we
would have obtained had these events actually occurred on January 1 of the
respective period presented, or our future results. During the periods presented
below, our founding companies were not under common control or management and,
therefore, the data presented may not be comparable to or indicative of future
performance. The unaudited pro forma financial data is based on preliminary
estimates, available information and some assumptions that our management deems
appropriate. Selling, general and administrative expenses for periods prior to
the acquisitions reflect the effects of historical salary and distributions to
the owners of the founding companies. The data will not be comparable to, and
may not be indicative of, AMPAM's post-combination results of operations
because:
- the founding companies were not under common control or management and
some founding companies had different tax structures (generally, S
corporations) during the periods presented;
- AMPAM will incur incremental costs for its corporate management and the
costs of being a public company;
- the combined data do not reflect the potential benefits and cost savings
AMPAM expects to realize when operating as a combined entity.
The following table sets forth supplemental unaudited pro forma combined
financial information of the founding companies on a historical basis and as a
percentage of total revenue for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR THREE MONTHS
ENDED(A) ENDED MARCH 31,
1998 1999
-------------- ---------------
<S> <C> <C> <C> <C>
Revenues.................................................... $322,203 100% $88,479 100%
Cost of revenues............................................ 255,461 79 67,178 76%
-------- --- ------- ---
Gross profit.............................................. 66,742 21 21,301 24
Selling, general and administrative expenses................ 31,255 10 9,682 11
Goodwill amortization....................................... 2,693 1 673 1
-------- --- ------- ---
Income from operations.................................... $ 32,794 10% $10,946 12%
======== === ======= ===
</TABLE>
- ---------------
(a) The fiscal year presented is the year ended December 31, 1998 for all
founding companies, except for Croson Ohio, Sherwood and Miller, for which
the fiscal year presented is the year ended September 30, 1998.
Three months ended March 31, 1999
Revenues and gross profit were the same on both a pro forma combined and
historical combined basis for the three months ended March 31, 1999. See
discussion on historical combined revenues and gross profit within "Supplemental
Unaudited Combined Financial Information."
41
<PAGE> 48
The gross profit as a percentage of revenues increased to 24% for the three
months ended March 31, 1999 from 21% for the year ended December 31, 1998. The
increase occurred primarily due to increases at Christianson, RCR, Croson
Florida, and Power. Power's gross margin increased to 28% for the first three
months of 1999, primarily as a result of improvements in the bidding
environment. Croson Florida's, Christianson's, and RCR's gross margins increased
to 34%, 32%, and 21%, respectively, in the first three months of 1999, primarily
due to increased prices resulting from the increased demand for the companies'
services.
Combined selling, general and administrative expenses reduced as a
percentage of revenues in the three months ended March 31, 1999 from the year
ended December 31, 1998 because fixed cost did not increase in proportion to
revenues.
Goodwill amortization was $0.7 million for the three months ended March 31,
1999 on a pro forma combined basis. Goodwill was recorded for the acquisitions
and is being amortized over 40 years.
Fiscal year ended December 31, 1998
Revenues and gross profit were the same on both a pro forma combined and
historical combined basis for the fiscal year ended December 31, 1998. See
discussion on historical combined revenues and gross profit within "Supplemental
Unaudited Combined Financial Information."
Selling, general and administrative expenses were 14% of revenues for the
year ended December 31, 1998.
Goodwill amortization was $2.7 million for the year ended December 31, 1998
on a pro forma combined basis. Goodwill was recorded for the acquisitions and is
being amortized over 40 years.
SUPPLEMENTAL UNAUDITED COMBINED FINANCIAL INFORMATION
To facilitate a meaningful comparison, the following discussion and
analysis is based on the combined historical results of the founding companies.
The following supplemental unaudited combined financial information for the
periods presented do not purport to present those of the combined founding
companies in accordance with generally accepted accounting principles, which do
not allow for the aggregating of financial data for entities that are not under
common ownership. The following discussion represents merely a summation of the
revenues, cost of revenues (including depreciation) and gross profit of the
individual founding companies on a historical basis and excludes the effects of
the pro forma adjustments that are included in the Unaudited Pro Forma Combined
Statements appearing elsewhere in this prospectus. The data will not be
comparable to, and may not be indicative of, AMPAM's post-combination results of
operations because:
- the founding companies were not under common control or management and
some founding companies had different tax structures (generally, S
corporations) during the periods presented;
- AMPAM will use the purchase method to establish a new basis of accounting
to record the acquisitions;
- AMPAM will incur incremental costs for its corporate management and the
costs of being a public company;
- the combined data do not reflect reductions in salary, bonus and benefits
of the owners of the founding companies occurring in connection with the
acquisitions; and
- the combined data do not reflect the potential benefits and cost savings
AMPAM expects to realize when operating as a combined entity.
Nevertheless, management believes that the aggregate financial information
shown below is helpful in understanding the past operations of the founding
companies.
42
<PAGE> 49
The following table sets forth supplemental unaudited combined financial
information of the founding companies on a historical basis and as a percentage
of total revenue for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED(A) THREE MONTHS ENDED MARCH 31,
-------------------------------------------------- -------------------------------
1996(B) 1997 1998 1998 1999
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.............. $236,557 100% $267,516 100% $322,203 100% $ 70,870 100% $88,479 100%
Cost of revenues...... 195,990 83 219,039 82 255,461 79 56,144 79 67,178 76
-------- --- -------- --- -------- --- -------- --- ------- ---
Gross profit........ $ 40,567 17% $ 48,477 18% $ 66,742 21% $ 14,726 21% $21,301 24%
======== === ======== === ======== === ======== === ======= ===
</TABLE>
- ---------------
(a) The fiscal years presented are the years ended December 31, 1996, 1997 and
1998, for all founding companies, except for Croson Ohio, Sherwood and
Miller, for which the fiscal years presented are the years ended September
30, 1996, 1997 and 1998, Nelson, for which the fiscal years presented are
April 30, 1997, December 31, 1997 and 1998 and Christianson for which the
fiscal years presented are August 31, 1996, December 31, 1997 and 1998. For
the three months ended December 31, 1998, Croson Ohio, Sherwood and Miller
had combined revenues of $16,329 and income from operations of $2,146.
(b) Because the 1996 information includes some unaudited 1996 data you are
cautioned not to place undue reliance on this information. Nevertheless,
management believes that this information may be helpful in understanding
the past operations of the founding companies.
Three months ended March 31, 1999 compared to the three months ended March 31,
1998
Revenues increased approximately $17.6 million, or 25%, from $70.9 million
for the three months ended March 31, 1998 to $88.5 million for the three months
ended March 31, 1999. The increase in combined revenues occurred primarily at
RCR, Croson Ohio and Christianson. RCR's revenues increased $6.6 million, or
50%, from the three months ended March 31, 1998 to the three months ended March
31, 1999, primarily as a result of continued growth at the Canoga Park,
California and Las Vegas, Nevada locations. Croson Ohio's revenues increased
$4.9 million, or 39%, from the three months ended March 31, 1998 to the three
months ended March 31, 1999, primarily as a result of an increase in projects.
Christianson's revenues increased $4.1 million, or 32%, from the three months
ended March 31, 1998 to the three months ended March 31, 1999, primarily as a
result of the favorable housing market in Austin and the surrounding areas.
Gross profit increased $6.6 million, or 45%, from $14.7 million for the
three months ended March 31, 1998 to $21.3 for the three months ended March 31,
1999. The increase in combined gross profit occurred primarily due to increases
in gross profit of $1.7 million, or 46%, at Christianson, $1.6 million, or 66%,
at RCR, $1.3 million, or 87%, at Croson Florida, and $1.3 million, or 389%, at
Power. The increase is primarily a result of the increased revenues and
increased gross margins of each of these companies. Combined gross margin
increased from 21% in the first three months of 1998 to 24% in the first three
months of 1999. Power's gross margin increased to 28% for the first three months
of 1999 from 9% for the first three months of 1998, primarily as a result of
improvements in the bidding environment. Croson Florida's, Christianson's, and
RCR's gross margins increased from 24%, 29%, and 19%, respectively, in the first
three months of 1998 to 34%, 32%, and 21%, respectively, in the first three
months of 1999, primarily due to increased prices resulting from the increased
demand for the companies' services.
Fiscal year ended December 31, 1998 compared to fiscal year ended December 31,
1997
Combined revenues increased approximately $54.7 million, or 20%, from
$267.5 million for the 1997 fiscal year to $322.2 million for the 1998 fiscal
year. The increase in combined revenues occurred primarily at RCR, Christianson,
Croson Florida and Teepe's. RCR's revenues increased $13.6 million, or 27%, from
$49.7 million for the 1997 fiscal year to $63.3 million for the 1998 fiscal
year, primarily as a result of an increase in the number and size of projects
and contracts, reflecting the growth from two new facilities in Canoga Park,
California and Las Vegas, Nevada. Christianson's revenues increased $12.5
million, or
43
<PAGE> 50
24.5%, from $50.9 million for the 1997 fiscal year to $63.4 million for the 1998
fiscal year, primarily as a result of increased market share, more favorable
contract pricing and increased construction activity in the Austin and central
Texas housing market. Croson Florida's revenues increased $10.0 million, or 56%,
from $18.1 million for the 1997 fiscal year to $28.1 million for the 1998 fiscal
year, primarily due to expanded operations and contract volumes at Croson
Florida's facility in the Tampa/Fort Meyers, Florida area. Teepe's revenues
increased $7.9 million, or 19%, from $42.7 million for the 1997 fiscal year to
$50.6 million for the 1998 fiscal year, primarily as a result of an increase in
large commercial construction contracts in the Columbus, Ohio area as well as
continued growth in governmental and institutional projects. The most
significant increase in revenues among the other founding companies was an
increase of $4.8 million, or 16%, which occurred at Keith Riggs, primarily as a
result of increased demand for services due to increased housing starts and also
due to increased maintenance revenues.
Combined gross profit increased $18.2 million, or 38%, from $48.5 million
for the 1997 fiscal year to $66.7 million for the 1998 fiscal year, generally as
a result of increased market share, more favorable pricing and increased
construction activity in AMPAM's markets. The increase in combined gross profit
occurred primarily due to increases in gross profit of $4.3 million, or 32%, at
Christianson, $4.3 million, or 59%, at RCR, and $3.5 million, or 83%, at Croson
Florida. The increase in combined gross profit is primarily attributable to
increased revenues and increased margins of each of these companies. Combined
gross margin increased to 21% for the 1998 fiscal year from 18% for the 1997
fiscal year. Christianson's gross margin increased to 28% for the 1998 fiscal
year from 26% for the 1997 fiscal year, primarily as a result of small price
increases for new home construction and increased maintenance revenues. RCR's
gross margin increased to 18% for the 1998 fiscal year from 15% for the 1997
fiscal year, primarily due to improved pricing on many contracts as a result of
increased demand for RCR's services as well as due to efficiencies gained
through additional experience in the Canoga Park, California and Las Vegas,
Nevada markets. Croson Florida's gross margin increased to 27% for the 1998
fiscal year from 23% for the 1997 fiscal year, primarily as a result of
favorable pricing of its contracts in the Tampa/Fort Meyers, Florida area.
Fiscal year ended December 31, 1997 compared to fiscal year ended December 31,
1996
Revenues increased approximately $30.9 million, or 13%, from $236.6 million
for the 1996 fiscal year to $267.5 million for the 1997 fiscal year. The
increase in combined revenues occurred primarily at RCR, Teepe's and Croson
Florida. RCR's revenues increased $9.3 million, or 23%, from 1996 to 1997,
primarily as a result of the opening of two new facilities in early 1997.
Teepe's revenues increased $7.3 million, or 21%, from 1996 to 1997, primarily as
a result of an increase in large commercial construction contracts serviced from
Teepe's new facility in Columbus, Ohio which opened in August of 1997. Croson
Florida's revenues increased $6.4 million, or 54%, from 1996 to 1997, primarily
as a result of an increase in the number and size of contracts and revenues from
a new facility in Tampa/Fort Meyers, Florida. All of the remaining seven
founding companies reported an increase between the 1997 and 1996 fiscal year,
except for Miller, which reported a decrease of $2.6 million, due to the fact
that in 1997 Miller ceased to provide HVAC services which it had begun providing
to a major customer in 1996.
Gross profit increased $7.9 million, or 19%, from $40.6 million for the
1996 fiscal year, to $48.5 million for the 1997 fiscal year. The increase in
combined gross profit occurred primarily due to increases in gross profit of
$2.0 million, or 38%, at RCR, $1.8 million, or 73%, at Croson Florida and $1.3
million, or 11%, at Christianson. The increase in combined gross profit is
primarily attributable to increased revenues and increased gross margins of each
of these companies. Combined gross margin increased slightly from 17% during the
1996 fiscal year to 18% during the 1997 fiscal year. RCR's gross margin
increased to 15% for the 1997 fiscal year from 13% for the 1996 fiscal year.
Croson Florida's gross margin increased to 23% during the 1997 fiscal year from
21% during the 1996 fiscal year, primarily as a result of Croson Florida's new
facility in the Tampa/Fort Meyers, Florida market and favorable overall pricing
of contracts. Christianson's gross margin increased to 26% for the 1997 fiscal
year from 24% for the 1996 fiscal year, primarily due to continued discounts on
materials purchases and incentive compensation programs.
44
<PAGE> 51
LIQUIDITY AND CAPITAL RESOURCES
On a pro forma basis as adjusted for the original issuance of the notes, as
of March 31, 1999, AMPAM would have had approximately $30.9 million of working
capital, and $125.5 million of outstanding indebtedness including capital lease
obligations totaling $3.1 million.
On a historical combined basis, the founding companies generated $8.3
million of cash from operating activities for the three months ended March 31,
1999, which includes owners compensation payments of $0.5 million in excess of
the payments to be made to the owners in accordance with their respective
employment agreements. Net cash provided by investing activities for the three
months ended March 31, 1999, was $2.2 million on a combined basis and was
primarily proceeds from sales of property and equipment. Net cash used in
financing activities for the three months ended March 31, 1999, was $6.6 million
on a combined basis and was primarily used for debt repayment and capital
distributions.
On April 1, 1999, AMPAM entered into a credit facility with The First
National Bank of Chicago. The total commitment under the credit facility is $95
million, of which AMPAM drew approximately $70.3 million at the closing of the
acquisitions to fund a portion of the cash portion of acquisition consideration.
All of these amounts were repaid with proceeds of the original issuance of the
notes, leaving the full commitment of the credit facility available for
borrowings after closing subject to the borrowing conditions set forth in the
credit facility. See "Description of Other Indebtedness."
On April 1, 1999, AMPAM also entered into a subordinated loan with Fleet
Corporate Finance, Inc. The total commitment under the subordinated loan is
approximately $30 million, all of which was drawn at closing. AMPAM used all of
this amount to fund a part of the cash portion of the acquisition consideration.
The entire amount of the subordinated loan was repaid with the proceeds of the
original issuance of the notes.
As part of the acquisitions, AMPAM issued 1,048,820 shares of its series A
preferred stock. This preferred stock has a liquidation value of $13 per share.
The holders of the preferred stock are entitled to receive dividends at an
annual rate of 10% based upon the liquidation value, payable semi-annually. Each
semi-annual interest payment will be approximately $682,000. This preferred
stock will convert into common stock upon the occurrence of certain significant
corporate events. See "Certain Transactions -- Acquisition of Founding
Companies -- Acquisition Consideration -- Series A Redeemable Preferred Stock."
Also as part of the acquisitions, AMPAM may be obligated to pay the former
stockholders of the founding companies additional consideration if the founding
companies meet previously set income thresholds or targets. This additional
consideration is payable no later than April 30, 2000 in the form of cash and
stock. The maximum amount of additional consideration which may be required to
be paid under the terms of the acquisition agreements is approximately $28
million. Half of this amount must be cash (or AMPAM notes at the election of the
recipient) with the balance paid in the form of common stock. The amount of
additional consideration we may be required to pay depends on how many founding
companies meet their targets and by how much these targets are exceeded. See
"Certain Transactions -- Acquisition of Founding Companies -- Additional
Consideration."
On May 19, 1999, AMPAM sold $125,000,000 aggregate principal amount of the
existing notes to qualified institutional buyers in a private placement. The
existing notes are being exchanged for new notes with substantially identical
terms in the exchange offer. These notes accrue interest at the rate of 11 5/8%.
AMPAM will make interest payments of $7.3 million semi-annually on these notes.
These notes will be due in October of 2008.
We have the ability to issue stock options as a way to reward employees and
to attract them to come work for us. Because the exercise price of these options
is equal to or greater than the fair market value of the common stock on the
date of grant, their issuance should have nominal effect on our results of
operations other than any dilutive effect they may have on our earnings per
share; however the footnotes to our audited financial statements will reflect,
on a pro forma basis, the cost to us of issuing these options under the fair
value method of accounting as required by SFAS 123.
45
<PAGE> 52
We currently have commitments for capital expenditures aggregating
approximately $3.3 million over the next 12 months. These expenses primarily
relate to the purchase of vehicles and equipment and will be funded from cash
flow from operations.
AMPAM anticipates that its cash flow from operations will provide
sufficient cash to enable AMPAM to meet its working capital needs, debt service
requirements and planned capital expenditures for property and equipment through
the foreseeable future. Combined capital expenditures for the founding companies
for the 1998 fiscal year were $2.8 million.
AMPAM intends to continue pursuing attractive acquisition opportunities. We
currently intend to acquire companies for a mix of stock and cash. The timing,
size or success of any acquisition effort and the associated potential capital
commitments cannot be predicted. AMPAM expects to fund future acquisitions
primarily with working capital, cash flow from operations and borrowings,
including any unborrowed portion of the credit facility, as well as issuances of
additional equity.
Due to the relatively low levels of inflation experienced in the 1996, 1997
and 1998 fiscal years, inflation did not have a significant effect on the
results of the combined founding companies in those fiscal years, or on any of
the founding companies, individually.
CHRISTIANSON RESULTS OF OPERATIONS
Christianson is headquartered outside Austin, Texas, with an additional
office in San Antonio, Texas, and operates principally in central Texas. The
following table sets forth selected statement of operations data and data as a
percentage of revenues for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
AUGUST 31, ------------------------------ ------------------------------
1996 1997 1998 1998 1999
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................. $50,330 100% $50,909 100% $63,374 100% $12,744 100% $16,824 100%
Cost of revenues.......... 38,203 76 37,504 74 45,704 72 9,024 71 11,390 68
------- --- ------- --- ------- --- ------- --- ------- ---
Gross profit............ 12,127 24 13,405 26 17,670 28 3,720 29 5,434 32
Selling, general and
administrative
expenses................ 11,051 22 11,497 23 17,078 27 3,253 26 1,863 11
------- --- ------- --- ------- --- ------- --- ------- ---
Income from
operations............ $ 1,076 2% $ 1,908 3% $ 592 1% $ 467 3% $ 3,571 21%
======= === ======= === ======= === ======= === ======= ===
</TABLE>
Three months ended March 31, 1999 compared to the three months ended March 31,
1998
Revenues increased $4.1 million, or 32%, from $12.7 million for the three
months ended March 31, 1998 to $16.8 million for the three months ended March
31, 1999, primarily due to price increases for new home construction contracts
and increases in the number of construction contracts resulting from the
favorable housing market in Austin and surrounding areas.
Gross profit increased $1.7 million, or 46%, during the three months ended
March 31, 1999 to $5.4 million, and gross margin increased to 32% in the first
three months of 1999 from 29% in the first three months of 1998 as a result of
price increases for new home construction contracts and increased maintenance
and service revenues.
Selling, general and administrative expenses decreased $1.4 million, or
43%, from $3.3 million for the three months ended March 31, 1998 to $1.9 million
for the three months ended March 31, 1999. The decrease was a result of a
decrease in officer compensation, offset by an increase in overhead related to
the overall growth in the business. The total officers' compensation for the
three months ended March 31, 1999 was $0.4 million compared to $2.1 million for
the three months ended March 31, 1998 due to agreed upon compensation
reductions.
46
<PAGE> 53
Year ended December 31, 1998 compared to the year ended December 31, 1997
Revenues increased $12.5 million, or 25%, from $50.9 million for the year
ended December 31, 1997 to $63.4 million for the year ended December 31, 1998,
primarily due to increased market share as a result of contracts with new
builder customers, small increases in contract pricing and increased
construction activity in the Austin and central Texas housing market.
Gross profit increased $4.3 million, or 32%, during the year ended December
31, 1998 to $17.7 million, and gross margin increased to 28% in 1998 from 26% in
1997 as a result of small increases in contract pricing and increased
maintenance and service revenues.
Selling, general and administrative expenses increased $5.6 million, or
49%, from $11.5 million for the year ended December 31, 1997 to $17.1 million
for the year ended December 31, 1998. The increase was attributable to an
increase in officer compensation and increases in administrative costs due to
the increased volume of contracts. The total officers' compensation for the year
ended December 31, 1998 was $10.7 million.
Year ended December 31, 1997 compared to the year ended August 31, 1996
Revenues increased $0.6 million, or 1%, from $50.3 million for the year
ended August 31, 1996 to $50.9 million for the 1997 fiscal year, primarily as a
result of increased construction activity in Christianson's areas of operations.
Gross profit increased $1.3 million, or 11%, during the 1997 fiscal year to
$13.4 million, and gross margin increased to 26% during the 1997 fiscal year
from 24% during the 1996 fiscal year as a result of continued discounts on
materials purchases and incentive compensation programs.
Selling, general and administrative expenses increased $0.4 million, or 4%,
from $11.1 million for the 1996 fiscal year to $11.5 million for the 1997 fiscal
year. The increase was attributable to an increase in rent expenses and real
property taxes after Christianson's relocation to a new headquarters facility in
November 1997 offset by a $0.3 million reduction in total officers' compensation
for the year ended December 31, 1997 which was $6.6 million.
LIQUIDITY AND CAPITAL RESOURCES
Christianson generated approximately $3.7 million of net cash from
operating activities for the three months ended March 31, 1999 primarily due to
net income before depreciation and deferred income taxes of $3.5 million and a
decrease in working capital of $0.2 million. Net cash used in investing
activities was approximately $0.1 million related to the purchase of property
and equipment. Net cash used in financing activities was approximately $0.1
million, primarily related to the repayment of long-term debt.
At March 31, 1999, Christianson had working capital of $8.3 million and
total debt of $1.0 million.
Christianson generated approximately $2.5 million of net cash from
operating activities for year ended December 31, 1998 primarily due to net
income before depreciation and deferred income taxes of $1.3 million and a
decrease in working capital of $1.2 million. Net cash used in investing
activities was approximately $0.2 million related to the purchase of property
and equipment. Net cash used in financing activities was approximately $0.5
million, primarily related to the repayment of long-term debt.
At December 31, 1998, Christianson had working capital of $4.8 million and
total debt of $0.8 million.
RCR RESULTS OF OPERATIONS
RCR is headquartered in Riverside, California, east of Los Angeles, with
additional facilities in Las Vegas, Nevada and Canoga Park, California in the
San Fernando Valley. The following table sets forth
47
<PAGE> 54
selected statement of operations data and data as a percentage of revenues for
the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
----------------------------------------------- ------------------------------
1996 1997 1998 1998 1999
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................. $40,430 100% $49,738 100% $63,293 100% $13,200 100% $19,815 100%
Cost of revenues.......... 35,102 87 42,377 85 51,604 82 10,744 81 15,735 79
------- --- ------- --- ------- --- ------- --- ------- ---
Gross profit............ 5,328 13 7,361 15 11,689 18 2,456 19 4,080 21
Selling, general and
administrative
expenses................ 3,979 10 5,712 12 8,370 13 1,724 13 2,452 13
------- --- ------- --- ------- --- ------- --- ------- ---
Income from
operations............ $ 1,349 3% $ 1,649 3% $ 3,319 5% $ 732 6% $ 1,628 8%
======= === ======= === ======= === ======= === ======= ===
</TABLE>
Three months ended March 31, 1999 compared to the three months ended March 31,
1998
Revenues increased $6.6 million, or 50%, from $13.2 million for the three
months ended March 31, 1998 to $19.8 million for the three months ended March
31, 1999, primarily as a result of continued growth generated by the two newer
facilities in Canoga Park, California and Las Vegas, Nevada.
Gross profit increased $1.6 million, or 66%, during the three months ended
March 31, 1999 to $4.0 million, and gross margin increased to 21% in the first
three months of 1999 from 19% in the first three months of 1998 as a result of
increases in pricing on many contracts reflecting increased demand for RCR's
services and cost efficiencies achieved in the additional markets serviced by
the two newer facilities.
Selling, general and administrative expenses increased $0.8 million, or
42%, from $1.7 million for the three months ended March 31, 1998 to $2.5 million
for the three months ended March 31, 1999. The increase was attributable to an
increase in administrative support related to the continued growth generated by
the newer facilities.
Year ended December 31, 1998 compared to the year end December 31, 1997
Revenues increased $13.6 million, or 27%, from $49.7 million for the year
ended December 31, 1997 to $63.3 million for the year ended December 31, 1998,
primarily as a result of an increase in the number and size of projects and
contracts, reflecting the growth from two new facilities in Canoga Park,
California and Las Vegas, Nevada.
Gross profit increased $4.3 million, or 59%, during the year ended December
31, 1998 to $11.7 million, and gross margin increased to 18% in 1998 from 15% in
1997 as a result of improved pricing on many contracts as well as due to
efficiencies gained through additional experience in the Canoga Park and Las
Vegas markets.
Selling, general and administrative expenses increased $2.7 million, or
47%, from $5.7 million for the December 31, 1997 to $8.4 million for the
December 31, 1998. The increase was attributable to an increase in
administrative support required by the increased contract volumes.
Year ended December 31, 1997 compared to the year ended December 31, 1996
Revenues increased $9.3 million, or 23%, from $40.4 million for the 1996
fiscal year to $49.7 million for the 1997 fiscal year, primarily as a result of
the opening of two new operating divisions in early 1997 in Canoga Park,
California and Las Vegas, Nevada.
Gross profit increased $2.0 million, or 38%, during the 1997 fiscal year to
$7.4 million as a result of an increase in revenues for two new facilities in
Canoga Park, California and Las Vegas, Nevada and improvements in gross margin.
Gross margin increased slightly to 15% during the year ended December 31, 1997
from 13% during the 1996 fiscal year.
48
<PAGE> 55
Selling, general and administrative expenses increased $1.7 million, or
44%, from $4.0 million for the 1996 fiscal year to $5.7 million for the 1997
fiscal year. The increase was attributable to an increase in administrative
support required by the increased contract volumes and costs related to two
start-up divisions.
TEEPE'S RESULTS OF OPERATIONS
Teepe's is headquartered in Cincinnati, Ohio, with an additional facility
added in August of 1997 in Columbus, Ohio. The following table sets forth
selected statement of operations data as a percentage of revenues for the
periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
----------------------------------------------- ------------------------------
1996 1997 1998 1998 1999
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................. $35,400 100% $42,687 100% $50,627 100% $11,449 100% $10,546 100%
Cost of revenues.......... 30,410 86 37,170 87 44,048 87 10,066 88 9,287 88
------- --- ------- --- ------- --- ------- --- ------- ---
Gross profit............ 4,990 14 5,517 13 6,579 13 1,383 12 1,259 12
Selling, general and
administrative
expenses................ 3,414 10 4,158 10 4,779 9 1,205 10 1,126 11
------- --- ------- --- ------- --- ------- --- ------- ---
Income from
operations............ $ 1,576 4% $ 1,359 3% $ 1,800 4% $ 178 2% $ 133 1%
======= === ======= === ======= === ======= === ======= ===
</TABLE>
Three months ended March 31, 1999 compared to the three months ended March 31,
1998
Revenues decreased $0.9 million, or 8%, from $11.4 million for the three
months ended March 31, 1998 to $10.5 million for the three months ended March
31, 1999, primarily due to the fact that the majority of the projects in
progress during the first three months of 1999 were in the beginning stages, the
phase in which less revenues are earned.
Gross profit decreased $0.1 million, or 9%, from $1.4 million during the
three months ended March 31, 1998 to $1.3 million during the three months ended
March 31, 1998, as a result of the decrease in revenues discussed above. Gross
margin remained constant for the three months ended March 31, 1998 and 1999 at
12%.
Selling, general and administrative expenses decreased $0.1 million, or 7%,
from $1.2 million for the three months ended March 31, 1998 to $1.1 million for
the three months ended March 31, 1999. The decrease is a result of certain cost
reduction measures implemented by management coupled with the voluntary
termination of certain members of the office staff who have not been replaced.
Year ended December 31, 1998 compared to the year ended December 31, 1997
Revenues increased $7.9 million, or 19%, from $42.7 million for the year
ended December 31, 1997 to $50.6 million for the year ended December 31, 1998,
primarily as a result of an increase in large commercial construction contracts
in the Columbus, Ohio area as well as continued growth in governmental and
institutional projects.
Gross profit increased $1.1 million, or 19%, from $5.5 million during the
year ended December 31, 1997 to $6.6 million during the year ended December 31,
1998, as a result of an increased number of successful bids with higher gross
margins and further expansion in the Columbus, Ohio market. Gross margin
remained constant for 1997 and 1998 at 13%.
Selling, general and administrative expenses increased $0.6 million, or
15%, from $4.2 million for the year ended December 31, 1997 to $4.8 million for
the year ended December 31, 1998. The increase was attributable to an increase
in administrative support required by the higher level of revenues and due to
additional overhead associated with the opening of a new facility in the
Columbus, Ohio area.
49
<PAGE> 56
Year ended December 31, 1997 compared to the year ended December 31, 1996
Revenues increased $7.3 million, or 21%, from $35.4 million for the 1996
fiscal year to $42.7 million for the 1997 fiscal year, primarily as a result of
an increase in large commercial construction contracts performed from a new
facility in Columbus, Ohio which opened in August of 1997.
Gross profit increased $0.5 million, or 11%, from $5.0 million during the
1996 fiscal year to $5.5 million during the 1997 fiscal year, and gross margin
decreased to 13% during the 1997 fiscal year from 14% during the 1996 fiscal
year as a result of further efforts to expand into the Columbus, Ohio market.
Selling, general and administrative expenses increased $0.7 million, or
22%, from $3.4 million for the 1996 fiscal year to $4.2 million for the 1997
fiscal year. The increase was attributable to an increase in administrative
support required by the increased contract volumes and one-time start-up costs
associated with the opening of a new facility in Columbus, Ohio.
KEITH RIGGS RESULTS OF OPERATIONS
Keith Riggs is headquartered in Phoenix, Arizona. The following table sets
forth selected statement of operations data and data as a percentage of revenues
for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------ ------------------------------
1997 1998 1998 1999
------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................................. $29,680 100% $34,464 100% $ 7,279 100% $ 8,917 100%
Cost of revenues.......................... 25,865 87 29,965 87 6,190 85 7,457 84
------- --- ------- --- ------- --- -------
Gross profit............................ 3,815 13 4,499 13 1,089 15 1,460 16
Selling, general and administrative
expenses................................ 2,583 9 2,943 9 655 9 728 8
------- --- ------- --- ------- --- -------
Income from operations.................. $ 1,232 4% $ 1,556 4% $ 434 6% $ 732 8%
======= === ======= === ======= === ======= ===
</TABLE>
Three months ended March 31, 1999 compared to the three months ended March 31,
1998
Revenues increased $1.6 million, or 23%, from $7.3 million for the three
months ended March 31, 1998 to $8.9 million for the three months ended March 31,
1999, primarily due to an increase in average billing rates and demand for Keith
Riggs' services as a result of the increased construction activity in the
Phoenix metropolitan area.
Gross profit increased $0.4 million, or 34%, from $1.1 million during the
three months ended March 31, 1998 to $1.5 million during the three months ended
March 31, 1999, and gross margin increased to 16% during the first three months
of 1999 from 15% during the first three months of 1998, as a result of price
increases offset by increased labor and other cost efficiencies associated with
additional contract volumes.
Selling, general and administrative expenses remained relatively constant
at $0.7 million for the three months ended March 31, 1998 and 1999.
Year ended December 31, 1998 compared to the year ended December 31, 1997
Revenues increased $4.8 million, or 16%, from $29.7 million for the year
ended December 31,1997 to $34.5 million for the year ended December 31, 1998,
primarily as a result of increased demand for Keith Riggs' services due to
increased housing starts.
Gross profit increased $0.7 million, or 18%, from $3.8 million during the
year ended December 31, 1997 to $4.5 million during the year ended December 31,
1998, as a result of increased revenues from new housing starts.
Selling, general and administrative expenses increased $0.4 million, or
14%, from $2.6 million for the year ended December 31,1997 to $2.9 million for
the year ended December 31, 1998. The increase was attributable to an increase
in administrative support required by the increased contract volumes.
50
<PAGE> 57
CROSON OHIO RESULTS OF OPERATIONS
Croson Ohio is headquartered in Columbus, Ohio. The following table sets
forth selected statement of operations data and data as a percentage of revenues
for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, SIX MONTHS ENDED MARCH 31,
----------------------------------------------- ------------------------------
1996 1997 1998 1998 1999
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................. $26,185 100% $27,029 100% $25,234 100% $12,330 100% $17,194 100%
Cost of revenues.......... 22,305 85 22,970 85 20,438 81 10,500 85 14,407 84
------- --- ------- --- ------- --- ------- --- ------- ---
Gross profit............ 3,880 15 4,059 15 4,796 19 1,830 15 2,787 16
Selling, general and
administrative
expenses................ 2,263 9 2,217 8 2,032 8 894 7 1,232 7
------- --- ------- --- ------- --- ------- --- ------- ---
Income from
operations............ $ 1,617 6% $ 1,842 7% $ 2,764 11% $ 936 8% $ 1,555 9%
======= === ======= === ======= === ======= === ======= ===
</TABLE>
Six months ended March 31, 1999 compared to the six months ended March 31,
1998
Revenues increased $4.9 million or 39%, from $12.3 million for the six
months ended March 31, 1998 to $17.2 million for the six months ended March 31,
1999, primarily as a result of additional HVAC and plumbing projects.
Gross profit increased $1.0 million, or 52%, from $1.8 million during the
six months ended March 31, 1998 to $2.8 million during the six months ended
March 31, 1999, and gross margin increased nominally to 16% in 1999 from 15% in
1998 as a result of increased prices, as well as cost efficiencies, for
wastewater treatment plant projects.
Selling, general and administrative expenses increased $0.3 million, or 38%
from $0.9 million for the six months ended March 31, 1998 to $1.2 million for
the six months ended March 31, 1999, primarily as a result of an increase in
advertising and supply expense related to the combination of Croson Ohio's and
Teepe's operations as well as an increase in administrative salaries.
Year ended September 30, 1998 compared to the year ended September 30, 1997
Revenues decreased $1.8 million or 7%, from $27.0 million for the year
ended September 30, 1997 to $25.2 million for the year ended September 30, 1998,
primarily as a result of a decrease in new starts due to strong competition in
Ohio.
Gross profit increased $0.7 million, or 18%, from $4.1 million during the
year ended September 30, 1997 to $4.8 million during the year ended September
30, 1998, and gross margin increased to 19% in 1998 from 15% in 1997 as a result
of increased revenues and prices on wastewater treatment plant projects, as well
as improved margins for specific jobs.
Selling, general and administrative expenses decreased $0.2 or 8% from $2.2
million for the year ended September 30, 1997 to $2.0 million for the year ended
September 30, 1998, primarily as a result of a decrease in administrative
salaries due to the retirement of a key employee. In addition, Croson Ohio
replaced the profit sharing plan with a discretionary bonus plan, which resulted
in less expense.
Year ended September 30, 1997 compared to the year ended September 30, 1996
Revenues increased $0.8 million, or 3%, from $26.2 million for the 1996
fiscal year to $27.0 million for the 1997 fiscal year, primarily as a result of
larger contracts for mechanical contracting services for wastewater and
purification projects, offset by smaller plumbing contracting services contracts
due to increased competition in the Columbus, Ohio area.
Gross profit increased $0.2 million, or 5%, from $3.9 million during the
1996 fiscal year to $4.1 million during the 1997 fiscal year, as a result of
increased revenues. Gross margin remained relatively constant at 15% for the
1996 and 1997 fiscal years.
51
<PAGE> 58
Selling, general and administrative expenses remained relatively constant
at approximately $2.2 million in 1996 and 1997.
CROSON FLORIDA RESULTS OF OPERATIONS
Croson Florida is headquartered in Orlando, Florida, with additional
facilities in Sorrento and Tampa, Florida. The following table sets forth
selected statement of operations data and data as a percentage of revenues for
the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
----------------------------------------------- ----------------------------
1996 1997 1998 1998 1999
------------- ------------- ------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................... $11,722 100% $18,095 100% $28,142 100% $6,148 100% $8,274 100%
Cost of revenues............ 9,300 79 13,916 77 20,483 73 4,658 76 5,482 66
------- --- ------- --- ------- --- ------ --- ------ ---
Gross profit.............. 2,422 21 4,179 23 7,659 27 1,490 24 2,792 34
Selling, general and
administrative expenses... 1,050 9 2,213 12 2,960 10 718 12 869 11
------- --- ------- --- ------- --- ------ --- ------ ---
Income from operations.... $ 1,372 12% $ 1,966 11% $ 4,699 17% $ 772 12% $1,923 23%
======= === ======= === ======= === ====== === ====== ===
</TABLE>
Three months ended March 31, 1999 compared to the three months ended March 31,
1998
Revenues increased $2.2 million, or 35%, from $6.1 million for the three
months ended March 31, 1998 to $8.3 million for the three months ended March 31,
1999, primarily due to continued growth and contract volumes in the newer
Tampa/Fort Meyer, Florida operation.
Gross profit increased $1.3 million or, 87%, from $1.5 million during the
three months ended March 31, 1998 to $2.8 million during the three months ended
March 31, 1999, and gross margin increased to 34% in the first three months of
1999 from 24% in the first three months of 1998 as a result of price increases
reflecting the demand for Croson Florida's services and costs efficiencies
obtained from additional experience in the newer operation.
Selling, general and administrative expenses increased $0.2 million, or
21%, from $0.7 million for the three months ended March 31, 1998 to $0.9 million
for the three months ended March 31, 1999. The increase was due to an increase
in compensation and an increase in the number of employees needed at the newer
Tampa/Fort Meyer facility.
Year ended December 31, 1998 compared to the year ended December 31, 1997
Revenues increased $10.0 million, or 56%, from $18.1 million for the year
ended December 31, 1997 to $28.1 million for the year ended December 31, 1998,
primarily due to expanded operations and contract volumes at Croson Florida's
facility in the Tampa/Fort Meyers, Florida area.
Gross profit increased $3.5 million or, 83%, during the year ended December
31, 1998 to $7.7 million, and gross margin increased to 27% in 1998 from 23% in
1997 as a result of favorable pricing of contracts in the Tampa/Fort Meyers,
Florida area.
Selling, general and administrative expenses increased $0.8 million, or
34%, from $2.2 million for the year ended December 31, 1997 to $3.0 million for
the year ended December 31, 1998. The increase was attributable to an increase
in workforce and salaries after the opening of the Tampa/Fort Meyers, Florida
facility, as well as increases in bonus and incentive pay.
Year ended December 31, 1997 compared to the year ended December 31, 1996
Revenues increased $6.4 million, or 54%, from $11.7 million for the 1996
fiscal year to $18.1 million for the 1997 fiscal year, primarily as a result of
an increase in the number and size of contracts and revenues from Croson
Florida's new facility in Tampa/Fort Meyers, Florida.
52
<PAGE> 59
Gross profit increased $1.8 million, or 73%, during the 1997 fiscal year to
$4.2 million, and gross margin increased to 23% during the 1997 fiscal year from
21% during the 1996 fiscal year as a result of the new facility in the
Tampa/Fort Meyers, Florida market and favorable overall pricing of contracts.
Selling, general and administrative expenses increased $1.1 million, or
111%, from $1.1 million for the 1996 fiscal year to $2.2 million for the 1997
fiscal year. The increase was attributable to the opening of the new facility in
Tampa/Fort Meyers, Florida, which included increases in administrative salaries
and additional rent and travel expenses.
POWER RESULTS OF OPERATIONS
Power is headquartered in Houston, Texas. The following table sets forth
selected statement of operations data and this data as a percentage of revenues
for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------ ----------------------------
1997 1998 1998 1999
------------- ------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................................... $17,010 100% $17,109 100% $3,501 100% $5,620 100%
Cost of revenues............................ 14,680 86 14,371 84 3,174 91 4,022 72
------- --- ------- --- ------ --- ------ ---
Gross profit.............................. 2,330 14 2,738 16 327 9 1,598 28
Selling, general and administrative
expenses.................................. 1,128 7 1,268 7 217 6 346 6
------- --- ------- --- ------ --- ------ ---
Income from operations.................... $ 1,202 7% $ 1,470 9% $ 110 3% $1,252 22%
======= === ======= === ====== === ====== ===
</TABLE>
Three months ended March 31, 1999 compared to the three months ended March 31,
1998
Revenues increased $2.1 million, or 61%, from $3.5 million for the three
months ended March 31, 1998 to $5.6 million for the three months ended March 31,
1999, primarily as a result of an increase in the demand for Power's services,
which has increased the volume of projects.
Gross profit increased $1.3 million, or 389%, during the three months ended
March 31, 1999 to $1.6 million, and gross margin increased to 28% in the three
months ended March 31, 1999 from 9% in the three months ended March 31, 1998 as
a result of an improved bidding environment resulting from the increase in
demand and slightly lower materials costs. In addition, Power began achieving
cost efficiencies associated with gaining experience working with certain
builders with whom recurring work was performed and further cost reductions were
achieved as a result of Power's business being provided primarily in the Houston
area versus areas outside Houston.
Selling, general and administrative expenses increased $0.1 million, or
59%, from $0.2 million for the three months ended March 31, 1998 to $0.3 million
for the three months ended March 31, 1999. The increase was attributable to a
slight increase in administrative payroll and payroll related costs as well as
an increase in communication costs and in travel and entertainment expenses.
Year ended December 31, 1998 compared to the year ended December 31, 1997
Revenues increased slightly by $0.1 million, or 1%, from $17.0 million for
the year ended December 31, 1997 to $17.1 million for the year ended December
31, 1998, primarily as a result of favorable market conditions in Houston,
offset by the limited capacity to accept additional work.
Gross profit increased $0.4 million, or 18%, during the year ended December
31, 1998 to $2.7 million, and gross margin increased to 16% in the year ended
December 31, 1998 from 14% in the year ended December 31, 1997 as a result of a
decrease in material prices, partially offset by an increase in labor rates.
Selling, general and administrative expenses increased $0.2 million, or
12%, from $1.1 million for the year ended December 31, 1997 to $1.3 million for
the year ended December 31, 1998. The increase was attributable to an increase
in administrative salary expense and increased employee benefits.
53
<PAGE> 60
NELSON RESULTS OF OPERATIONS
Nelson is headquartered in Pensacola, Florida. The following table sets
forth selected statement of operations data and data as a percentage of revenues
for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
ELEVEN
YEAR ENDED APRIL 30, MONTHS ENDED
------------------------------ MARCH 31,
1997 1998 1999
------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues................................................. $12,507 100% $14,240 100% $14,039 100%
Cost of revenues......................................... 9,110 73 9,641 68 9,349 67
------- --- ------- --- ------- ---
Gross profit........................................... 3,397 27 4,599 32 4,690 33
Selling, general and administrative expenses............. 2,408 19 2,458 17 1,914 13
------- --- ------- --- ------- ---
Income from operations................................. $ 989 8% $ 2,141 15% $ 2,776 20%
======= === ======= === ======= ===
</TABLE>
Eleven months ended March 31, 1999 compared to the year ended April 30, 1998
Revenues of $14.0 million were earned during the eleven months ended March
31, 1999 compared to $14.2 million earned during the year ended April 30, 1998.
Fiscal year 1999 revenues are on pace to exceed fiscal year 1998 revenues as a
result of the continued growth in underground utility installation and building
pipe replacement projects.
Gross profit of $4.7 million was earned for the eleven months ended March
31, 1999 compared to $4.6 million earned during the year ended April 30, 1998.
Fiscal year 1999 gross profit is on pace to exceed fiscal year 1998 gross profit
as a result of material and labor cost efficiencies associated with building
pipe replacement contracts. Gross margin increased nominally to 33% in 1999 from
32%.
Selling, general and administrative expenses were $1.9 million for the
eleven months ended March 31, 1999 compared to $2.5 million for the year ended
April 30, 1998, which would result in a decrease for the fiscal year. The
decrease is due to a reduction in officer compensation.
Year ended April 30, 1998 compared to the year ended April 30, 1997
Revenues increased $1.7 million, or 14%, from $12.5 million for the 1997
fiscal year to $14.2 million for the 1998 fiscal year, primarily as a result of
an increase in contracts for underground utility installation and existing
building pipe replacement, partially offset by the effects of the wet winter
season in the panhandle region of Florida.
Gross profit increased $1.2 million, or 35%, during the year ended April
30, 1998 to $4.6 million, and gross margin increased to 32% during the 1998
fiscal year from 27%, during the 1997 fiscal year as a result of increased
margins on materials required for some building pipe replacement contracts, and
reduced labor costs associated with Nelson's underground utility contracts.
Selling, general and administrative expenses increased $0.1 million, or 2%,
from $2.4 million for the 1997 fiscal year to $2.5 million for the 1998 fiscal
year. The increase was attributable to an increase in office labor expense.
SHERWOOD RESULTS OF OPERATIONS
Sherwood is headquartered in San Diego, California. The following table
sets forth selected statement of operations data and data as a percentage of
revenues for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, SIX MONTHS ENDED MARCH 31,
------------------------------ ----------------------------
1997 1998 1998 1999
------------- ------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................................... $11,482 100% $13,556 100% $6,607 100% $7,790 100%
Cost of revenues............................ 9,867 86 11,066 82 5,372 81 6,530 84
------- --- ------- --- ------ --- ------ ---
Gross profit.............................. 1,615 14 2,490 18 1,235 19 1,260 16
Selling, general and administrative
expenses.................................. 1,505 13 2,189 16 850 13 1,150 15
------- --- ------- --- ------ --- ------ ---
Income from operations.................... $ 110 1% $ 301 2% $ 385 6% $ 110 1%
======= === ======= === ====== === ====== ===
</TABLE>
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<PAGE> 61
Six months ended March 31, 1999 compared to the six months ended March 31,
1998
Revenues increased $1.2 million, or 18%, from $6.6 million for the six
months ended March 31, 1998 to $7.8 million for the six months ended March 31,
1999, primarily as a result of an increase in private projects, principally
hotels.
Gross profit increased slightly from $1.2 million for the three months
ended March 31, 1998 to $1.3 million for the three months ended March 31, 1999;
however gross margin decreased to 16% in the six months 1999 from 19% in 1998 as
a result of inefficiency for two specific projects due to contract period
extension.
Selling, general and administrative expenses increased $0.3 million, or
40%, from $0.9 million for the six months ended March 31, 1998 to $1.2 million
for the six months ended March 31, 1999. The increase was attributable to
continued development of the pre-fab department, creation of a Special Projects
division, and expansion of the Design department.
Year ended September 30, 1998 compared to the year ended September 30, 1997
Revenues increased $2.1 million, or 18%, from $11.5 million for the year
ended September 30, 1997 to $13.6 million for the year ended September 30, 1998,
primarily as a result of the expansion into more on-site utility services, and
an increase in public works projects and private projects, principally hotels.
Gross profit increased $0.9 million, or 54%, during 1998 to $2.5 million,
and gross margin increased to 18% in 1998 from 14% in 1997 as a result of
Sherwood's new prefabrication process and improved market conditions as well as
an increase in the number of private sector projects.
Selling, general and administrative expenses increased $0.7 million, or
45%, from $1.5 million for the year ended September 30, 1997 to $2.2 million for
the year ended September 30, 1998. The increase was attributable to an increase
in costs related to the relocation to a new facility and an increase in staffing
necessary to manage growing operations. In addition, Sherwood incurred a one
time charge related to a litigation settlement of approximately $0.3 million.
MILLER RESULTS OF OPERATIONS
Miller is headquartered in Marietta, Georgia. The following table sets
forth selected statement of operations data and data as a percentage of revenues
for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, SIX MONTHS ENDED MARCH 31,
----------------------------- ----------------------------
1997 1998 1998 1999
------------ ------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues..................................... $8,042 100% $11,346 100% $5,369 100% $5,158 100%
Cost of revenues............................. 5,806 72 7,675 68 3,713 69 3,346 65
------ --- ------- --- ------ --- ------ ---
Gross profit............................... 2,236 28 3,671 32 1,656 31 1,812 35
Selling, general and administrative
expenses................................... 2,023 25 2,531 22 1,224 21 892 17
------ --- ------- --- ------ --- ------ ---
Income (loss) from operations.............. $ 213 3% $ 1,140 10% $ 432 8% $ 920 18%
====== === ======= === ====== === ====== ===
</TABLE>
Six months ended March 31, 1999 compared to the six months ended March 31,
1998
Revenues decreased $0.2 million, or 4%, from $5.4 million for the six
months ended March 31, 1998 to $5.2 million for the six months ended March 31,
1999, primarily as a result of a reduction in projects with a significant
customer.
Gross profit increased $0.1 million, or 9%, from $1.7 million during the
six months ended March 31, 1998 to $1.8 million during the six months ended
March 31, 1999, and gross margin increased to 35% in the six months ended March
31, 1999 from 31% in the six months ended March 31, 1998 as a result of
favorable pricing and improved efficiencies resulting from experience obtained
in performing similar projects.
Selling, general and administrative expenses decreased $0.3 million, or
27%, from $1.2 million for the six months ended March 31, 1998 to $0.9 million
for the six months ended March 31, 1999. The decrease was attributable to a
reduction in officer compensation.
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<PAGE> 62
Year ended September 30, 1998 compared to the year ended September 30, 1997
Revenues increased $3.3 million, or 41%, from $8.0 million for the year
ended September 30, 1997 to $11.3 million for the year ended September 30, 1998,
primarily as a result of an increase in multifamily housing starts and increased
contract volumes in Miller's areas of operations.
Gross profit increased $1.4 million, or 64%, from $2.2 million during the
year ended September 30, 1997 to $3.7 million for the year ended September 30,
1998 as a result of the increase in revenues and gross margins. Gross margin
increased to 32% in 1998 from 28% in 1997 as a result of small increases in
contract pricing and increased productivity.
Selling, general and administrative expenses increased $0.5 million, or
25%, from $2.0 million for the year ended September 30, 1997 to $2.5 million for
the year ended September 30, 1998. The increase was attributable to an increase
in officer and employee bonus compensation.
YEAR 2000
Year 2000 Issue. Many software applications, hardware and equipment and
embedded chip systems identify dates using only the last two digits of the year.
These products may be unable to distinguish between dates in the year 2000 and
dates in the year 1900. That inability (referred to as the "Year 2000" issue),
if not addressed, could cause applications, equipment or systems to fail or
provide incorrect information after December 31, 1999, or when using dates after
December 31, 1999. This in turn could have an adverse effect on AMPAM due to
AMPAM's direct dependence on its own applications, equipment and systems and
indirect dependence on those of other entities with which AMPAM must interact.
Systems and Equipment. AMPAM's founding companies utilize two basic types
of computer systems: accounting/administrative and design/estimation. These
systems are generally personal computer based systems or are small network or
local area network systems. Neither AMPAM nor the founding companies employ any
wide area networks or mainframe computers. Because AMPAM's business is not
heavily dependent on the use of computer technology for the completion of the
vast majority of its work, AMPAM believes it will be able to continue
operations, with minor disruptions, were it to experience systems failures as a
result of the Year 2000 issue. AMPAM and the founding companies have had
discussions with their technical vendors and consultants in an attempt to
anticipate any Year 2000 issues and have received either oral assurances as to
their systems' state of readiness or guidance as to steps necessary to ensure
their systems will continue to function in the Year 2000 environment.
Risk of Non-Compliance and Contingency Plans. Potential problems if the
Year 2000 compliance program is not successful could include disruptions of
AMPAM's revenue generation and collection from its customers and purchasing and
payments to its vendors and the inability to perform its other financial and
accounting functions. AMPAM operates on a decentralized basis with each
individual reporting unit having independent information technology (IT) and
non-IT systems. AMPAM's Year 2000 compliance program is focused on the systems
which could materially affect its business. AMPAM has completed a preliminary
assessment of its significant operating units and believes that the systems at
these companies are or will shortly be Year 2000 compliant. AMPAM is in the
process of testing equipment at some of its largest subsidiaries to ensure that
the equipment is Year 2000 compliant. AMPAM currently has assessed its remaining
Year 2000 risk as low because:
- AMPAM is not dependent on any key customers or suppliers (none represent
as much as 5% of AMPAM's sales or purchases, respectfully),
- AMPAM has many separate personal computer based systems and is not
dependent on any one system,
- many of AMPAM's processes are performed using spreadsheets and/or other
manual processes which are not technologically dependent,
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<PAGE> 63
- AMPAM performs construction and service maintenance on site for its
customers, the work performed is manual in nature and not dependent on
automated information technology systems to be completed, and
- AMPAM currently believes that most of its systems that have Year 2000
compliance issues are based on prepackaged third-party software that can
be upgraded at nominal costs through vendor supported upgrades.
As a result, AMPAM believes that its reasonably likely worst case Year 2000
scenario is a temporary inability for it to process the accounting transactions
representing its business activity using automated information systems at some
of its operating units. AMPAM does not currently believe that Year 2000 failures
at AMPAM or the founding company level would materially affect the ability of
AMPAM to complete or continue work on its projects.
The goal of AMPAM's year 2000 project is to ensure that all of the critical
systems and processes which are under the direct control of AMPAM remain
functional. However, because some systems and processes may be interrelated with
systems outside of the control of AMPAM, there can be no assurance that all
implementations will be successful. Accordingly, as part of the Year 2000
project, contingency and business plans are in the process of being developed to
respond to potential failures that may occur. Such contingency and business
plans are scheduled to be completed by the fourth quarter of fiscal 1999. To the
extent appropriate, these plans will include emergency back up and recovery
procedures, remediation of existing systems with system upgrades or installation
of new systems and replacing electronic applications with manual processes. Due
to the uncertain nature of contingency planning, there can be no assurances that
these plans actually will be sufficient to reduce the risk of material impacts
on AMPAM's operations due to Year 2000 issues. AMPAM has ongoing information
systems development and implementation projects, none of which have experienced
delays due to its Year 2000 compliance program.
Compliance Program. In order to address the Year 2000 issue, AMPAM has
established a project team to assure that key automated systems and related
processes will remain functional through year 2000. The team is addressing the
project in the following stages: (1) awareness, (2) assessment, (3) remediation,
(4) testing and (5) implementation of the necessary modifications. The key
automated systems consist of (a) project estimating, management and financial
systems applications, (b) hardware and equipment, (c) embedded chip systems and
(d) third-party developed software. The evaluation of the Year 2000 issue
includes the evaluation of the Year 2000 exposure of third parties material to
the operations of AMPAM.
AMPAM State of Readiness. The recently completed awareness phase of the
Year 2000 project began with a corporate-wide awareness program which will
continue to be updated throughout the life of the project. AMPAM believes that
there is not a material risk related to its non-IT systems because AMPAM is
primarily a manual service provider and does not rely on these types of systems.
The assessment phase of the project involves for both IT and non-IT systems,
among other things, efforts to obtain representations and assurances from third
parties, including third party vendors, that their hardware and equipment,
embedded chip systems and software being used by or impacting AMPAM or any of
its business units are or will be modified to by Year 2000 compliant. To date,
AMPAM does not expect that responses from third parties will be conclusive.
AMPAM does not control its customers, suppliers and vendors and cannot guarantee
that these third parties will not experience material business disruptions that
could affect AMPAM as a result of the Year 2000 problem. However, because AMPAM
is not dependent on any key customers or suppliers, AMPAM does not believe that
a disruption in service with any third party would have a material adverse
effect on its business, results of operations or financial condition. The
remediation phase involves identifying the changes which are required to be
implemented by system for them to be Year 2000 compliant. The testing and
implementation phases involve verifying that the identified changes address the
Year 2000 problems identified through testing the system as part of implementing
such changes. Management expects that the remediation, testing and
implementation phases will be substantially completed during the third and
fourth quarters of fiscal 1999.
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<PAGE> 64
Costs to Address Year 2000 Compliance Issues. While the total cost to AMPAM
of the Year 2000 project is still being evaluated, AMPAM's management currently
estimates that the costs to be incurred by AMPAM in 1999 associated with the
assessing and testing applications, hardware and equipment, embedded chip
systems, and third party developed software will be less than $500,000, which
will be funded with existing operating cash flows and AMPAM will deduct from
income as incurred. AMPAM believes that software vendor Year 2000 releases
should address the majority of AMPAM's Year 2000 issues. These costs were
primarily related to the assessment phase of the project. AMPAM expects that the
majority of its costs related to the Year 2000 project to be incurred in the
third and fourth quarters of its 1999 fiscal year. Because AMPAM's internal
systems are PC-based, management does not expect the costs to AMPAM of the Year
2000 project to have a material adverse effect on AMPAM's financial position,
results of operations or cash flows.
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<PAGE> 65
BUSINESS
We believe AMPAM is the largest company in the United States focused
primarily on the plumbing and mechanical contracting services industry. On April
1, 1999, AMPAM combined the operations of the ten founding companies, which
individually are leading regional providers of plumbing and mechanical
contracting services, and commenced operations as one company. AMPAM believes
that by combining these regional leaders into one professional organization,
AMPAM has created a national provider which it expects to strengthen and broaden
AMPAM's relationships with its consolidating customer base and enhance its
operating efficiency. The ten founding companies have been in business for an
average of approximately 31 years and, in 1998 performed plumbing and mechanical
contracting services in 24 states. On a pro forma basis for the fiscal year
ended December 31, 1998, AMPAM generated revenue and EBITDA of $322.2 million
and $39.6 million, respectively.
Plumbing contracting includes the installation of integrated domestic water
systems, sanitary waste and vent systems, irrigation systems, fire protection
systems and natural gas piping systems. Mechanical contracting includes the
installation of mechanical and process piping and tubing systems that convey hot
and chilled water, steam, medical gases, fuels and other liquid and gaseous
substances. Both plumbing and mechanical systems include related equipment
(water heaters, boilers, chillers, pumps, sprinklers and drains) and fixtures
(basins, toilets, sinks, tubs, faucets, spigots and valves). AMPAM also provides
renovation/retrofitting and maintenance and repair services for plumbing and
mechanical systems on a per-visit basis and under short-term and long-term
maintenance contracts.
AMPAM provides plumbing and mechanical contracting services in the
residential and commercial/ institutional markets. The residential market
includes single family and multifamily homes and low-rise apartments. The
commercial/institutional market includes retail establishments, office
buildings, high-rise apartments and condominiums, theaters and restaurants,
hotels and casinos, waste water and water purification plants, manufacturing
plants and other industrial complexes, and public and private institutional
buildings, including schools, hospitals, dormitories, assisted-living centers,
military and other governmental facilities, stadiums, arenas, convention
centers, airports and prisons. During fiscal 1998, approximately 54%, and 46% of
AMPAM's pro forma revenues were derived from the residential, and
commercial/institutional markets, respectively. Of AMPAM's
commercial/institutional revenue, approximately 43% was derived from
institutional customers.
AMPAM's strategy is to conduct its operations on a decentralized basis,
including among other things, retaining the operating names of its founding
companies in their respective regions. Senior management at the founding
companies will retain primary responsibility for operations, profitability and
growth of their respective business units. AMPAM believes that a decentralized
operating strategy, balanced by centralized financial and accounting controls,
will retain the entrepreneurial approach of the founding companies and preserve
AMPAM's knowledge of its individual markets, its extensive brand name
recognition and strong customer relationships. In addition, AMPAM believes that
this decentralized operating strategy will enable it to better respond to future
customer demand and changing market conditions.
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The following table contains information for each founding company as well
as our combined operations:
<TABLE>
<CAPTION>
Revenues
---------------------------
YEARS IN PRIMARY TARGET MARKET FISCAL 1996-1998
FOUNDING COMPANY OPERATION MARKET(S) SERVED SEGMENT(S)(1) 1998 CAGR(2)
- ---------------- --------- ------------------- ------------- ------ ---------
($ in millions)
<S> <C> <C> <C> <C> <C>
Christianson............................. 49 Central Texas Residential $ 63.4 12.2%
RCR...................................... 22 Southern California Residential 63.3 25.1%
and Nevada and CI
Croson Ohio/Teepe's(3)................... 43 Ohio Valley, CI 75.8 11.0%
Southwestern
Indiana, Northern
Kentucky
Keith Riggs.............................. 51 Greater Phoenix Residential 34.5 12.8%
Croson Florida........................... 10 Southern and Residential 28.1 54.9%
Central Florida and CI
Power.................................... 11 Greater Houston, Residential 17.1 10.4%
Dallas and Austin and CI
Nelson................................... 35 Florida and CI 15.1 9.7%
Alabama
Gulf Coast
Sherwood................................. 23 Southern California CI 13.6 28.1%
Miller................................... 22 Greater Atlanta Residential 11.3 3.4%
and CI
------ -----
COMBINED.... $322.2 16.7%
====== =====
</TABLE>
- ---------------
(1) "CI" means a commercial/institutional market segment.
(2) "CAGR" means compound annual growth rate. With respect to some of the
founding companies, the statement of operations data for the 1996 fiscal
year was derived from internal financial company records that have not been
audited by any independent accountants. Because the 1996-1998 CAGR of these
companies, and of AMPAM on a combined basis, includes some unaudited 1996
data you are cautioned not to place undue reliance on this information.
Nevertheless, management believes that the financial information shown above
may be helpful in understanding the past operations of the founding
companies.
(3) Immediately following their acquisition, we combined the business and
operations of Croson Ohio and Teepe's. Croson Ohio's fiscal 1998 revenues
were $25.2 million and Teepe's fiscal 1998 revenues were $50.6 million.
INDUSTRY OVERVIEW
General. Virtually all construction and renovation in the United States
generates demand for plumbing and mechanical contracting services. Depending
upon the exact scope of work, AMPAM estimates that the plumbing and mechanical
contracting work it performs generally accounts for approximately 8% to 12% of
the total construction cost of the related commercial and institutional projects
and approximately 5% to 10% of the total construction cost of the related
residential projects. In 1992, the most recent year for which data are available
from the United States Department of Commerce, the total value of new
construction and repair and maintenance work completed by plumbing and
mechanical contractors totaled approximately $28 billion, including
approximately $17 billion from plumbing services and $11 billion from mechanical
services.
The plumbing and mechanical contracting service industry is highly
fragmented and we estimate it to include at least 40,000 companies. These
companies are generally small, owner-operated, independent contractors who serve
customers in a local market and therefore have limited access to capital for
investment in infrastructure, technology and expansion. According to our
estimates, approximately 200, or 0.5% of all industry participants, had annual
sales greater than $20 million, and no single company accounted for more than
1.0% of total expenditures for plumbing and mechanical contracting services in
the United States.
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<PAGE> 67
Residential Market. Residential customers include regional and national
homebuilders and apartment and condominium developers. Typical residential
plumbing projects include the installation, maintenance and repair of domestic
water systems, sanitary waste and vent systems, lawn and garden irrigation
systems, fire protection systems and natural gas piping systems. The residential
construction market has increasingly become dominated by large regional and
national homebuilders, who have been rapidly consolidating or merging, and
national apartment or multifamily residential developers. AMPAM believes that
these large customers generally select plumbing and mechanical contractors with
a large, trained workforce that is able to meet the customer's location and
scheduling requirements and to provide reliable, high-quality services.
Substantially all of AMPAM's residential contracts are obtained on negotiated
terms through ongoing customer relationships versus through a competitive bid
process. The residential market has repetitive floor plans which enables AMPAM
to utilize its prefabrication techniques. In this way, AMPAM can increase
productivity and profitability by reducing construction time, labor costs and
skill requirements. In addition to installation, the residential market includes
substantial demand for maintenance and repair services, which are provided both
on a per visit basis and under short-term and long-term contracts.
The residential market depends primarily on the number of single family and
multifamily home starts, which are in turn affected by interest rates, tax
considerations and general economic conditions. The founding companies serve
many of the more rapidly growing metropolitan areas, including Houston, San
Antonio, and Austin, Texas, Phoenix, Arizona, Las Vegas, Nevada, Atlanta,
Georgia, Orlando, Florida and Riverside and the San Fernando Valley, California.
These metropolitan areas have experienced significant new construction activity
for single family homes and low-rise multifamily residences over the last
several years and demographic trends indicate continued growth in these areas.
In 1998, AMPAM installed plumbing systems in over 20,000 new or renovated homes.
AMPAM's residential plumbing and mechanical contracting service revenues have
grown at an average compound annual rate of approximately 16% from the 1996
fiscal year through the 1998 fiscal year.
Commercial/Institutional Market. Commercial and institutional customers
include general contractors, commercial developers, consulting engineers,
architects, owners and managers of retail establishments, office buildings,
apartments and condominiums, theaters and restaurants, hotels and casinos,
operators of waste water and water purification plants, manufacturing and other
industrial corporations, schools, hospitals, military and other governmental
agencies, stadiums, arenas and convention centers, airports and prisons.
High-rise residential projects are viewed as commercial rather than residential
projects because of the nature of the installation techniques and plumbing codes
involved. Because of the long-term nature of the budgetary processes involved,
government and institutional construction projects tend to be less affected by
economic downturns. In 1998, approximately 43% of AMPAM's revenues from the
commercial/institutional market were attributable to governmental and
institutional projects.
Typically, plumbing and mechanical contracting services for the
commercial/institutional market involve the installation, maintenance and repair
of integrated systems that transport hot and chilled water, domestic water,
steam, medical gas, fuels and other liquid and gaseous substances and the
related equipment, such as water heaters, boilers, chillers, and pumps.
Commercial and institutional plumbing and mechanical construction is most often
performed by a subcontractor for a general contractor, although a plumbing and
mechanical contractor may also perform services directly as a prime contractor.
Commercial/institutional contracts are obtained through a competitive bid
process or on negotiated terms through ongoing customer relationships. Many
larger projects have substantial bonding requirements that eliminate smaller
contractors from the bidding process because of inadequate financial resources
or capacity. As with the residential market, AMPAM is increasingly able in the
commercial and institutional markets to prefabricate system components off-site,
and these items are transported to the job site ready to be installed. The
commercial/institutional market also involves maintenance and repair of plumbing
and mechanical systems. AMPAM provides plumbing and mechanical contracting
services for the commercial/ institutional market in several of the country's
growth areas, including the southeastern, southwestern and western United
States. From the 1996 fiscal year through the 1998 fiscal year, AMPAM's revenues
from plumbing and mechanical contracting services for commercial and
institutional customers have grown at an average compound annual rate of
approximately 18% per year.
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Industry Trends. Significant consolidation has occurred among a number of
the industry's principal customers, such as homebuilders, apartment and
condominium developers and other commercial developers, REITs and other real
estate concerns and national contractors and construction managers.
Additionally, we believe the privitization of, or outsourcing by, water
utilities in many areas of the country may provide us with additional customer
opportunities. AMPAM has also witnessed significant consolidation within its
supply channels. We believe these consolidations present an opportunity for a
large, more proficient and professional company, like us, to consolidate and
provide plumbing and mechanical contracting services on a regional and national
basis.
AMPAM believes that smaller, traditional plumbing and mechanical
contractors may find it increasingly difficult to compete for plumbing and
mechanical contracting projects due to scarcity of qualified manpower, customer
demand for broader geographic coverage and the associated licensing
requirements, costs associated with automating project bidding and estimating,
bonding and insurance requirements (including workers' compensation and
liability insurance) and manufacturers' discounts available to volume
purchasers. In the residential sector, AMPAM believes homebuilders will be
increasingly searching for contractors they can use in multiple capacities, a
"preferred provider," and that AMPAM will be able to take advantage of this
opportunity because of its size and diversity of operations.
COMPETITIVE STRENGTHS
We believe several factors give us a competitive advantage in our industry,
including our:
- Strong Customer Relationships and Market Leadership. We believe that our
strong customer relationships and market reputation allows us the ability
to obtain a high percentage of negotiated contracts, which are
economically more favorable for us than competitive bid situations.
Currently, approximately 75% of our business has been obtained through
negotiated contracts. Our long-standing relationships also result in a
significant amount of repeat business as well as the opportunity for
cross-selling our services;
- Geographically Diverse Operations. In 1998, we provided plumbing and
mechanical contracting services in 24 states. We have operations in the
higher growth southwest, southeast and western regions of the United
States. We believe our broad geographic coverage will allow us to build
and strengthen our relationships with large regional and national
customers and will reduce the impact of local and regional economic
downturns as well as minimize seasonal variations in activity;
- Large Highly Skilled Work Force. We believe our size, national scope,
stable and recurring project base, and comprehensive benefits packages
and training programs allow us to attract and retain the most highly
qualified personnel in the industry. We currently employee over 2,100
technicians which enables us to deliver quality service with greater
reliability than many of our competitors. This is particularly important
given a current industry shortage of qualified plumbers;
- Diverse Business Mix. We believe that our balanced customer base of
residential, commercial, governmental and institutional work and our
ability to offer both plumbing and mechanical contracting services
provide us with greater stability both in revenues and cash flow. On a
pro forma basis, no single customer represented more than 5% of our total
1998 revenues; and
- Experienced Management Team. Our chief executive and chief operating
officer combined have over 65 years of experience in plumbing and
mechanical contracting services and have developed extensive industry
relationships. In addition, the presidents of our operating companies
have an average of over 28 years in the industry and have established
reputations in their local markets. The combined management team of AMPAM
holds more than 76% of our company's outstanding common stock.
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<PAGE> 69
OUR BUSINESS STRATEGY
Our goal is to build on our position as a leading provider of plumbing and
mechanical contracting services in the residential and commercial/institutional
markets by (1) increasing our market share and the profitability of our
operations; and (2) pursuing a selective acquisition strategy.
OPERATING STRATEGY
We intend to leverage the geographical presence and competitive
strengths of our founding and subsequently acquired companies with the
objective of continuing strong internal growth. We also believe that there
are significant opportunities to increase the profitability of our business
through the implementation of various best practices used by some of the
founding companies throughout our operations. AMPAM has formed a Best
Practices Committee consisting of various members of the management of the
founding companies and smaller forum groups composed of representatives of
similarly situated companies, all of which will meet regularly to
facilitate communication and sharing of best practices. The key elements of
our operating strategy are:
- Achieve Purchasing Savings and Other Economies of Scale. As a result of
AMPAM's size, it believes it will achieve substantial cost savings by
purchasing copper, steel, cast iron, PVC and ABS pipe, plumbing fixtures,
boilers, chillers and air handling equipment, pumps, drains, sprinkler
systems and other materials. Our size will also enable us to purchase and
negotiate rebates directly from manufacturers for high volume items. In
1998, AMPAM's materials purchases were 51% of its total combined cost of
revenues. In addition, AMPAM believes it can reduce costs associated
with:
(1) purchasing or leasing and routine maintenance of vehicles, cranes,
backhoes, loaders, highlifts and other heavy equipment;
(2) bonding, casualty and liability insurance;
(3) health insurance and related benefits;
(4) retirement benefits administration;
(5) marketing and advertising; and
(6) accounting, financial management and legal services;
- Continue to Attract, Develop and Retain Qualified Plumbers and Management
Personnel. AMPAM intends to provide:
(1) stock-based compensation for a large portion of its employees;
(2) progressive performance-based compensation for management;
(3) recruitment and training programs to provide a steady labor
supply, including state-registered apprenticeship programs;
(4) advancement opportunities for talented employees within the larger
public company; and
(5) a broad-based health, disability and life insurance and retirement
benefits program which is often not available from smaller
plumbing and mechanical contracting services businesses;
- Increase Off-site Prefabrication of Plumbing and Mechanical Systems and
Components. AMPAM intends to increase the use of prefabricated components
in the installation of plumbing and mechanical systems. Prefabrication
generally involves measuring, cutting and assembling pipe segments and
attaching various fittings and valves, which is particularly useful in
the residential market where standard floor plans are often repeated.
These fabricated segments are then numerically ordered and packaged
together for installation at the job site. Prefabrication increases
consistency and quality of work products and allows AMPAM to reduce
on-site labor costs, materials costs and accelerate its on-site
production schedule. In some of our regions, we have
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<PAGE> 70
experienced a high degree of success in lowering labor costs, reducing
materials usage and increasing standardization by fabricating portions of
the plumbing and mechanical systems prior to installation at the job
site. By sharing the most sophisticated and efficient prefabrication
techniques currently utilized in some of our operating regions, AMPAM
believes that it can increase the use of prefabrication to achieve
meaningful cost reductions for AMPAM as a whole;
- Emphasize "Value Engineering" and Design-and-Build Capability. In
addition to the traditional installation of plumbing systems to the
specifications set forth in architectural or engineering plans, AMPAM
also provides "value engineering" and design-and-build capability. "Value
engineering" involves the modification or enhancement of existing plans
for plumbing and mechanical systems to improve efficiency and
cost-effectiveness. AMPAM also provides full design-and-build services
using its technical expertise to create designs for plumbing and
mechanical systems. By providing this more sophisticated level of
service, AMPAM is able to integrate itself with the customer earlier in
the design process, thereby generating higher margins and differentiating
itself from the competition;
- Increase Use of Technology. AMPAM intends to take advantage of new and
innovative technology currently utilized in some of our operating
regions. AMPAM will use computer-assisted contract bid preparation and
historical cost analysis in order to reduce the variances between the
estimates used in the contract bidding process and the actual costs
incurred. Additionally, AMPAM will expand its use of technology,
including computer-aided design or "CAD" display stations used for
project design and engineering;
- Leverage Geographic Presence to Obtain and Retain Multi-Location
Customers. AMPAM intends to enhance the sales and marketing programs of
the founding companies to target large regional and national
homebuilders, apartment and condominium developers and other commercial
developers, REITs and other real estate concerns and national contractors
and construction managers. AMPAM believes that significant demand exists
from these companies to utilize the services of a single plumbing and
mechanical contractor that has demonstrated consistent quality,
dependability, bonding pre-qualification and financial stability; and
- Broaden Scope of Specialty Services. AMPAM intends to broaden its service
capabilities within its existing operating areas to provide an expanded
range of plumbing and mechanical services without any significant
incremental investment in infrastructure. Such complementary services
include installation and maintenance of on-site and off-site utility
systems, fire protection systems and HVAC systems.
ACQUISITION STRATEGY
We believe that the highly fragmented nature of the plumbing and
mechanical contracting services industry offers significant opportunities
for us to pursue our acquisition strategy. We have an acquisition team
focused on identifying profitable acquisition candidates with leading
market positions, stable operating histories, prospects for growth, strong
management and entrepreneurial skills. We currently intend to acquire
companies for a mix of common stock and cash. We are evaluating and have
entered into confidentiality agreements with several acquisition
candidates. Key elements of our acquisition strategy include:
- Increase Geographic Coverage. We believe that increasing our geographical
presence will allow us to build and strengthen our relationships with
large, regional and national customers and will reduce the impact of
local and regional economic downturns as well as minimize seasonal
variations in activity. We intend to pursue acquisition candidates that
serve geographic markets that we do not currently serve and have an
appropriate customer base to integrate with or complement our existing
business; and
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- Expand Our Service Capabilities. We will seek to acquire companies that
offer diverse services which broaden our service capabilities within
existing operational areas. We intend to pursue acquisition candidates
who:
- serve the commercial/institutional market in locations where we
currently focus on the residential market, or vice versa;
- offer expertise in higher margin complex installation projects, like
waste water and water purification plants; and
- focus on maintenance and repair services.
SERVICES
Plumbing. Plumbing services provided by AMPAM consist primarily of the
installation of systems that convey domestic water throughout a building,
systems that transport sanitary waste out of a building to a sewer connection
and systems that transport natural gas to various equipment or appliances such
as heaters, boilers, ovens and stoves. A domestic water system typically
includes separate piping for hot and chilled water as well as a number of
fixtures such as sinks, bathtubs and showers and may also include the
installation of interior or exterior sprinkler systems and other specialty
purpose fixtures. A sanitary waste and vent system includes toilets, urinals and
piping to transport sanitary waste. A natural gas system typically includes
piping and connections to transport natural gas, including valves and other
equipment to regulate the natural gas flow. AMPAM also provides repair and
maintenance services for plumbing systems, primarily for systems which AMPAM
initially installed.
For both residential and commercial/institutional customers, plumbing
contracting projects begin with project design and engineering in which the
locations, configuration and specifications for the plumbing systems to be
installed are determined. Whether the design is provided by the customer or
produced by AMPAM utilizing CAD technology, the type, size and design of piping,
fittings, valves, fixtures and other equipment is typically input into AMPAM's
computer systems which handle estimation, materials ordering and job scheduling
functions. Where appropriate, AMPAM plans to integrate its most advanced systems
into additional locations and areas of its operations to increase automation and
efficiency. Substantially all of the equipment and component parts AMPAM
installs are purchased from third-party wholesale suppliers or directly from the
manufacturers and resold to the customer as part of the contracted installation.
Orders and deliveries are coordinated to match the project schedule. Whenever
possible, a significant portion of the plumbing and piping assembly will be
prefabricated at AMPAM facilities in order to reduce on-site installation time,
increase quality control and reduce material costs. Such prefabrication
generally involves measuring, cutting and assembling pipe segments and attaching
various fittings and valves. These prefabricated segments are then numerically
ordered and packaged together for installation at the job site.
Once the job moves onto the construction site, connections are made to the
municipal sewage system and supply and drainage piping is installed within the
construction "footings" along the building's perimeter. Risers are installed
which extend this piping above the level of the foundation. These risers are
designed either to be contained within the walls for extension into upper floors
or to connect with fixtures to be installed in specified locations on ground
level floors. After the foundation is poured and as framing for the walls and
floors of the upper levels of the building are constructed, piping systems are
extended to supply the fixtures and systems throughout the building.
Simultaneously, venting systems are installed which ultimately extend through
the roof of the structure. Once the walls have been covered and flooring,
ceilings and roofing completed, fixtures (including sinks, hot water heaters,
toilets, baths, faucets and spigots) are installed and the system is connected
to the water main and gas supply. Typically, plumbing personnel are on-site
during all phases of construction, as AMPAM assigns separate, specialized
plumbing crews to each specific required task (water and gas connections and
pressure testing, sewage connections, ground level piping, wall and ceiling
extensions and fixture installation). AMPAM believes that it increases its
efficiency and labor productivity by training crews to perform specialized
tasks. Municipal inspectors
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also generally tour a job site several times during the construction process to
assure compliance with the applicable plumbing codes.
Mechanical. Mechanical contracting services provided by AMPAM consist
primarily of the installation of mechanical and process piping and tubing,
including systems which convey hot and chilled water, steam, medical gas, fuels
and other liquid and gaseous substances, as well as the installation of related
equipment and fixtures which store, pump, regulate and measure the distribution
of these substances. In some cases, these mechanical systems installed by AMPAM
are critical to the underlying business of the future tenant, as in the case of
water treatment plants, chemical plants and medical laboratories. Mechanical
contracting services provided by AMPAM also include the installation of the
piping portion of HVAC systems, including the piping and tubing used to convey
hot and chilled water to the heating or cooling systems and the related boilers,
chillers, cooling towers, pumps, valves and control devices. See "-- HVAC"
below. AMPAM also provides repair and maintenance services for mechanical
systems on a per visit and short-term and long-term contract basis, primarily
for systems which AMPAM initially installed.
Mechanical contracting projects begin with project design and engineering
which may be produced by AMPAM or specified by the customer. In response to
customer demand, AMPAM may develop some or all of the design parameters using
its CAD programs or may "value engineer" customer supplied specifications in
order to suggest more efficient installation configurations or lower cost
components. Prefabrication at AMPAM facilities may also be employed to
efficiently pre-assemble various piping and mechanical configurations prior to
deployment at the construction site. Most mechanical projects begin after the
foundation has been poured with the installation of distribution piping and duct
systems within the walls and between the floor and ceilings in accordance with
technical design specifications. Once the distribution and main service lines
have been installed, service branches to various equipment are completed, and
the equipment and controls are then balanced and commissioned.
HVAC. In some regions, we also offer HVAC contracting services as a
complement to our plumbing and mechanical businesses. HVAC systems typically
involve piping and air-handling components. The piping component, as described
above, often is classified as a mechanical contracting service. The air-
handling component of an HVAC system includes the ductwork and ventilation
systems that carry air as opposed to hot or chilled water or other liquids or
gaseous substances. Equipment and fixtures related to the air-handling component
of an HVAC system include heaters, compressors, air handlers and air
conditioning units. Typically, HVAC installation projects begin with the
customer providing the architectural plans and mechanical drawings for the
building to be constructed. The process of on-site installation is similar to
that required for mechanical systems, with the installation of distribution
ductwork followed by the connection of service branches and the installation of
the appropriate HVAC equipment.
Maintenance and Repair. Maintenance and repair contracting services are
generally provided on a per visit basis and through short-term and long-term
maintenance contracts. Revenue from repair and maintenance contracting services
has historically fluctuated, representing a larger portion of the overall
revenue of the founding companies when existing manpower capacity is not already
implemented on installation projects. AMPAM plans to expand its maintenance and
repair business through greater focus on promoting these services.
OPERATIONS
Contracting. Residential work is generally obtained by relationships and
referrals, with pricing being negotiated between the homebuilder and the
plumbing subcontractor. Commercial and institutional work is typically awarded
through a competitive bid process, which is often limited to approved bidders
who meet bonding and other requirements. Often large projects attract fewer
bidders because smaller contractors are unable to meet the bonding and manpower
capacity requirements. Contracts may provide precise specifications for the work
to be completed, require the contractor to design and build the plumbing system
or may permit the contractor to provide revised specifications for the project.
AMPAM's plumbing contracts are generally structured on a fixed cost basis,
although repair and maintenance contracting
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services are generally provided for on a fixed periodic fee or an hourly fee.
Revenues from a single residential plumbing contracting service project range
from approximately $350,000 to $550,000 for installation in a typical low-rise
apartment complex to approximately $1.5 million for installation in a typical
300-residence subdivision of new homes or approximately $5,000 per home.
Revenues from a single commercial or institutional mechanical contracting
project generally ranges from approximately $500,000 to $10 million, depending
upon the size of the building involved, the nature of the plumbing and
mechanical contracting services involved and the specific equipment and fixtures
to be installed. For example, revenue from a plumbing and mechanical project
involving a ten-floor high-rise apartment building may range from approximately
$650,000 to $1,000,000, whereas the revenues from a large plumbing and
mechanical contracting service project such as a stadium or industrial complex
may range from $5 million to $10 million.
Engineering and Design. We have engineering and design capabilities which
enable us to offer a higher level of service to our customers. These
capabilities may be offered in-house or obtained from third parties, as
appropriate. CAD systems may be used to "value engineer" the project by
providing cost saving alternatives to the specifications and designs provided by
the customer or to actually design and build the plumbing and mechanical systems
to be installed. CAD systems can be used to automate the production of
blueprints, specifications and a schedule of required assemblies and to assist
in selecting the materials and equipment to be used. AMPAM plans to further
develop its "value engineering" and design-and-build capabilities to capture the
higher margins justifiable on account of the cost savings passed on to the
customer.
Purchasing. AMPAM purchases copper, steel, cast iron, PVC and ABS pipe,
valves, hangers, fire protection and sprinkler systems and plumbing fixtures,
drains, water heaters, boilers, chillers, air handling units and pumps and other
materials from a number of manufacturers. AMPAM purchases these materials
directly from the manufacturer or through wholesalers and other distributors. In
some instances, AMPAM receives discounts from wholesalers in return for prompt
payment, and AMPAM plans to negotiate with wholesalers to receive discounts
whenever possible. AMPAM estimates that its cost of materials purchased
represents approximately 51% of AMPAM's costs of revenues. As a result of its
size following the acquisitions, AMPAM also plans to negotiate directly with the
national manufacturers to participate in rebate programs offered by these
manufacturers. AMPAM also believes it will be able to lower its costs for
- the purchase or lease and maintenance of vehicles;
- bonding, casualty and liability insurance;
- health insurance and related benefits;
- retirement benefits administration;
- marketing and advertising; and
- a variety of accounting, information, financial management and legal
services.
Management Information Systems and Controls. AMPAM intends to centralize
consolidated accounting and financial reporting activities at its corporate
headquarters while basic accounting activities will continue to be conducted at
the operating level. In addition, where an operating unit has a system in place
that is inadequate for its existing or near-term needs, AMPAM will implement
standards that will allow for greater consistency. In addition, several of the
founding companies, serving both the residential and commercial/institutional
markets, possess sophisticated (and in several cases proprietary) software
systems which handle estimation, materials ordering and job scheduling
functions. Where appropriate, AMPAM plans to integrate these advanced systems
into additional areas of its operations.
Recruiting and Training. Recruiting and training will primarily occur at
the local level for each operating unit of AMPAM, but will also be supplemented
by national programs. AMPAM will share best practices in recruiting, selection
and training, to take advantage of the successful human resources, training and
apprenticeship programs developed by some of the founding companies. AMPAM plans
to offer state-
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registered apprenticeship programs which use local inspectors and AMPAM
supervisory personnel as instructors. Upon completion of the program, each
apprentice will be a licensed plumber and placed on a AMPAM project where
needed. AMPAM believes it will be able to attract highly qualified candidates as
a result of its national size, potential for growth and advancement as well as
its health, disability and life insurance and retirement benefits packages and
stock-based compensation plans.
Advertising and Marketing. AMPAM uses both local advertising and local
direct sales forces to market its commercial and residential services in its
geographic markets. AMPAM intends to preserve the value of the long-standing
trade names and customer identification enjoyed by the individual operating
units.
CUSTOMERS
AMPAM has a diverse customer base with no one customer accounting for more
than 5% of AMPAM's pro forma combined revenues for the year ended December 31,
1998. As a result of an emphasis on quality and reliability, the founding
companies have been responsible for developing and maintaining successful
relationships with key customers. AMPAM intends to continue this emphasis on
superior quality and customer service in order to maintain these relationships.
We have provided plumbing and mechanical contracting services to numerous
customers in the residential and commercial/institutional markets and for a wide
variety of intended tenants and owners, some of which are listed below:
<TABLE>
<CAPTION>
COMMERCIAL/ INSTITUTIONAL TENANTS/ OWNERS RESIDENTIAL
------------------------- --------------- -----------
<S> <C> <C>
Ashland Chemical Company AMC Theatre Beazer Homes USA, Inc.
Barton Mallow Bank One Corporation Centex Corporation
Camden Development Company Callaway Golf Company Del Webb Corporation
Clark Construction Company Citibank D. R. Horton, Inc.
Finger Construction Company Doubletree Corporation The Fortress Group, Inc.
Fluor Daniel, Inc. Embassy Suites Hotels Kaufman and Broad Home
Greenbelt Construction Company Fidelity Investments Corporation
Hamilton County, Ohio Marriott Hotels Lennar Corporation
Hubert, Hunt & Nichols Nordstrom, Inc. Newmark Home Corporation
JPI Construction The Proctor & Gamble Company Pulte Corporation
Lincoln Property Trust Samsung Electronics Co., Ltd. The Ryland Group, Inc.
Ohio State University Sears, Roebuck and Co. Toll Brothers, Inc.
Post Properties, Inc. Sony Corporation Trammel Crow Residential
A. G. Spanos Construction, United Airlines, Inc. Construction
Inc. USAA Insurance Company UDC Homes, Inc.
Spaw Glass Corporation Walmart Stores
State of Florida
State of Ohio
Trammel Crow Company
Turner Construction Company
Winegardner & Hammonds
</TABLE>
PROPERTY AND EQUIPMENT
AMPAM operates a fleet of approximately 1,500 owned and leased service
trucks, vans and support vehicles, as well as heavy machinery including cranes,
backhoes, dump trucks and high-lifts. It believes these vehicles generally are
adequate for AMPAM's current operations.
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At March 31, 1999, AMPAM maintained 31 facilities in eight states. All of
these facilities are leased by AMPAM. AMPAM's current warehouses, shops, and
administrative offices are currently as follows:
<TABLE>
<CAPTION>
LOCATION SQUARE FEET USE
- -------- ----------- ---
<S> <C> <C>
Glendale, Arizona................................. 6,588 Office/Warehouse
Mesa, Arizona..................................... 7,648 Office/Warehouse/Shop
Mesa, Arizona..................................... 5,675 Office/Warehouse/Shop
Mesa, Arizona..................................... 8,550 Office/Warehouse/Shop
Adelanto, California.............................. 10,000 Office/Warehouse
Canoga Park, California........................... 15,900 Office/Warehouse
Poway, California................................. 14,500 Office/Warehouse
Riverside, California............................. 35,000 Office/Warehouse
San Diego, California............................. 13,000 Office/Warehouse
Tustin, California................................ 1,500 Office
Mount Dora, Florida............................... 1,700 Office
Orlando, Florida.................................. 21,000 Office/Warehouse
Orlando, Florida.................................. 6,000 Shop
Pensacola, Florida................................ 20,000 Office/Warehouse
Tampa Bay, Florida................................ 7,000 Warehouse
Marietta, Georgia................................. 24,000 Office/Warehouse
Marietta, Georgia................................. 10,000 Warehouse
Las Vegas, Nevada................................. 19,000 Office/Warehouse
Cincinnati, Ohio.................................. 24,000 Office
Cincinnati, Ohio.................................. 5,700 Office/Warehouse
Columbus, Ohio.................................... 9,550 Office/Warehouse
Columbus, Ohio.................................... 20,100 Office/Warehouse
Houston, Texas.................................... 4,200 Office
Houston, Texas.................................... 1,250 Warehouse
Round Rock, Texas................................. 7,800 Office
Round Rock, Texas................................. 900 Office
Round Rock, Texas................................. 34,900 Office/Warehouse
Round Rock, Texas................................. 4,000 Office
Round Rock, Texas................................. 30,900 Office/Warehouse
San Antonio, Texas................................ 14,500 Office/Warehouse
Woodbridge, Virginia.............................. 1,500 Office
</TABLE>
In addition to the facilities listed above, AMPAM may operate on a
short-term basis in other locations as may be required from time to time to
perform its contracts. AMPAM leases its principal and administrative offices in
Houston, Texas.
AMPAM believes that its properties are generally adequate for its present
needs. Furthermore, AMPAM believes that suitable additional or replacement space
will be available as required.
COMPETITION
The plumbing and mechanical contracting services industry is a highly
fragmented and competitive industry. AMPAM believes that the primary competitive
factors in the plumbing and mechanical contracting services industry are high
quality service, reliability and price. Other competitive factors in the
plumbing and mechanical contracting services industry include:
- the availability of qualified and licensed plumbers and mechanics;
- safety record;
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- cost structure;
- relationships with customers;
- relationships with plumbing component manufacturers;
- geographic diversity;
- ability to reduce project costs;
- access to technology;
- experience in specialized plumbing applications; and
- ability to obtain bonding.
Although AMPAM believes it is the first company to focus primarily on
consolidating the plumbing and mechanical contracting services industry, it will
compete with other existing companies for acquisitions and there can be no
assurance that other existing companies consolidating related industries or
yet-to-be-formed companies will not also adopt a similar focus. In particular,
other existing companies which are consolidating various aspects of the
residential and commercial contracting industry have focused on acquiring
companies that provide residential and commercial plumbing repair services and
residential and commercial HVAC installation and repair services. Some of these
existing companies have acquired companies engaged in the plumbing and
mechanical contracting services business with respect to new installations;
however, these companies have not represented a significant portion of the
overall revenues of the acquiring companies. Competition from existing companies
or yet-to-be-formed companies could have the effect of increasing the price for
acquisitions or reducing the number of suitable acquisition candidates. See
"Risk Factors -- The highly competitive nature of our industry could affect our
profitability by reducing our profit margins."
REGULATION
Operations and Licensing. AMPAM's business and the activities are subject
to various federal, state and local laws, regulations, ordinances and policies
relating to, among other things:
- the licensing and certification of plumbers and technicians;
- AMPAM's advertising, warranties and disclosures to its customers;
- the bidding process required to obtain plumbing and mechanical contracts;
and
- the applicable plumbing, mechanical and building codes with which AMPAM
must comply.
Most states require at least one of AMPAM's employees to be a licensed
master plumber, and many jurisdictions regulate the number and level of license
holders who must be present on a construction site during the installation of
plumbing and mechanical systems. Some jurisdictions require AMPAM to obtain a
building permit for each plumbing or mechanical project. In addition, AMPAM must
comply with labor laws and regulations, including those that relate to
verification by employers of legal immigration or work permit status of
employees.
Environment, Health and Safety. AMPAM is subject to safety standards
established and enforced by the Occupational Safety and Health Administration
and environmental laws and regulations relating to the use, storage,
transportation and disposal of various materials. To the extent that AMPAM
performs work involving air conditioning and refrigeration systems, it is
subject to additional restrictions and regulations governing the availability,
handling and recycling of various refrigerants, due to the phase-out of ozone-
depleting substances under the Montreal Protocol and the Clean Air Act.
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LEGAL PROCEEDINGS
Each of the founding companies has, from time to time, been a party to
litigation arising in the normal course of its business, most of which involves
claims for personal injury or property damage incurred in connection with its
operations. Management believes that none of these actions will have a material
adverse effect on the financial condition or results of operations of AMPAM.
EMPLOYEES
At April 1, 1999, AMPAM had approximately 2,700 employees. Currently, none
of AMPAM's employees are members of unions or work under a collective bargaining
agreement. AMPAM believes that its relationship with its employees is
satisfactory.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information as of April 1, 1999 concerning
AMPAM's directors and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- ---- --------
<S> <C> <C>
C. Byron Snyder....................... 50 Chairman of the Board of Directors
Robert A. Christianson................ 53 President, Chief Executive Officer and
Director
Robert C. Richey...................... 48 Senior Vice President, Chief Operating
Officer and Director
David C. Baggett...................... 37 Senior Vice President, Chief Financial
Officer, Secretary and Director
David A. Croson....................... 44 Director
James A. Croson....................... 67 Director
Joseph E. Miller...................... 46 Director
Albert W. Niemi, Jr. ................. 56 Director
Susan O. Rheney....................... 39 Director
Robert W. Sherwood.................... 48 Director
Sam B. Sherwood....................... 43 Director
Scott W. Teepe, Sr. .................. 41 Director
</TABLE>
All officers serve at the discretion of the Board of Directors and are
expected to enter into employment agreements with AMPAM. See "-- Employment
Agreements."
C. Byron Snyder. Mr. Snyder has been Chairman of the Board of AMPAM since
its inception. Mr. Snyder is the President of Sterling City Capital, LLC, a
Houston-based private investment company that focuses on selective investments
in companies which plan to execute consolidation strategies within fragmented
industries. He was the owner and President of Relco Refrigeration Co., a
distributor of refrigerator equipment which he acquired in 1992 and which was
merged in February 1998 into Hospitality Companies, Inc. Mr. Snyder is a
director of Hospitality Companies, Inc., a supplier of food equipment and
heating/air conditioning products to the hospitality industry. Prior to 1992,
Mr. Snyder was the owner and Chief Executive Officer of Southwestern Graphics
International, Inc., a diversified holding company which owned Brandt & Lawson
Printing Co., a Houston-based general printing business, and Acco Waste Paper
Company, an independent recycling business. Mr. Snyder is a director of Carriage
Services, Inc., a publicly held death care company and Chairman of the Board of
Directors of Integrated Electrical Services, Inc., a publicly held electrical
contracting and maintenance services consolidator.
Robert A. Christianson. Mr. Christianson became Chief Executive Officer and
a director of AMPAM following the acquisitions. Mr. Christianson has been Chief
Executive Officer of Christianson Enterprises, Inc., since it was founded in
1980. He also served in management positions with its predecessor company. He
has over 35 years experience in the plumbing and mechanical contracting services
industry. He is a past president of the Austin Association of Plumbing, Heating
and Cooling Contractors and a past secretary of the Plumbing, Heating and
Cooling Contractors of Texas.
Robert C. Richey. Mr. Richey became Chief Operating Officer and a director
of AMPAM following the acquisitions. Mr. Richey has been Chief Executive Officer
of R.C.R. Plumbing, Inc. since it was founded in 1977. He has over 30 years
experience in the plumbing and mechanical contracting services industry.
David C. Baggett. Mr. Baggett has been the Senior Vice President and Chief
Financial Officer of AMPAM since August 1998 and became a director of AMPAM
following the acquisitions. Prior to that, he served as the Senior Vice
President and Chief Financial Officer of Kelley Oil & Gas Corporation from
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March 1997 until August 1998. Before joining Kelley Oil & Gas Corporation, Mr.
Baggett was the partner in charge of energy and corporate finance for the
Houston office of the accounting and consulting firm of Deloitte & Touche LLP.
David A. Croson. Mr. David Croson became a director of AMPAM following the
acquisitions. Mr. David Croson has been President and Chief Executive officer of
J. A. Croson since 1986. Mr. David Croson is the son of Mr. James Croson.
James A. Croson. Mr. James Croson became a director of AMPAM following the
acquisitions. Mr. Croson was President of Croson Florida from 1989 until 1997
and Chief Executive Officer from 1998 to present. Mr. James Croson is the father
of Mr. David Croson.
Joseph E. Miller. Mr. Miller became a director of AMPAM following the
acquisitions. Mr. Miller has been Vice President of Miller Mechanical
Contractors, Inc. since that company was formed in 1977 and acts as the Chief
Operating Officer. Mr. Miller is past-President of the Georgia Association of
Plumbing, Heating and Cooling Contractors.
Albert W. Niemi, Jr. Dr. Niemi is the John and Debbie Tolleson Dean of the
Edwin L. Cox School of Business at Southern Methodist University where his areas
of expertise include economic growth, economic forecasting and American business
history. Before Dr. Niemi's arrival at Southern Methodist University, he served
as dean of the Terry College of Business from 1982 through 1996. He also served
as dean of the School of Business at the University of Alabama at Birmingham for
the 1996-1997 academic year.
Susan O. Rheney. Ms. Rheney has been a director of AMPAM since April, 1999.
Ms. Rheney is a principal of The Sterling Group, Inc., a private financial
organization engaged in the acquisition and ownership of operating businesses,
where she has served as Vice President since 1992. Ms. Rheney is also a director
of Texas Petrochemical Holdings, Inc. and AXIA Group, Inc.
Robert W. Sherwood. Mr. Robert Sherwood became a director of AMPAM
following the acquisitions. Mr. Robert Sherwood has been President and Chief
Executive Officer of Sherwood Mechanical, Inc. since he founded that company in
1976. Mr. Robert Sherwood is the current President of the San Diego chapter of
Associated Builders and Contractors and is the current Chairman of the Plumbing
Industry Committee of the California Contractors Alliance. Robert W. Sherwood
and Sam B. Sherwood are not related to each other.
Sam B. Sherwood. Mr. Sam Sherwood became a director of AMPAM following the
acquisitions. Mr. Sam Sherwood has been Vice President of Keith Riggs Plumbing,
Inc. since 1989. Robert W. Sherwood and Sam B. Sherwood are not related to each
other.
Scott W. Teepe, Sr. Mr. Teepe became a director of AMPAM following the
acquisitions. Mr. Teepe was Vice President of Teepe's River City Mechanical,
Inc. from 1984 until 1998 and has been President since 1998.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors established an Audit Committee and a Compensation
Committee. The Audit Committee recommends the appointment of auditors and
oversees the accounting and audit functions of AMPAM. The Compensation Committee
determines the salaries and bonuses of executive officers and administers the
1999 Stock Plan. Messrs. J. Croson, Miller and Niemi serve as members of AMPAM's
Audit Committee and Messrs. R. Sherwood, Christianson and Ms. Rheney serve as
members of AMPAM's Compensation Committee. Any future material transactions
between AMPAM and its management and affiliates, including approval of executive
employment agreements and the issuance of securities other than through the 1999
Stock Plan and the 1999 Directors Stock Plan, will be subject to prior review
and approval by the members of the Board of Directors without an interest in the
transaction.
The Board of Directors is divided into three classes of directors, with
directors serving staggered three-year terms, expiring at the annual meeting of
stockholders following the 1999 fiscal year (Class I),
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2000 fiscal year (Class II) and 2001 fiscal year (Class III), respectively. At
each annual meeting of stockholders, one class of directors is elected for a
full term of three years to succeed that class of directors whose terms are
expiring. The Board of Directors is classified as follows: Messrs. J. Croson, S.
Sherwood, Snyder and Miller are Class I directors, Messrs. R. Sherwood, D.
Croson, Christianson and Niemi are Class II directors and Messrs. Teepe,
Baggett, Richey and Ms. Rheney are Class III directors.
DIRECTOR COMPENSATION
Directors who are employees of AMPAM or a subsidiary do not receive
additional compensation for serving as directors. Each director who is not an
employee of AMPAM or a subsidiary will receive a fee of $2,000 for attendance at
each Board of Directors meeting and $1,000 for each committee meeting (unless
held on the same day as a Board of Directors meeting). Directors of AMPAM will
be reimbursed for any reasonable out-of-pocket expenses incurred in attending
meetings of the Board of Directors or committees THEREOF, and for other expenses
reasonably incurred in their capacity as directors of AMPAM. Each non-employee
director receives stock options to purchase 5,000 shares of common stock upon
initial election to the Board of Directors and thereafter an annual grant of
5,000 options at each annual meeting on which the non-employee director
continues to serve. See "-- 1999 Stock Plan."
EXECUTIVE COMPENSATION
The annualized base salaries of AMPAM's most highly compensated executive
officers are as follows: Robert A. Christianson -- $220,000; Robert C. Richey
-- $220,000 and David C. Baggett -- $190,000.
EMPLOYMENT AGREEMENTS
AMPAM is currently negotiating and expects to enter into an employment
agreement with each of the executive officers named above on substantially the
same terms and conditions as described in this and the following paragraphs.
These agreements will prohibit the officer from disclosing AMPAM's confidential
information and trade secrets and will generally restricts these individuals
from competing with AMPAM for a period of two years after the date of the
termination of employment with AMPAM. However, many states' courts have a
presumption against non-competition agreements due to public policy concerns and
some state courts may decide not to enforce or only partially enforce these
noncompetition clauses. Each of the agreements will have an initial term of five
years and will provide for an annual extension at the end of its initial term,
unless either party timely notifies the other that the term will not be
extended, and will be terminable by AMPAM or by the officer upon thirty days'
written notice. The employment agreements will provide that AMPAM will pay each
officer the annual salary set forth above under "-- Executive Compensation,"
which may be increased by the Board of Directors. Such agreements will also
provide that each officer will be reimbursed for out-of-pocket business expenses
and will be eligible to participate in all benefit plans and programs as are
maintained from time to time by AMPAM. All employment agreements will provide
that if the officer's employment is terminated by AMPAM without "cause" or is
terminated by the officer for "good reason," the officer will be entitled to
receive a lump sum severance payment at the effective time of termination equal
to the base salary (at the rate then in effect) for some period of time. In this
type of an event, the time period during which the officer is restricted from
competing with AMPAM will be shortened.
The employment agreements will contain provisions concerning a
change-in-control of AMPAM, including the following:
- in the event the officer's employment is terminated within two years
following the change in control by AMPAM other than for "cause" or by the
officer for "good reason," or the officer is terminated by AMPAM within
three months prior to the change in control at the request of the
acquiror in anticipation of the change in control, the officer will be
entitled to receive a lump sum severance amount equal to the greater of
(a) three years' base salary (at the rate then in effect) or (b) the base
salary for whatever period is then remaining on the initial term, and the
provisions which restrict competition with AMPAM will not apply;
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- in any change-of-control situation, the officer may elect to terminate
his employment by giving five business days' written notice prior to the
closing of the transaction giving rise to the change-in-control, which
will be considered to be a termination of employment by the officer for
"good reason," and the provisions of the employment agreement governing
the same will apply, except that the severance amount otherwise payable
will be doubled (but not to exceed six times the officer's base pay) (if
the successor does not give written notice of its acceptance of AMPAM's
obligations under the employment agreement at least ten business days
prior to the anticipated closing date, the severance amount will be
tripled, but not to exceed nine times base salary), and the provisions
which restrict competition with AMPAM will not apply; and
- if any payment to the officer is subject to the 20% excise tax on excess
parachute payments, the officer will be made "whole" on a net after-tax
basis.
A change in control is generally defined to occur upon:
- the acquisition by any person of 20% or more of the total voting power of
the outstanding securities of AMPAM;
- the first purchase pursuant to a tender or exchange offer for common
stock;
- the approval of some types of mergers, sale of substantially all the
assets, or dissolution of AMPAM; or
- a change in a majority of the members of AMPAM's Board of Directors.
In general, a "parachute payment" is any "payment" made by AMPAM in the
nature of compensation that is contingent on a change in control of AMPAM and
includes the present value of the accelerations of vesting and the payment of
options and other deferred compensation amounts upon a change in control. If the
aggregate, present value of the parachute payments to individuals, including
officers, equals or exceeds three times that individual's "base amount"
(generally, the individual's average annual compensation from AMPAM for the five
calendar years ending before the date of the change in control), then all
parachute amounts in excess of the base amount are "excess" parachute payments.
An individual will be subject to a 20% excise tax on excess parachute amounts
and AMPAM will not be entitled to a tax deduction for these payments.
1999 STOCK PLAN
The Board of Directors of AMPAM adopted the 1999 Stock Plan. The purpose of
the 1999 Stock Plan is to provide officers, employees, directors and consultants
with additional incentives by increasing their ownership interests in AMPAM.
Individual awards under the Plan may take the form of one or more of:
- non-qualified stock options ("NQSOs");
- stock appreciation rights ("SARs");
- restricted stock;
- phantom stock;
- performance awards;
- bonus stock awards;
- other stock-based awards, i.e., awards not otherwise provided for, the
value of which are based in whole or in part upon the value of the
common stock; and
- cash awards that may or may not be based on the achievement of
performance goals (collectively, "Awards").
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The performance goals for Awards, until changed, include target levels of
net income, cash flows, return on equity, profit margins, sales, stock price,
reductions in cost of goods sold and earnings per share.
The Compensation Committee or AMPAM's Chief Executive Officer, to the
extent duties are delegated to the Chief Executive by the Compensation
Committee, administers the 1999 Stock Plan and selects the individuals who will
receive awards and establish the terms and conditions of those awards. The
maximum number of shares of common stock that may be subject to outstanding
awards, determined immediately prior to the grant of any award, may not exceed
the greater of 3,700,000 shares of common stock or 15% of the aggregate number
of shares of common stock then outstanding. Shares of common stock which are
attributable to awards which have expired, terminated or been canceled or
forfeited are available for issuance or use in connection with future awards.
The maximum number of shares of common stock with respect to which any person
may receive options and SARs in any calendar year is 200,000 shares. With
respect to other forms of awards, the maximum award that may be granted to any
individual in any calendar year cannot exceed $5.0 million (determined as of the
date of the grant of the award). Options and SARs may have exercise prices as
the Compensation Committee, in its discretion, determines.
The 1999 Stock Plan will remain in effect for 10 years, unless earlier
terminated by the Board of Directors. The 1999 Stock Plan may be amended by the
Board of Directors or the Compensation Committee without the consent of the
stockholders of AMPAM, except that any amendment will be subject to stockholder
approval if required by any federal or state law or regulation or by the rules
of any stock exchange or automated quotation system on which the common stock
may then be listed or quoted.
NQSOs to purchase 200,000 shares of common stock have been granted to David
C. Baggett, Chief Financial Officer and NQSOs to purchase 1,942,115 shares of
common stock have been granted to other members of management of AMPAM,
employees of the founding companies and holders of the preferred stock. Each of
the foregoing options have an exercise price of $7.00. These options will vest
at the rate of 20% per year, commencing on the first anniversary of grant and
will expire at the earliest of:
- ten years from the date of grant;
- three months following termination of employment or service, other
than due to death or disability; or
- one year following a termination of employment or service due to death
or disability.
CERTAIN TRANSACTIONS
ORGANIZATION OF AMPAM
AMPAM (1) issued 3,417,517 shares of common stock and Class B common stock,
to Sterling City Capital, LLC, the management of AMPAM and other individuals and
(2) granted options to purchase 2,142,115 shares of common stock to various
officers and employees of AMPAM, holders of the preferred stock and other
persons. The following executive officers and directors of AMPAM have been
issued the following number of shares of common stock and Class B common stock,
respectively: Mr. Snyder -- 0 and 1,598,901 (these shares are held in the name
of Sterling City Capital, LLC), Mr. Christianson -- 300,000 and 108,372,
respectively, Mr. Richey -- 150,000 and 54,186, respectively, Mr.
Baggett -- 300,000 and 108,372, respectively.
Sterling City Capital, LLC advanced funds to AMPAM to pay for the expenses
related to the acquisitions. The advances totaled approximately $3.5 million
through the closing of the acquisitions and were repaid concurrently with
closing of the acquisitions in the form of a sponsor note. This note was repaid
with the proceeds of the original issuance of the notes.
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ACQUISITION OF FOUNDING COMPANIES
At the closing of the acquisitions, AMPAM purchased all the issued and
outstanding capital stock of the founding companies, at which time each founding
company became a wholly-owned subsidiary of AMPAM. The acquisition consideration
was negotiated by the parties and was based primarily upon the pro forma
adjusted net income of each founding company for prior historical periods, the
amounts of indebtedness and working capital of each of the founding companies as
well as the future prospects of the businesses of each of the founding
companies. The acquisition consideration delivered upon the closing of the
acquisitions consisted of:
- $99.9 million in cash (which represents a portion of the $106.3 million
total cash consideration, subject to adjustment as discussed below, to be
paid to the stockholders of the founding companies);
- $5.8 million of seller notes;
- 8,898,618 shares of common stock; and
- 1,048,820 shares of preferred stock. Only some of the stockholders of
Christianson received shares of preferred stock, and these stockholders
did not receive any seller notes or shares of common stock.
Included in the $99.9 million cash acquisition consideration paid upon
closing was a portion of the cash payments to be made to the stockholders of the
founding companies based upon the level of working capital of that founding
company as of the closing date. In the event that the adjusted level of working
capital as of the closing date is more or less than the unadjusted level, the
cash portion of the acquisition consideration payable to that stockholder will
be adjusted accordingly. The stockholders of each founding company were also
entitled to distributions of nonoperating assets of the founding company
(subject to assumption of related liabilities), retained earnings of the
founding company (if a C corporation) or the positive amount of the accumulated
adjustment account (if an S corporation). Distributions of excess working
capital and non-operating assets ("owner amounts") amounted to: $6.1 million for
Christianson; $3.7 million for RCR; $4.5 million for Teepe's; $2.6 million for
Riggs; $4.1 million for Croson Ohio; $4.3 million for Croson Florida; $2.3
million for Power; $0.3 million for Nelson; $1.2 million for Sherwood; and $1.4
million for Miller. In addition to the acquisition consideration and other
payments and distributions described above, the stockholders of each founding
company (including some of the former stockholders of Christianson) may receive
additional consideration in the event the founding company generates actual
adjusted net income for the year ending December 31, 1999, in excess of a
designated target level of net income for that period.
ACQUISITION CONSIDERATION
In addition to the $99.9 million in cash consideration and 8,898,618 shares
of common stock issued to stockholders of the companies, AMPAM issued
approximately $5.8 million in seller notes and 1,048,820 shares of preferred
stock. The principal features of the seller notes and preferred stock are set
forth below.
Seller Notes
Principal Amount and Interest Rate. Concurrently with the closing of the
acquisitions, AMPAM issued $5.8 million principal amount of seller notes due
three years from the date of issuance. The seller notes bore interest at the
rate of 10% per annum, and any overdue payments also bore interest at a rate of
10%.
Interest Payment Dates. Interest on the seller notes was payable quarterly,
commencing 90 days from the date of issuance.
Ranking. The seller notes were unsecured obligations of AMPAM, subordinated
in right of payment to any and all existing and future senior indebtedness of
AMPAM, including the credit facility.
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Redemption at the Option of AMPAM. The seller notes were redeemable at any
time, at the option of AMPAM, in whole or from time to time in part, at a price
equal to 100% of the principal amount plus accrued and unpaid interest, if any,
to the date of redemption.
Redemption at the Option of Holders. In the event AMPAM completed a
qualified financing each of the holders of the seller notes would have had a
one-time "put right," but not an obligation, to require AMPAM to repurchase the
seller notes held by any holder, together with any accrued and unpaid interest,
if any, to the date of redemption, subject to some limitations. A "qualified
financing" meant the completion by AMPAM of (i) an initial public offering of
common stock or (ii) a private placement or public offering of unsecured, senior
subordinated or subordinated notes from which AMPAM would have received at least
$75 million in gross proceeds. The consummation of the original issuance of the
notes was a "qualified financing" and all of the seller notes have been repaid
in full.
Series A Redeemable Preferred Stock
Shares and Liquidation Value. An aggregate of 1,048,820 shares of preferred
stock were issued to members of the Christianson family at the closing of the
acquisitions. These Christianson stockholders received their acquisition
consideration solely in the form of cash and shares of preferred stock and did
not receive any common stock. The issuance of the preferred stock was the result
of arms' length negotiation between AMPAM and the stockholders of Christianson
and was a necessary component of the consideration required for the sale of
their company. The preferred stock is cumulative, redeemable and convertible.
The aggregate liquidation value of the preferred stock is $13,634,660, plus
accrued and unpaid dividends, as adjusted proportionately for any stock
dividends, combinations, splits or other similar events with respect to those
shares.
Dividends. The holders of the preferred stock are entitled to receive
dividends at an annual rate of 10% based on the "liquidation value" of the
preferred stock. The dividends are payable in cash semiannually in arrears. The
dividend payment dates are June 30 and December 31, beginning on June 30, 1999.
Ranking. The preferred stock ranks senior to all other classes of AMPAM's
capital stock, including the common stock, in right of liquidation, dividends
and distributions.
Voting Rights. Except as set forth below, the preferred stock is not
entitled to vote as a separate class, but votes together with the holders of
shares of all other classes of capital stock of AMPAM as one class on all
matters submitted to a vote of AMPAM's stockholders. Each holder of shares of
preferred stock is entitled to the number of votes equal to the largest number
of full shares of common stock into which all shares of preferred stock held by
a holder could be converted at the record date for the determination of the
stockholders entitled to vote on those matters. In all cases where the holders
of shares of preferred stock are required by law to vote separately as a class,
the holders are entitled to one vote for each share.
Without the affirmative vote of the holders of not less than a majority of
the shares of preferred stock, voting together as a single class, AMPAM may not
issue preferred stock having equal or superior rights to the preferred stock,
repurchase common stock or amend its charter documents in a manner which is
adverse to the holders of preferred stock.
Additionally, at any time and for so long as either (i) AMPAM has failed to
punctually pay when due any redemption payment or (ii) dividends payable on the
preferred stock have been in arrears and unpaid for a period of forty days,
AMPAM shall not, without the affirmative vote of the holders of not less than a
majority of the shares of preferred stock, voting together as a single class:
- incur any additional indebtedness for borrowed money other than
borrowings under any credit facility to which AMPAM is a party at that
time and as then in effect;
- effect any (a) sale, lease, assignment, transfer or other conveyance of
the assets of AMPAM or its subsidiaries which individually or in the
aggregate would constitute a significant subsidiary,
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(b) consolidation or merger involving AMPAM or any of its subsidiaries,
or (c) dissolution, liquidation or winding-up of AMPAM or any of its
subsidiaries;
- make (or permit any subsidiary to make) any loan or advance to, or own
any stock or other securities of, any subsidiary or other corporation,
partnership, or other entity unless it is wholly owned by AMPAM and
except for any loans and advances which do not in the aggregate exceed
$250,000;
- make any loan or advance to any person, including, without limitation,
any employee or director of AMPAM or any subsidiary, except advances and
similar expenditures in the ordinary course of business; or
- acquire, by purchase, exchange, merger or otherwise, all or substantially
all of the properties or assets of any other corporation or entity.
Redemption. The preferred stock is redeemable at AMPAM's option, at any
time and from time to time, in whole or in part, prior to an initial public
offering of common stock for the greater of (i) the fair market value of the
preferred stock and (ii) $13.00 per share of preferred stock, plus, in each
case, accrued and unpaid dividends thereon. After an initial public offering of
common stock, AMPAM has the right to redeem the preferred stock at any time and
from time to time, in whole or in part, at a price equal to the trading price of
the common stock at the time of redemption but in no event for less than $13.00
per share of preferred stock, plus accrued and unpaid dividends. After the third
anniversary of the date of issuance, the holders of the preferred stock may
require AMPAM to redeem the preferred stock. In each case, the redemption price
per share will be equal to the liquidation value plus accrued and unpaid
dividends through the date of redemption.
Convertibility. Prior to the filing of a registration statement by AMPAM
with the Securities and Exchange Commission with respect to an initial public
offering of common stock, the holders of preferred stock may convert the
preferred stock into common stock on a share-for-share basis.
AMPAM may convert the preferred stock following the completion of an
initial public offering of common stock on a share-for-share basis, unless this
conversion would result in the holder of preferred stock receiving common stock
having a value of less than $13.00 per share, in which case the conversion would
be made at a conversion ratio equal to the liquidation value (without inclusion
of accrued but unpaid dividends) divided by the price per share to the public in
the initial public offering of common stock.
ADDITIONAL CONSIDERATION
In addition to the acquisition consideration and the other payments and
distributions described above, the stockholders of each founding company, other
than Christianson, are entitled to receive additional consideration in the event
that founding company generates actual adjusted net income for the year ended
December 31, 1999 in excess of a designated target level of net income for that
period. This target net income for each founding company is generally an amount
equal to 107.5% of the founding company's pro forma adjusted net income for the
12-month period ended June 30, 1998.
In the event that the adjusted net income for a founding company for the
year ending December 31, 1999 exceeds the target net income for that period, the
stockholders of that founding company will be entitled to receive additional
consideration, subject to a maximum amount of additional consideration as
described below, having a value equal to the product obtained by multiplying (1)
50% of the difference between adjusted net income of the founding company for
that period and the target net income by (2) ten. The amount of additional
consideration payable to the stockholders of a founding company eligible for
additional consideration is subject to a maximum limitation of 15% of the total
value of acquisition consideration paid to that stockholder upon the closing of
the acquisitions. Any additional consideration payable to stockholders of a
founding company will be paid 50% in cash and 50% in shares of common stock of
AMPAM. AMPAM's obligation to pay the cash portion of the additional
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consideration is subject to the covenants, limitations and restrictions
contained in AMPAM's outstanding debt and equity instruments then in existence.
Additionally, seven of the previous stockholders of Christianson, including
Robert A. Christianson, entered into employment agreements with Christianson
and/or AMPAM, effective upon the closing of the acquisitions. As part of the
compensation to be received by these individuals through their employment
agreements, they are entitled to receive additional consideration based on the
adjusted net income for Christianson for the year ending December 31, 1999 in
the same manner, subject to the same restrictions and determined by the same
methodology as described above for the stockholders of the other founding
companies.
COVENANT NOT TO COMPETE
Pursuant to the agreements relating to the acquisitions, all of the former
stockholders of each of the founding companies have agreed not to compete with
AMPAM in the plumbing and mechanical contracting services business for a period
of two years after the closing of the acquisitions. However, many states' courts
have a presumption against non-competition agreements due to public policy
concerns and some state courts may decide not to enforce or only partially
enforce the provisions of these noncompetition clauses. In addition, some of the
management personnel of each of the founding companies will enter into
employment agreements through which these persons will agree not to compete with
AMPAM in the plumbing and mechanical contracting services business for a period
of two years after the termination of their affiliation with AMPAM. In
connection with the acquisitions, AMPAM and the owners of the founding companies
have agreed to indemnify each other for breaches of representations and
warranties and other matters, subject to limitations.
COMMON STOCK REDEMPTION RIGHTS
Redemption Trigger. In the event that within three years of the closing of
the acquisitions, (1) AMPAM has not consummated an initial public offering of
common stock and (2) any stockholder of any founding company has not received
cash (including the proceeds from the public or private sale of common stock and
the receipt of principal payments, if any, on the seller notes held by that
stockholder) equal to or exceeding 50% of the aggregate value of the acquisition
consideration received by each stockholder through his or her respective
acquisition agreement, each stockholder will have a "put right," to require
AMPAM to purchase a number of shares of common stock representing 10% of the
total number of shares of common stock then owned by that stockholder, subject
to the limitations described below. The purchase price for this redemption will
be $13.00 per share of common stock.
Minimum Redemption; Limitations. If the events specified in clauses (1) and
(2) above, have not occurred within the time specified, AMPAM will be obligated
to purchase annually from each eligible stockholder no less than 10% of the
common stock held by that stockholder; provided, however, that an eligible
stockholder will not be entitled to exercise his or her put right if and to the
extent that the stockholder's founding company has not achieved the target net
income for that founding company for the year preceding the year the stockholder
seeks to exercise his put right. AMPAM's obligation to effect these redemptions
will be subject to the covenants, limitations and restrictions contained in
AMPAM's outstanding private or public debt and equity instruments then in
existence.
Additional Redemptions. In the event an initial public offering of common
stock has not been consummated, to the extent the stockholders who have received
greater than 50% of their acquisition consideration in cash wish to tender
common stock to AMPAM for purchase, AMPAM will use its commercially reasonable
efforts to continue to repurchase annually up to 10% of the common stock held by
those stockholders. AMPAM's obligation to make any additional redemptions will
also be subject to any covenants, limitations or restrictions contained in
AMPAM's outstanding private or public debt and equity instruments then in
existence.
Termination of Redemption Obligation. The put rights with respect to any
individual stockholder will terminate upon receipt by a stockholder of 50% of
his acquisition consideration in cash. This termination
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will not, however, limit the stockholder's ability to participate in the
additional redemptions described above. Notwithstanding the foregoing, all of
AMPAM's redemption obligations under the acquisition agreements will terminate
on the earlier to occur of (1) an initial public offering of common stock, (2)
any sale of all or substantially all of AMPAM's assets in one transaction or
series of transactions, (3) any merger or consolidation which involves AMPAM and
in which AMPAM is not the surviving entity or (4) any transaction after which
the shares of common stock, if any, which are then held by persons other than
the holders of common stock as of the closing date of the acquisitions
constitute 50% or more of the shares of common stock outstanding as of the date
of the closing of the transaction.
ACQUISITION CONSIDERATION PAID TO OFFICERS AND DIRECTORS
Individuals who are executive officers or directors of AMPAM received the
following portions of the acquisition consideration for their interests in the
founding companies. Mr. Teepe's share number excludes 10,000 of the 20,000
shares of common stock that AMPAM has agreed to contribute to a deferred
compensation plan for the benefit of some of the employees of Teepe's. Mr. David
Cronson's share number excludes 76,928 shares of common stock that AMPAM has
agreed to contribute to deferred compensation plans for the benefit of some of
the employees of Croson Ohio. Mr. Miller's share number excludes 5,880 shares of
the 12,000 shares of common stock that AMPAM has agreed to contribute to a
deferred compensation plan for the benefit of some of the employees of Miller.
<TABLE>
<CAPTION>
SHARES OF
SELLER COMMON OWNER
FOUNDING COMPANY CASH(1) NOTES(1) STOCK(1) AMOUNTS(1)
---------------- ------- --------- ----------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Christianson
Robert A. Christianson.................................... $ 3,706 -- 665,166 $ 35
RCR
Robert C. Richey(2)....................................... 8,473 $1,412 1,412,230 193
Teepe's
Scott W. Teepe, Sr........................................ 2,052 990 532,760 159
Keith Riggs
Sam B. Sherwood(3)........................................ 921 -- 169,451 12
Croson Florida
James A. Croson........................................... 1,906 -- 463,225 92
Croson Ohio
David A. Croson........................................... 4,066 -- 720,334 648
Sherwood
Robert W. Sherwood........................................ 1,765 294 294,120 450
Miller
Joseph E. Miller.......................................... 1,838 306 300,461 47
------- ------ --------- ------
Total............................................... $24,727 $3,002 4,557,747 $1,636
======= ====== ========= ======
</TABLE>
- ---------------
(1) Does not include any additional consideration that may be payable to the
stockholders of the founding companies. Owner amounts are estimates and
assume the transactions were consummated on December 31, 1998. Owner amounts
consist of non-operating assets, S corporation accumulated adjustment
accounts and excess working capital of the founding companies.
(2) The acquisition consideration was paid to the Robert C. Richey Family Trust.
(3) The acquisition consideration was paid to the Sam B. Sherwood and Vicki S.
Sherwood Trust.
USE OF PROCEEDS OF NOTE ISSUANCE
We used the net proceeds from the private placement of the existing notes
(approximately $117.7 million after deducting underwriting commissions and
estimated offering expenses) to repay approximately $70.3 million of
indebtedness then outstanding under the credit facility, to repay the $30.0
million subordinated loan and to repay $9.3 million of seller and sponsor notes.
All of the debt which was repaid was incurred to fund the cash portion of the
acquisition of the founding companies. The balance of the proceeds from the
private placement of notes were retained for general corporate purposes,
including but not limited to future acquisitions, capital expenditures and
additional working capital.
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OTHER TRANSACTIONS INVOLVING CERTAIN OFFICERS, DIRECTORS AND SHAREHOLDERS
Christianson leases its office and warehouse space in Round Rock and San
Antonio, Texas from the Glen T. Christianson Family Trusts, W. George
Christianson, Jr. Family Trusts, Robert A. Christianson Family Trusts, and
Wilburn G. Christianson Family Trusts. Amounts paid through these leases were
$156,000 for the 1996 fiscal year, $466,000 for the 1997 fiscal year and
$492,000 for the 1998 fiscal year. Future minimum lease payments under these
noncancelable operating leases are $495,000 for 1999, $554,000 for 2000,
$559,000 for 2001, $69,000 for 2002 and $24,000 for 2003. AMPAM believes that
these rents are not in excess of the fair rental value for these facilities.
Glen Christianson and George Christianson are brothers of Robert Christianson
who is the Chief Executive Officer and a director of AMPAM.
Through December 31, 1995, Christianson subcontracted its construction
labor to Contractor Resources, Inc., a company which is wholly-owned by Robert
Christianson. Christianson was charged for this labor based on Contractor
Resources' actual costs. For the 1996 fiscal year, and the four months ended
December 31, 1995, subcontractor labor costs reflected within cost of revenues
in the accompanying statements of operations were $2,663,000 and $2,663,000,
respectively. This relationship was terminated effective December 31, 1995.
Also through December 31, 1995, Contractor Resources provided workers'
compensation insurance to Christianson's employees through a self-insurance
program. Contractor Resources charged Christianson an agreed-upon rate for this
insurance based on an estimate of the cost of workers' compensation insurance as
a subscriber under the Texas risk pool. Claims were administered and paid by
Contractor Resources. For the 1996 fiscal year, and the four months ended
December 31, 1995, workers' compensation insurance costs reflected within cost
of revenues in the accompanying statements of operations were $268,000 and
$268,000, respectively. This relationship was terminated effective December 31,
1995.
Effective January 1, 1999, Christianson entered into a 7 year operating
agreement with Contractor Resources to lease some furniture for an annual lease
payment of $63,000.
Also, Robert Christianson's employment agreement with AMPAM contains a
provision whereby Robert Christianson may earn additional consideration. See
"Certain Transactions -- Acquisition of Founding Companies -- Additional
Consideration."
G.G.R. Leasing Corporation, d.b.a. Professional Services, Inc.
("Professional Services"), a company in which Robert Christianson had a
one-third ownership interest prior to the closing of the acquisitions, provided
various administrative and management services to Christianson Enterprises, Inc.
In connection with these services, Professional Services charged a fee to
Christianson. For the 1996 fiscal year, and the four months ended December 31,
1995, Professional Services charged Christianson $225,000 and $225,000,
respectively. These amounts are included within other income in the accompanying
statements of operations. As discussed above, the relationship was terminated
December 31, 1995; therefore, no fees were charged subsequent to this date.
Mr. Richey was a part owner in a partnership which leased vehicles to RCR
at rates approximating market. During 1996, the partnership contributed these
leased vehicles to RCR, at their historical cost, less accumulated depreciation.
Upon the contribution of these assets, the net book value approximated zero. Mr.
Richey is the Chief Operating Officer and a director of AMPAM.
A partnership owned by Mr. Richey leased steel storage containers to RCR at
rates approximating market rates. During 1996, the partnership contributed all
of RCR's leased steel storage containers. These assets were contributed at the
approximate historical cost, less accumulated depreciation, of approximately
$37,000.
A partnership owned by Mr. Richey leased some equipment to RCR, at rates
approximating market rates. RCR incurred lease expense under this arrangement of
approximately $87,000, $52,000 and $77,000 for the 1996, 1997 and 1998 fiscal
years, respectively.
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RCR funds three life insurance policies for Mr. Richey and some other
parties affiliated with RCR. Two of the policies name RCR as the beneficiary.
Total payments for these policies approximated $41,000, $29,000 and $12,000 for
the 1996, 1997 and 1998 fiscal years.
RCR leases some facilities from Mr. Richey. Lease expense related to these
buildings totaled approximately $220,000, $220,000 and $220,000 for the 1996,
1997 and 1998 fiscal years, respectively. Future minimum lease payments under
this lease are approximately $233,400 for 1999, $240,400 for 2000, and $123,500
for 2001. AMPAM believes that this rent is not in excess of the fair rental
value for this property.
In 1997, Teepe's entered into an operating lease for some facilities with
Teepe, Ltd., of which Scott W. Teepe, Sr. and Steven M. Teepe each own 50%. The
lease expires in August 2003 with an option to renew for two five-year terms.
The lease calls for monthly lease payments of approximately $5,000. Total rent
paid under this lease was $18,000 and $55,000 in 1997 and 1998, respectively.
Future minimum yearly lease payments under this lease are $60,000 for 1999
through 2003. AMPAM believes that this rent is not in excess of the fair rental
value for this property. Steven M. Teepe's brother, Scott W. Teepe, Sr., is a
director of AMPAM.
As of December 31, 1997 and 1998, Teepe's has an outstanding loan to Steven
M. Teepe. The loan is classified as other receivables for balance sheet
presentation. The loan to Steven M. Teepe had an outstanding balance of $114,000
and $122,940 at December 31, 1997 and 1998, respectively. The loan bears
interest at the blended federal rate (5.9% at December 31, 1997 and 1998). Total
interest income related to this loan was $7,000 for the 1997 and 1998 fiscal
years.
In July 1998, Teepe's sold some property to an entity controlled by Scott
W. Teepe, Sr. Concurrent with the sale, Teepe's entered into a lease with the
entity for the same property. The lease calls for monthly lease payments of
approximately $12,000.
On March 1, 1995, Croson Ohio sold some facilities to David Croson for
$500,000. Croson Ohio now leases these facilities from David Croson. David
Croson's mortgage on these facilities is guaranteed by Croson Ohio. In 1996,
1997 and 1998, Croson Ohio made yearly lease obligation payments to David Croson
in the amount of $99,600. As of September 30, 1997 and 1998, Croson Ohio owed
David Croson $537,743 and $484,155, respectively. Future minimum lease payments
are $213,000 for 1999, $159,000 for 2000, $106,000 for 2001, $100,000 for 2002,
and $241,000 for each year thereafter. David Croson and his father, James
Croson, are both directors of AMPAM.
Croson Florida leases some property and facilities from James Croson under
a noncancelable operating lease expiring in September 2002. Rent expense under
this Lease was approximately $32,000 for each of the 1996 and 1997 fiscal years,
and $24,000 for the 1998 fiscal year. Future minimum yearly lease payments under
this lease are approximately $22,000. AMPAM believes that these rents are not in
excess of the fair rental value for these properties.
Croson Florida has a Subordinated Note Agreement with James Croson, with a
balance of $434,000 at December 31, 1997 and $0 at December 31, 1998. Interest
is due quarterly at the rate of prime plus 2% (9.75% at December 31, 1998).
Principal is due in full on December 15, 2002.
During the 1996 and 1997 fiscal years, Croson Florida purchased supplies
from Eastway Supplies, Inc., a company in which James Croson had a 35% ownership
interest. Croson Florida's purchases totaled approximately $81,000, $48,000 and
$0 for the 1996, 1997 and 1998 fiscal year, respectively. No amounts were owed
to Croson Florida at December 31, 1997 and 1998. James Croson was also a
director of Eastway Supplies, Inc., until 1996. At December 31, 1997, James
Croson no longer owned any interest in Eastway Supplies, Inc.
Sherwood entered into a construction contract with Poway Land Associates,
LLC, which is 90% owned by Mr. Sherwood. The total contract receivable balance
as of September 30, 1997 and 1998 was approximately $302,000 and $88,000,
respectively. Sherwood recorded construction revenue and gross
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margin for this contract of approximately $457,000 and $23,000 for 1997, and
approximately $475,000 and $(112,000) for 1998, respectively. Mr. Sherwood is a
director of AMPAM.
Poway Land Associates, LLC, leases some facilities to Sherwood. Amounts
paid through this lease were $78,000 for the 1997 fiscal year and $97,000 for
the 1998 fiscal year. Future minimum lease payments under the lease, which
expire in May 2003 are $126,000 for 1999, $129,000 for 2000, $133,000 for 2001,
$137,000 for 2002, and $129,000 for 2003. AMPAM believes that the leases are not
in excess of fair rental value for these facilities.
As of September 30, 1998 and 1997, Mr. Sherwood had an outstanding loan to
Sherwood with a balance of $63,000 and $83,000, respectively. The indebtedness
was originally incurred in June 1997.
Miller purchased various materials and supplies from North Georgia Supply
and Appliance Company, a company in which Joseph H. Miller is a part owner.
Miller also bills salaries, insurance, and office supplies to North Georgia
Supply and Appliance Company. Miller purchased approximately $1,940,000 of
material and supplies from North Georgia Supply and Appliance Company in 1997,
and $3,048,000 in 1998. Miller had receivables of $195,334 due from North
Georgia Supply and Appliance Company at September 30, 1997 and $8,241 at
September 30, 1998.
Miller leases some facilities from Joseph H. Miller under a lease agreement
that expires on September 30, 2005. Rent expense for the years ended September
30, 1997 and 1998 was $90,000. Future yearly lease payments for fiscal years
1999 through 2005 are $90,000. AMPAM believes that this rent is not in excess of
the fair rental value for this property. Joseph E. Miller, a director of AMPAM,
is the son of Joseph H. Miller.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of AMPAM's common stock and Class B common stock, by (i) all persons
known to AMPAM to be the beneficial owner of 5% or more of the common stock,
(ii) each director and nominee for director, (iii) each executive officer and
(iv) all executive officers and directors as a group.
The holders of Class B common stock, voting together as a single class, are
entitled to elect one member of AMPAM's Board of Directors and to one-fourth of
one vote on any other matters on which they are entitled to vote. Each share of
Class B common stock will automatically convert to common stock (as adjusted
proportionately to give effect to any stock dividends, combinations, splits or
other similar events with respect to the common stock) on a share-for-share
basis in the event AMPAM consummates any of the following events: (i) an initial
public offering of common stock, (ii) any sale of all or substantially all of
our assets in one transaction or a series of related transactions, (iii) any
merger or consolidation that involves AMPAM in which AMPAM is not the surviving
entity or (iv) any transaction after which the common stock held by persons
other than the holders of common stock as of April 1, 1999 constitutes 50% or
more of the common stock outstanding as of the date of the consummation of such
transaction. Furthermore, if the Class B common stock has not previously been
converted into common stock before April 1, 2002, AMPAM will have the option to
redeem all outstanding shares of Class B common stock for $0.01 a share.
Unless otherwise indicated, the address of each person is c/o American
Plumbing & Mechanical, Inc., 1950 Louis Henna Blvd., Round Rock, Texas 78664.
All persons listed have sole voting and investment power with respect to their
shares unless otherwise indicated.
<TABLE>
<CAPTION>
COMMON STOCK CLASS B COMMON STOCK
BENEFICIAL OWNERSHIP(1) BENEFICIAL OWNERSHIP
------------------------ ----------------------
SHARES PERCENT SHARES PERCENT
----------- -------- ---------- -------
<S> <C> <C> <C> <C>
Sterling City Capital, LLC............ -- -- 1,598,901 66.0
C. Byron Snyder....................... -- -- 1,598,901(2) 66.0
Robert A. Christianson................ 965,166 8.9 108,372 4.5
Robert C. Richey...................... 1,562,230(3) 14.5 54,186 2.2
David C. Baggett...................... 300,000 2.8 108,372 4.5
David A. Croson....................... 720,334(4) 6.7 -- --
James A. Croson....................... 463,225 4.3 -- --
Joseph E. Miller...................... 300,461(5) 2.8 -- --
Albert W. Niemi, Jr.(6)............... -- -- -- --
Susan O. Rheney(7).................... -- -- -- --
Robert W. Sherwood.................... 294,120 2.7 -- --
Sam B. Sherwood....................... 169,451(8) 1.6 -- --
Scott W. Teepe, Sr.................... 532,760(9) 4.9 -- --
---------- ---- ---------- ----
All executive officers and directors
as a group (12 persons)............. 5,307,747 49.1 1,869,831 77.2
</TABLE>
- ---------------
(1) Assumes conversion of the 1,048,820 shares of preferred stock into the same
number of shares of common stock.
(2) Represents 1,598,901 shares of Class B common stock owned by Sterling City
Capital, LLC. Mr. Snyder is the only natural person who shares beneficial
ownership over these shares.
(3) Of these shares, 1,412,230 are held by the Robert C. Richey Trust and
150,000 shares are held by Robert C. Richey.
(4) Excludes 76,928 shares of common stock that AMPAM has agreed to contribute
to deferred compensation plans for the benefit of some of the employees of
Croson Ohio.
(5) Excludes 5,880 shares of the 12,000 shares of common stock that AMPAM has
agreed to contribute to a deferred compensation plan for the benefit of some
of the employees of Miller.
(6) Southern Methodist University, 6212 Bishop Blvd., Room 200A, Dallas, TX
75275.
(7) The Sterling Group, 8 Greenway Plaza, Suite 702, Houston, TX 77046.
(8) All of these shares are held by the Sam B. Sherwood and Vicki S. Sherwood
Trust.
(9) Excludes 10,000 of the 20,000 shares of common stock that AMPAM has agreed
to contribute to a deferred compensation plan for the benefit of some of the
employees of Teepe's.
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DESCRIPTION OF OTHER INDEBTEDNESS
Assuming the original issuance of the notes had occurred on March 31, 1999,
AMPAM's indebtedness would have consisted of approximately $3.1 million of
capital lease obligations. In addition AMPAM will be able to borrow up to $95.0
million under its credit facility, subject to the conditions set forth in the
credit facility. The terms of our credit facility are substantially as follows:
Commitment; Interest Rates. The credit facility is a senior secured
revolving credit facility in an aggregate principal amount of $95 million which
includes a sublimit for the issuance of standby letters of credit. Amounts
borrowed under the credit facility were used to fund a part of the cash portion
of the acquisition consideration and will be used to fund future acquisitions
and to provide financing for general corporate purposes. The credit facility
bears interest, at the option of AMPAM, at the base rate of the arranging bank
plus an applicable margin or at LIBOR plus an applicable margin. The applicable
margin will fluctuate based on AMPAM's ratio of funded debt to EBITDA. The
applicable margin will be between 1.50% and 2.50% above LIBOR or 0.00% and 1.00%
above the arranging banks base rate.
Repayment; Maturity. Interest will be payable no less frequently than
quarterly in arrears. The term of the credit facility will be three years from
the date of the closing of the acquisitions (April 1, 1999), and all principal
amounts borrowed thereunder will be payable in full at maturity.
Security and Guarantees. The obligations of AMPAM under the credit facility
are secured by a first priority perfected security interest in (1) all the
accounts receivable, inventory, equipment and other personal property of AMPAM
and (2) all of the capital stock owned by AMPAM of its existing or later-formed
domestic subsidiaries. Also, the obligations of AMPAM are guaranteed by the
founding companies.
Prepayments. AMPAM is required to make prepayments or commitment reductions
on the credit facility in an amount equal to:
- 100% of the cash proceeds from any property insurance recoveries not
promptly applied toward the repair or replacement of the damaged
property;
- 100% of the net proceeds of the sale of any equity securities; and
- 100% of the net proceeds of any public or private debt financing.
Conditions and Covenants. The obligations of the lenders under the credit
facility are subject to the satisfaction of conditions precedent customary under
similar credit facilities or otherwise appropriate under the circumstances.
AMPAM is subject to customary negative covenants contained in the credit
facility, including without limitation covenants that restrict, subject to
specified exceptions:
- the incurrence of additional indebtedness;
- asset sales;
- capital expenditures;
- mergers, acquisitions, consolidations and liquidations;
- transactions with affiliates;
- permitted investments; and
- the ability of AMPAM to make various payments (including payments of the
cash portion of the additional consideration and for redemption of common
stock), to incur guaranty obligations and to incur additional liens.
The credit facility also contains customary affirmative covenants, including:
- the delivery of financial statements, reports, accountants' letters,
projections, officers' certificates and other information requested by
the lenders;
- the continuation of business and maintenance of material rights and
privileges;
- the payment of other obligations;
- maintenance of property and insurance;
- maintenance of books and records;
- compliance with environmental laws;
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- the right of the lenders to inspect AMPAM's property and books; and
- notice of defaults, litigation and other material events.
In addition, the credit facility requires AMPAM to maintain compliance
with a number of specified financial covenants including:
- a maximum ratio of funded total debt to EBITDA of no more than 4.0 to 1.0
calculated on a rolling four quarter basis;
- a maximum ratio of funded senior debt to EBITDA of no more than 2.5 to
1.0 calculated on a rolling four quarter basis;
- a minimum fixed charge coverage ratio of at least 1.0x to 1.25x
calculated on a rolling four quarter basis; and
- a minimum net worth with quarterly step-ups equal to 75% of positive net
income and 100% of net proceeds from equity issuances.
Events of Default. The credit facility includes events of default that are
usual and customary under similar credit facilities, including without
limitation, failure to pay principal, failure to pay interest or fees, cross
default on other indebtedness:
- change of control of AMPAM;
- breach of covenants;
- material judgments rendered against AMPAM;
- ERISA events; and
- a material inaccuracy in any representation or warranty. The occurrence
of any of these events of default could result in the acceleration of
AMPAM's obligations under the credit facility which, in turn, could have
a material adverse effect on AMPAM's operations.
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DESCRIPTION OF THE NOTES
You can find the definitions of capitalized terms used in the following
description under the subheading "-- Certain Definitions." In this description,
the words "AMPAM," "we," "our," "ours," and "us" refers only to American
Plumbing & Mechanical, Inc. and not to any of its subsidiaries.
We will issue the exchange notes under an indenture among AMPAM, the
guarantors and State Street Bank and Trust Company, as trustee. The terms of the
notes include those stated in the indenture and those made part of the indenture
by reference to the Trust Indenture Act of 1939.
The following description is a summary of the material provisions of the
indenture. It does not restate the indenture in its entirety. We urge you to
read the indenture because it, and not this description, defines your rights as
holders of these notes. We have filed a copy of the indenture as an exhibit to
the registration statement which includes this prospectus.
BRIEF DESCRIPTION OF THE NOTES AND THE GUARANTEES
THE NOTES
These notes:
- are general obligations of AMPAM;
- are subordinated in right of payment to all existing and future Senior
Indebtedness of AMPAM;
- are senior in right of payment to any future Subordinated Indebtedness of
AMPAM; and
- are fully and unconditionally guaranteed by the guarantors.
THE GUARANTEES
These notes are guaranteed by all of the current direct subsidiaries of
AMPAM.
The guarantees of these notes:
- are general obligations of each guarantor;
- are subordinated in right of payment to all existing and future Guarantor
Senior Indebtedness; and
- are senior in right of payment to any future Subordinated Indebtedness of
each guarantor.
As of the date of the indenture, all of our subsidiaries were Restricted
Subsidiaries. However, under the circumstances described below, we will be
permitted to designate some of our subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to many of the restrictive
covenants in the indenture. Unrestricted Subsidiaries will not guarantee these
notes.
As of the date of this prospectus, all of our subsidiaries were guarantors
of these notes. It is possible that in the future not all of our Restricted
Subsidiaries will guarantee these notes. In the event of a bankruptcy,
liquidation or reorganization of any of these non-guarantor subsidiaries, these
non-guarantor subsidiaries will pay the holders of their debt and their trade
creditors before they will be able to distribute any of their assets to us.
MATURITY, INTEREST AND PRINCIPAL
We will issue exchange notes with a maximum aggregate principal amount of
$125 million. We will issue exchange notes in denominations of $1,000 and
integral multiples of $1,000. The exchange notes will mature on October 15,
2008.
Interest on these notes will accrue at the rate of 11 5/8% per year and
will be payable semi-annually in arrears on April 15 and October 15, commencing
on October 15, 1999. We will make each interest
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<PAGE> 95
payment to the holders of record of these notes on the April 1 and October 1
immediately before each payment date.
Interest on these notes will accrue from the date the existing notes were
issued or, if interest has already been paid, from the date it was most recently
paid. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months.
OPTIONAL REDEMPTION
After April 15, 2004, we may redeem all or a part of these notes upon not
less than 30 nor more than 60 days' notice, at the redemption prices (expressed
as percentages of principal amount) set forth below, plus accrued and unpaid
interest, if any, to the redemption date, if redeemed during the 12-month period
beginning April 15 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C>
2004........................................................ 106.000%
2005........................................................ 104.000%
2006........................................................ 102.000%
2007 and thereafter......................................... 100.000%
</TABLE>
In addition, at any time, or from time to time, on or prior to April 15,
2002, AMPAM may, at its option, use the net cash proceeds of one or more Public
Equity Offerings to redeem up to an aggregate of 35% of the principal amount of
the notes originally issued, at a redemption price equal to 111.625% of the
principal amount of the notes plus accrued and unpaid interest, if any, thereon
to the redemption date; if that at least 65% of the originally issued principal
amount of notes remains outstanding immediately after the occurrence of this
redemption. In order to effect this redemption with the proceeds of any Public
Equity Offering, AMPAM must consummate this redemption not later than 60 days
after the closing of any Public Equity Offering.
SELECTION AND NOTICE
If less than all of the notes are to be redeemed at any time, the trustee
will select notes for redemption as follows:
- if the notes are listed, in compliance with the requirements of the
principal national securities exchange on which the notes are listed; or
- if the notes are not listed, on a pro rata basis, by lot or by any method
the trustee shall determine to be fair and appropriate.
No notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each holder of notes to be redeemed at its registered
address.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note shall state the portion of the principal amount to be
redeemed. A new note in principal amount equal to the unredeemed portion of the
original note will be issued in the name of the holder of the original note upon
cancellation of the original note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on notes or portions of them called for redemption, unless AMPAM defaults
in the payment of the redemption price.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, AMPAM shall be obligated to
make an offer to purchase all of the outstanding notes at a purchase price equal
to 101% of the principal amount of the
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<PAGE> 96
notes plus accrued and unpaid interest, if any, on the notes to the date the
offer is completed. AMPAM shall be required to purchase all notes properly
tendered and not withdrawn.
In order to effect a Change of Control offer, AMPAM must mail to each
holder of notes notice of the Change of Control offer no later than 30 days
after the Change of Control takes place. We must complete the offer on a
business day not less than 30 days nor more than 60 days after the mailing of
the notice of the Change of Control. We are required to keep the offer open for
at least 20 business days. The notice governs the terms of the offer and states
the procedures that holders of notes must follow to accept the offer.
If a Change of Control offer is made, AMPAM cannot give any assurance that
it will have available funds sufficient to pay the purchase price for all of the
notes that might be delivered by holders of notes seeking to accept the Change
of Control offer. In addition, AMPAM cannot give any assurance that its debt
instruments will permit an offer to be made. AMPAM's credit facility does not
permit AMPAM to make a Change of Control offer. In order to make this type of
offer, AMPAM would be required to pay off the credit facility in full or seek a
waiver from the lenders under the credit facility to allow AMPAM to make the
Change of Control offer.
The occurrence of a Change of Control is also an event of default under the
credit facility and would entitle the lenders under the credit facility to
accelerate all amounts owing under the credit facility. Any future credit
agreements or other agreements relating to Senior Indebtedness to which AMPAM
becomes a party may contain similar restrictions and provisions. Moreover, the
exercise by the holders of their rights to require AMPAM to repurchase the notes
could cause a default under indebtedness of the type described, even if the
Change of Control itself does not, due to the financial effect of this type of
repurchase on AMPAM. AMPAM's failure to make a Change of Control offer, even if
prohibited by AMPAM's debt instruments, would constitute a default under the
indenture. See "Risk Factors."
AMPAM shall not be required to make a Change of Control offer upon a Change
of Control if a third party makes the Change of Control offer at the same
purchase price, at the same time and otherwise in compliance with the
requirements applicable to a Change of Control offer made by AMPAM and purchases
all notes validly tendered and not withdrawn under a Change of Control offer.
In addition, AMPAM shall not be required to make a Change of Control offer,
as provided above, if, in connection with or in contemplation of any Change of
Control, it has made an offer to purchase any and all notes validly tendered at
a cash price equal to or higher than the Change of Control purchase price and
has purchased all notes properly tendered in accordance with the terms of this
alternate offer.
The provisions of the indenture may not afford Note holders protection in
the event of a highly leveraged transaction, reorganization, restructuring,
merger or similar transaction involving AMPAM if the transaction is not a
transaction defined as a "Change of Control." The existence of a holder's right
to require AMPAM to repurchase the notes upon a Change of Control may deter a
third party from acquiring AMPAM in a transaction that constitutes, or results
in, a Change of Control.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of AMPAM and its Subsidiaries taken as a whole. Although there is
a limited body of case law interpreting the phrase "substantially all," there is
no precise established definition of the phrase under applicable law.
Accordingly, the ability of a holder of notes to require AMPAM to repurchase
their notes as a result of a sale, lease, transfer, conveyance or other
disposition of less than all of the assets of AMPAM and its Subsidiaries taken
as a whole may be uncertain.
AMPAM will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations, to the extent these laws or regulations are
applicable, in connection with a repurchase of notes resulting from a Change of
Control. Any violation of the provisions of the indenture relating to this type
of offer shall not be considered to be a default or an event of default.
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SUBORDINATION
The payment of principal, premium and interest, if any, on these notes will
be subordinated to the prior payment in full of all Senior Indebtedness of
AMPAM. The credit facility provides that the subordination provisions of the
notes may not be modified or amended without the prior written consent of the
lenders under the credit facility.
The holders of Senior Indebtedness (including, in the case of Designated
Senior Indebtedness, any interest accruing subsequent to the filing of a
petition for bankruptcy regardless of whether interest is an allowed claim in
the bankruptcy proceeding) will be entitled to receive payment in full before
the holders of notes will be entitled to receive any payment related to the
notes (except that holders of notes may receive and retain Permitted Junior
Securities and payments made from the trust described under "-- Legal Defeasance
or Covenant Defeasance of Indenture"), in the event of any distribution to
creditors of AMPAM:
- in a liquidation, dissolution or winding up of AMPAM;
- in any insolvency or bankruptcy case or proceeding or any receivership,
liquidation, reorganization or other similar case or proceeding relating
to AMPAM or its assets;
- in an assignment for the benefit of creditors; or
- in any marshalling of our assets and liabilities.
We also may not make any payment in respect of the notes (except in
Permitted Junior Securities or from the trust described under "-- Legal
Defeasance or Covenant Defeasance of Indenture") if:
- a payment default on Senior Indebtedness occurs and is continuing and the
trustee and AMPAM receive a notice from representatives of the holders of
the Senior Indebtedness; or
- any other default occurs and is continuing on Designated Senior
Indebtedness that permits holders of the Designated Senior Indebtedness
to accelerate its maturity and the earlier of either of the following;
(a) the trustee and AMPAM receive a notice of the default from
representatives of the holders of the Designated Senior Indebtedness or
(b) if the default is the result of the acceleration of the maturity of
the notes, the date of the acceleration.
Payments on the notes may and shall be resumed:
- in the case of a payment default, upon the date on which the default is
cured, waived or ceases to exist or the Senior Indebtedness is paid in
full or indefeasibly discharged; and
- in case of a nonpayment default, the earlier of
(a) the date on which the nonpayment default is cured, waived or ceases
to exist or the Senior Indebtedness is paid in full or indefeasibly
discharged;
(b) 179 days after the date on which the notice of default is received
or the date of acceleration, unless the maturity of any Designated
Senior Indebtedness has been accelerated; or
(c) the receipt of notice from those representatives of the holders of
Designated Senior Indebtedness who gave the original notice of default
stating that payments may be resumed.
No new notice of default may be delivered unless and until 360 days have
elapsed since the effectiveness of the immediately prior notice of default. No
nonpayment default shall be the basis for a subsequent notice of default unless
that default will have been cured or waived for a period of not less than 90
days.
As a result of the subordination provisions described above, in the event
of a bankruptcy, liquidation or reorganization of AMPAM, holders of these notes
may recover less ratably than creditors of AMPAM who are holders of Senior
Indebtedness.
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On a pro forma basis after giving effect to the sale of the notes and the
application of the estimated net proceeds therefrom, AMPAM and the guarantors
would have had, without duplication, approximately $3.5 million of Senior
Indebtedness and guarantor Senior Indebtedness outstanding as of December 31,
1998. The indenture will limit, but not prohibit, the incurrence by AMPAM of
additional Indebtedness which is senior to the notes and will prohibit the
incurrence by AMPAM of Indebtedness which is subordinated in right of payment to
any other indebtedness of AMPAM and senior in right of payment to the notes.
GUARANTEES
The guarantors will jointly and severally guarantee our obligations under
these notes. The guarantees are full and unconditional. Each guarantee will be
subordinated to the prior payment in full of all guarantor Senior Indebtedness.
The obligations of each guarantor under its guarantee will be limited as
necessary to prevent that guarantee from constituting a fraudulent conveyance
under applicable law.
Each guarantor may consolidate with or merge into or sell its assets to us
or another guarantor without limitation, or with other persons upon the terms
and conditions described in the indenture. See "-- Consolidation, Merger, Sale
of Assets, Etc." In the event all or substantially all of the assets or the
capital stock of a guarantor is sold or the guarantor is designated an
Unrestricted Subsidiary as allowed by the terms of the indenture, then the
guarantors guarantee will be automatically and unconditionally discharged and
released.
Separate financial statements of the guarantors are included in this
prospectus because of their status as subsidiaries, not because of their status
as guarantors. The guarantors are jointly and severally liable with respect to
AMPAM's obligations under the notes, and the aggregate net assets, earnings and
equity of the guarantors and AMPAM are substantially equivalent to the net
assets, earnings and equity of AMPAM on a consolidated basis.
MATERIAL COVENANTS
LIMITATION ON INDEBTEDNESS. AMPAM will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or in any manner become directly or indirectly liable,
contingently or otherwise for the payment of any Indebtedness (including any
Acquired Indebtedness) other than Permitted Indebtedness; provided, however,
that AMPAM and any guarantor will be permitted to incur Indebtedness (including
Acquired Indebtedness), if:
- the Consolidated Fixed Charge Coverage Ratio of AMPAM is at least 2.0 to
1; and
- no default or event of default would occur or be continuing.
LIMITATION ON RESTRICTED PAYMENTS. AMPAM will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly:
(a) declare or pay any dividend or make any other distribution or
payment on or in respect of capital stock of AMPAM or any of its
Restricted Subsidiaries or make any payment to the direct or indirect
holders of capital stock of AMPAM or any of its Restricted Subsidiaries
(other than dividends or distributions payable solely in capital stock
of AMPAM (other than Redeemable capital stock or in options, warrants or
other rights to purchase capital stock of AMPAM (other than Redeemable
capital stock)) (other than the declaration or payment of dividends or
other distributions to the extent declared or paid to AMPAM or any
guarantor);
(b) purchase, redeem or otherwise acquire or retire for value any
capital stock of AMPAM or any of its Restricted Subsidiaries or any
options, warrants or other rights to purchase any capital stock (other
than any securities owned by AMPAM or a Restricted Subsidiary);
(c) make any principal payment on, or purchase, defease, redeem or
otherwise acquire or retire for value, prior to any scheduled maturity,
scheduled repayment, scheduled sinking fund payment
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or other Stated Maturity, any Subordinated Indebtedness (other than any
Subordinated Indebtedness owed to AMPAM or a guarantor); or
(d) make any Investment (other than any Permitted Investment) in any
person (payments or Investments described in the preceding clauses (a),
(b), (c) and (d) are collectively referred to as "Restricted Payments"),
unless, after giving effect to the proposed Restricted Payment (the
amount of any Restricted Payment, if other than cash, shall be the fair
market value of the asset(s) proposed to be transferred by AMPAM or the
Restricted Subsidiary, as the case may be, under the Restricted
Payment):
(A) no default or event of default shall have occurred and be
continuing;
(B) after giving pro forma effect to the Restricted Payment, AMPAM
would be able to incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) in accordance with the "Limitation on
Indebtedness" covenant described above; and
(C) the aggregate amount of all Restricted Payments declared or made
from and after the Issue Date would not exceed the sum of:
(1) 50% of the aggregate Consolidated Net Income of AMPAM accrued
on a cumulative basis during the period beginning on April 1,
1999 and ending on the last day of the fiscal quarter ending
immediately prior to the date of the proposed Restricted Payment
for which consolidated financial statements are available (or, if
the aggregate cumulative Consolidated Net Income of AMPAM for the
period shall be a loss, minus 100% of the loss);
(2) the aggregate net cash proceeds received by AMPAM as capital
contributions to AMPAM after the Issue Date and which constitute
shareholders' equity of AMPAM in accordance with GAAP;
(3) the aggregate net cash proceeds received by AMPAM from the
issuance or sale of capital stock, excluding redeemable capital
stock, of AMPAM to any person other than to a Subsidiary of AMPAM
after the Issue Date;
(4) the aggregate net cash proceeds received by AMPAM from any
person, other than a Subsidiary of AMPAM, upon the exercise of
any options, warrants or rights to purchase shares of capital
stock (other than redeemable capital stock) of AMPAM after the
Issue Date;
(5) the aggregate net cash proceeds received after the Issue Date
by AMPAM from any person, other than a subsidiary of AMPAM, from
the issuance and sale of debt securities that have been converted
into or exchanged for capital stock of AMPAM (other than
Redeemable capital stock) to the extent the debt securities were
originally sold for cash, plus the aggregate amount of cash
received by AMPAM, other than from a subsidiary of AMPAM, at the
time of the conversion or exchange;
(6) to the extent not otherwise included in AMPAM's Consolidated
Net Income, in the case of the disposition or repayment of any
Investment constituting a Restricted Payment after the Issue
Date, an amount equal to the lesser of the return of capital with
respect to the Investment and the initial amount of the
Investment, in either case, less the cost of the disposition of
the Investment;
(7) so long as the Designation was treated as a Restricted
Payment made after the Issue Date, with respect to any
Unrestricted Subsidiary that has been redesignated as a
Restricted Subsidiary after the Issue Date in accordance with "--
Limitation on Designations of Unrestricted Subsidiaries" below,
the fair market value of AMPAM's interest in the Subsidiary at
the time of the redesignation. However, this amount shall
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not in any case exceed the Designation Amount with respect to the
Restricted Subsidiary upon its Designation; and
(8) $4.0 million.
For purposes of the preceding clause (C)(4), the value of the aggregate net
proceeds received by AMPAM upon the issuance of capital stock upon the exercise
of options, warrants or rights will be the net cash proceeds received upon the
issuance of the options, warrants or rights plus the incremental amount received
by AMPAM upon the exercise of the options, warrants or rights.
None of the foregoing provisions will prohibit, so long as, in the case of
clauses (5) and (6) below, there is no default or event of default continuing:
(1) the payment of any dividend or distribution within 60 days after the
date of its declaration, if at the date of declaration this payment
would be permitted by the first paragraph of this covenant;
(2) the redemption, repurchase or other acquisition or retirement of any
shares of any class of capital stock of AMPAM in exchange for, or out of
the net cash proceeds of a substantially concurrent issue and sale of,
other shares of capital stock of AMPAM (other than Redeemable capital
stock) to any person (other than to a Subsidiary of AMPAM); provided,
however, that the net cash proceeds are excluded from clause (C) above;
(3) any redemption, repurchase or other acquisition or retirement of
Subordinated Indebtedness of AMPAM in exchange for, or out of the net
cash proceeds of a substantially concurrent issue and sale of, (A)
capital stock (other than redeemable capital stock) of AMPAM to any
person (other than to a Subsidiary of AMPAM); provided, however, that
any net cash proceeds of this type are excluded from clause (C) of the
first paragraph of this covenant; or (B) other Subordinated Indebtedness
of AMPAM which:
- has no scheduled principal payment prior to the 91st day after the
Maturity Date;
- has an Average Life to Stated Maturity greater than the remaining
Average Life to Stated Maturity of the notes; and
- is subordinated to the notes to at least the same extent as the
Subordinated Indebtedness so purchased, exchanged, redeemed,
acquired or retired;
(4) payments to purchase capital stock of AMPAM from management or
employees of AMPAM or any of its Subsidiaries or their authorized
representatives, upon the death, disability or termination of employment
of these employees, in aggregate amounts under this clause (4) not to
exceed $1.0 million in any fiscal year of AMPAM;
(5) the payment of regularly scheduled semi-annual dividends in respect
of the Seller Preferred Stock in an aggregate amount not to exceed $1.4
million in any one year;
(6) the payment of the aggregate liquidation preference of the Seller
Preferred Stock at final maturity in an aggregate amount not to exceed
$14.0 million;
(7) the application of the net proceeds of the private placement of
notes to which this registration statement relates;
(8) cash payments in lieu of fractional shares issuable as dividends on
preferred securities of AMPAM or any of its Restricted Subsidiaries, in
aggregate amounts under this clause (8) not to exceed $20,000 in any
fiscal year of AMPAM;
(9) repurchases of capital stock considered to have occurred upon
exercise of stock options if that capital stock represents a portion of
the exercise price of options previously described;
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(10) the payment of the redemption price of rights issued through any
shareholders, rights plan not in excess of $0.05 per right and not in
excess of $1.0 million in the aggregate;
(11) the payment of "Additional Consideration" (as defined in the
Acquisition Agreements) in the manner and in the amounts as provided in
the Acquisition Agreements as in effect on the Issue Date and described
in the Offering Memorandum, in an aggregate amount not to exceed $16.2
million; provided, however, that AMPAM's Consolidated Fixed Charge
Coverage Ratio at that time is at least 3.25 to 1; and
(12) the payment of amounts constituting post-closing adjustments to the
former stockholders of the founding companies in respect of (A) working
capital adjustments for which AMPAM received assets of comparable value
and (B) unpaid cash consideration reflected in the pro forma financial
statements of AMPAM on the Issue Date, in each case, in accordance with
the Acquisition Agreements as in effect on the Issue Date.
Any payments made pursuant to clauses (1), (4), (6), (10) and (11) of this
paragraph shall be taken into account in calculating the amount of Restricted
Payments made from and after the Issue Date.
In computing Consolidated Net Income of AMPAM under clause (C)(1) of the
first paragraph of this covenant:
- AMPAM shall use audited financial statements for the portions of the
relevant period for which audited financial statements are available on
the date of determination and unaudited financial statements and other
current financial data based on the books and records of AMPAM for the
remaining portion of that period; and
- AMPAM shall be permitted to rely in good faith on the financial
statements and other financial data derived from the books and records of
AMPAM that are available on the date of determination.
If AMPAM makes a Restricted Payment which, at the time the Restricted Payment is
made would in the good faith determination of AMPAM be permitted under the
requirements of the indenture, that Restricted Payment shall be considered to
have been made in compliance with the indenture notwithstanding any subsequent
adjustments made in good faith to AMPAM's financial statements affecting
Consolidated Net Income of AMPAM for any period.
LIMITATION ON LIENS. AMPAM will not, and will not permit any of its
Restricted Subsidiaries to, directly and indirectly, create, incur, assume or
suffer to exist any Liens of any kind securing Indebtedness upon any of its
property or assets, or any proceeds therefrom, unless the notes are equally and
ratably secured (except that Liens securing Subordinated Indebtedness shall be
expressly subordinate to Liens securing the notes to the same extent that
Subordinated Indebtedness is subordinate to the notes), except for:
- Liens securing Senior Indebtedness and guarantor Senior Indebtedness;
- Liens securing the notes;
- Liens securing Indebtedness which is incurred to refinance Indebtedness
which has been secured by a Lien (other than a Lien in favor of AMPAM or
a Restricted Subsidiary) permitted under the indenture and which has been
incurred in accordance with the provisions of the indenture; provided,
however, that these Liens do not extend to or cover any property or
assets of AMPAM or any of its Restricted Subsidiaries not securing the
Indebtedness so refinanced; and
- Permitted Liens.
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DISPOSITION OF PROCEEDS OF ASSET SALES. AMPAM will not, and will not permit
any of its Restricted Subsidiaries to, make any Asset Sale unless:
- AMPAM or a Restricted Subsidiary, as the case may be, receives
consideration at the time of the Asset Sale at least equal to the fair
market value of the shares or assets sold or otherwise disposed of; and
- at least 75% of the consideration in the Asset Sale, plus all other Asset
Sales since the Issue Date on a cumulative basis, consists of cash or
Cash Equivalents;
For purposes of this provision, the following shall be regarded as cash:
- the amount of any Indebtedness (as shown on the most recent balance sheet
of AMPAM or the Restricted Subsidiary) of AMPAM or a Restricted
Subsidiary that is assumed by the transferee of the assets as a result of
which AMPAM and its Restricted Subsidiaries are no longer liable thereon;
and
- any securities, notes or other obligations received by AMPAM or a
Restricted Subsidiary from a transferee that are converted within 60 days
into cash or Cash Equivalents (to the extent of the cash or Cash
Equivalents received).
Within 360 days after the receipt of any Net Cash Proceeds from an Asset
Sale, AMPAM or the Restricted Subsidiary may apply the Net Cash Proceeds at its
option:
- to repay, and permanently reduce the commitments under Senior
Indebtedness or Guarantor Senior Indebtedness;
- to an investment in properties and assets that replace the properties and
assets that were the subject of an Asset Sale;
- to an investment in properties and assets that are used or useful in the
business of AMPAM and its Restricted Subsidiaries conducted at that time;
or
- to an investment in capital stock of a person, the principal portion of
whose assets qualify under either of the previous two points in
businesses reasonably related thereto or in capital stock of a person,
the principal portion of whose assets consist of these types property or
assets.
Any Net Cash Proceeds from any Asset Sale that are neither used to repay,
and permanently reduce the commitments under, Senior Indebtedness or Guarantor
Senior Indebtedness in accordance with their terms nor invested in replacement
assets within this 360-day period will constitute "Excess Proceeds" subject to
disposition as provided below. However, that any Net Cash Proceeds from any
Asset Sale which are used to repay Senior Indebtedness or Guarantor Senior
Indebtedness but are subsequently invested in replacement assets within this
360-day period will not constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds equals or exceeds $10 million,
AMPAM shall make an offer to purchase, from all holders of the notes and any
then outstanding Pari Passu Indebtedness required to be repurchased or repaid on
a permanent basis in connection with an Asset Sale, an aggregate principal
amount of notes and any then outstanding Pari Passu Indebtedness equal to the
Excess Proceeds as follows:
- (A) AMPAM shall make an offer to purchase from all holders of the notes
in accordance with the procedures set forth in the indenture the maximum
principal amount (expressed as a multiple of $1,000) of notes that may be
purchased out of an amount equal to the product of the Excess Proceeds,
multiplied by a fraction, the numerator of which is the outstanding
principal amount of the notes and the denominator of which is the sum of
the outstanding principal amount of the notes and Pari Passu
Indebtedness, if any of all notes tendered, and (B) to the extent
required by the Pari Passu Indebtedness and provided there is a permanent
reduction in the principal amount of the
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Pari Passu Indebtedness, AMPAM shall make an offer to purchase Pari Passu
Indebtedness in an amount equal to the excess of the Excess Proceeds over
the Asset Sale offer amount;
- The offer price for the notes shall be payable in cash in an amount equal
to 100% of the principal amount of the notes tendered in connection with
an Asset Sale Offer, plus accrued and unpaid interest, if any, to the
date the Asset Sale Offer is consummated, in accordance with the
procedures set forth in the indenture. To the extent that the aggregate
Offered Price of the notes tendered in connection with an Asset Sale
Offer is less than the Asset Sale Offer Amount relating thereto or the
aggregate amount of the Pari Passu Indebtedness that is purchased or
repaid in connection with the Pari Passu Offer is less than the Pari
Passu Indebtedness Amount, AMPAM may use the Asset Sale Deficiency for
general corporate purposes, subject to the limitations contained in the
indenture; and
- If the aggregate total price of notes validly tendered and not withdrawn
by holders exceeds the amount offered, notes to be purchased will be
selected on a pro rata basis. Upon completion of the offers described
above, the amount of Excess Proceeds shall be reset to zero.
AMPAM will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations, to the extent these laws and regulations are
applicable, in the event that an Asset Sale occurs and AMPAM is required to
purchase notes as described above, and any violation of the provisions of the
indenture relating to the offer described above occurring as a result of this
compliance shall not be considered a default or an event of default.
LIMITATION ON ISSUANCES AND SALES OF RESTRICTED SUBSIDIARY STOCK. AMPAM
will not
- permit any Restricted Subsidiary to issue any capital stock (other than
to AMPAM or a Restricted Subsidiary); and
- permit any Person (other than AMPAM and/or one or more Restricted
Subsidiaries) to own any capital stock of any Restricted Subsidiary.
This covenant shall not prohibit:
- the issuance and sale of all, but not less than all, of the issued and
outstanding capital stock of any Restricted Subsidiary owned by AMPAM or
any of its Restricted Subsidiaries in compliance with the other
provisions of the indenture; or
- the ownership by directors of directors' qualifying shares or the
ownership by foreign nationals of capital stock of any Restricted
Subsidiary, to the extent mandated by applicable law.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. AMPAM will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, enter into
any transaction or series of related transactions (including, without
limitation, the sale, transfer, disposition, purchase, exchange or lease of
assets, property or services) with, or for the benefit of, any of its
Affiliates, except:
(a) on terms that are no less favorable to AMPAM or the Restricted
Subsidiary, as the case may be, than those which could have been
obtained at the time in a comparable transaction or series of related
transactions from persons who are not Affiliates of AMPAM,
(b) with respect to a transaction or series of related transactions
involving aggregate payments or value equal to or greater than $5
million, AMPAM shall have delivered an officers' certificate to the
trustee certifying that this transaction or transactions comply with the
preceding clause (a) and have been approved by the Disinterested Members
of the Board of Directors of AMPAM; provided, however that AMPAM may, if
there are no Disinterested Members of the Board of Directors or at its
option, obtain and deliver to the trustee the written opinion referred
to in clause (c) below in lieu of an officers' certificate and
(c) with respect to a transaction or series of related transactions
involving aggregate payments or value equal to or greater than $10
million, AMPAM shall have delivered to the trustee the
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officers' certificate referred to in clause (b) which includes a
certification that this transaction or transactions have been approved
by a majority of the Disinterested Members of the Board of Directors of
AMPAM or, in the event there are no Disinterested Members of the Board
of Directors, that AMPAM has obtained a written opinion from an
independent nationally recognized investment banking firm, accounting
firm or appraisal firm, in each case specializing or having a specialty
in the type and subject matter of the transaction or series of
transactions at issue, which opinion shall be to the effect set forth in
clause (a) above or shall state that SUCH transaction or series of
related transactions is fair from a financial point of view to AMPAM or
the Restricted Subsidiary.
Notwithstanding the foregoing, the restrictions set forth in this covenant shall
not apply to
- transactions between or among AMPAM and its Restricted Subsidiaries;
- customary directors' fees, indemnification and similar arrangements,
consulting fees, employee salaries, bonuses or employment agreements,
compensation or employee benefit arrangements and incentive arrangements
with any officer, director or employee of AMPAM or any Restricted
Subsidiaries entered into in the ordinary course of business;
- any dividends made in compliance with "-- Limitation on Restricted
Payments" above;
- loans and advances to officers, directors and employees of AMPAM or any
Restricted Subsidiary made in the ordinary course of business in an
aggregate amount not to exceed $1,000,000 outstanding at any one time;
- transactions in connection with agreements in effect on the Issue Date;
- written agreements assumed in connection with Asset Acquisitions with
persons who were not Affiliates prior to the transactions; provided,
however, that these agreements were not entered into in connection with
or in contemplation of an Asset Acquisition;
- leases of property or equipment entered into in the ordinary course of
business on terms that are substantially similar to those which could
have been obtained at the time in a comparable transaction with
non-Affiliates; or
- any sale or other issuance for cash of capital stock (other than
Redeemable capital stock) of AMPAM.
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES. AMPAM will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction on the
ability of any Restricted Subsidiary to:
- pay dividends, in cash or otherwise, or make any other distributions on
or in respect of its capital stock to AMPAM or any other Restricted
Subsidiary,
- pay any Indebtedness owed to AMPAM or any other Restricted Subsidiary,
- make loans or advances to AMPAM or any other Restricted Subsidiary,
- transfer any of its properties or assets to AMPAM or any other Restricted
Subsidiary or
- guarantee any Indebtedness of AMPAM or any other Restricted Subsidiary.
However, the following encumbrances or restrictions are allowed:
- those existing under or by reason of applicable law or any applicable
rule, regulation or order;
- customary nonassignment provisions of any contract or any lease governing
a leasehold interest of AMPAM or any Restricted Subsidiary;
- customary restrictions on transfers of property subject to a Lien
permitted under the indenture (including purchase money Liens permitted
under the indenture);
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- any agreement or other instrument of a person acquired by AMPAM or any
Restricted Subsidiary in existence at the time of the acquisition (but
not created in contemplation of such an acquisition), which encumbrance
or restriction is not applicable to any person, or the properties or
assets of any person, other than the person, or the property or assets of
the person, so acquired;
- an agreement entered into for the sale or disposition of capital stock or
assets of a Restricted Subsidiary or an agreement entered into for the
sale of specified assets (in either case, so long as the encumbrance or
restriction, by its terms, terminates on the earlier of the termination
of the agreement or the consummation of the agreement and so long as the
restriction applies only to the capital stock or assets to be sold);
- any agreement in effect on the Issue Date (including, without limitation,
the credit facility);
- those existing under or by reason of the indenture and the guarantees;
and
- any agreement that amends, extends, refinances, renews or replaces any
agreement described in the foregoing clauses; provided, however, that the
terms and conditions of any agreement of this type are not materially
less favorable to the holders of the notes with respect to these
encumbrances or restrictions than those under the agreement amended,
extended, refinanced, renewed or replaced.
LIMITATION ON DESIGNATIONS OF UNRESTRICTED SUBSIDIARIES. AMPAM may
designate after the Issue Date any Restricted Subsidiary as an "Unrestricted
Subsidiary" under the indenture (a "Designation") only if:
- no default shall have occurred and be continuing at the time of or after
giving effect to a Designation;
- AMPAM would be permitted to make an Investment (other than a Permitted
Investment covered by clause (x) of that definition) at the time of the
Designation pursuant to the first paragraph of "-- Limitation on
Restricted Payments" above in an amount (the "Designation Amount") equal
to the fair market value of AMPAM's interest in the Subsidiary on that
date; and
- AMPAM would be permitted under the indenture to incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the covenant
described under "-- Limitation on Indebtedness" at the time of the
Designation (assuming the effectiveness of the Designation).
In the event of any Designation of this type, AMPAM shall be regarded as
having made an Investment constituting a Restricted Payment under the covenant
"-- Limitation on Restricted Payments" for all purposes of the indenture in the
Designation Amount.
AMPAM shall not, and shall not cause or permit any Restricted Subsidiary
to, at any time:
- provide credit support for or subject any of its property or assets
(other than the capital stock of any Unrestricted Subsidiary) to the
satisfaction of, any Indebtedness of any Unrestricted Subsidiary;
- be directly or indirectly liable for any Indebtedness of any Unrestricted
Subsidiary; or
- be directly or indirectly liable for any Indebtedness which provides that
the holder of that Indebtedness may (upon notice, lapse of time or both)
declare a default thereon or cause payment to be accelerated or payable
prior to its final Stated Maturity upon the occurrence of a default with
respect to any Indebtedness of any Unrestricted Subsidiary.
The Designation of any Subsidiary as an Unrestricted Subsidiary shall
automatically include the Designation of all Subsidiaries of that
Subsidiary as Unrestricted Subsidiaries.
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AMPAM may revoke any Designation of a Subsidiary as an Unrestricted
Subsidiary (a "Revocation") if:
- no default shall have occurred and be continuing at the time of and after
giving effect to the Revocation; and
- all Liens and Indebtedness of the Unrestricted Subsidiary outstanding
immediately following the Revocation would, if incurred at that time,
have been permitted to be incurred under the indenture.
All Designations and Revocations must be evidenced by Board Resolutions of
AMPAM delivered to the trustee certifying compliance with the foregoing
provisions.
LIMITATION ON THE ISSUANCE OF SUBORDINATED INDEBTEDNESS. AMPAM will not,
and will not permit any guarantor to, directly or indirectly, incur any
Indebtedness (including Acquired Indebtedness) that is expressly subordinate or
junior in right of payment to any other Indebtedness of AMPAM or that guarantor
and senior in right of payment to the notes or the guarantee of that guarantor,
as the case may be.
ADDITIONAL SUBSIDIARY GUARANTEES. If AMPAM or any of its Restricted
Subsidiaries acquires, creates or designates another Restricted Subsidiary
organized under the laws of the United States or any of its possessions or
territories, any State of the United States or the District of Columbia, then
this newly acquired, created or designated Restricted Subsidiary shall, within
30 days after the date of its acquisition, creation or designation, whichever is
later, execute and deliver to the trustee a supplemental indenture in form
reasonably satisfactory to the trustee through which that Subsidiary shall
unconditionally guarantee (on a senior subordinated basis) all of AMPAM's
obligations under the notes and the indenture on the terms set forth in the
indenture; provided, however, that this Restricted Subsidiary shall not be
obligated to become a guarantor in the manner set forth above if this Restricted
Subsidiary is not, either individually or when considered in the aggregate with
all other Restricted Subsidiaries that are not guarantors, a Significant
Subsidiary. Thereafter, this Restricted Subsidiary shall be a guarantor for all
purposes of the indenture. Any Restricted Subsidiary that is not a guarantor
shall become a guarantor in the manner provided above within 30 days of that
time as it becomes, either individually or when considered in the aggregate with
all other Restricted Subsidiaries that are not guarantors, a Significant
Subsidiary. AMPAM at its option may also cause any other Restricted Subsidiary
to so become a guarantor.
REPORTING REQUIREMENTS. For so long as the notes are outstanding, whether
or not AMPAM is subject to Section 13(a) or 15(d) of the Exchange Act, or any
successor provisions, AMPAM shall file with the SEC the annual reports,
quarterly reports and other documents which AMPAM would have been required to
file with the SEC under Section 13(a) or 15(d) or any successor provisions if
AMPAM were so subject, these documents to be filed with the SEC on or prior to
the respective dates by which AMPAM would have been required so to file these
documents if AMPAM were so subject. AMPAM shall also in any event within 15 days
after each required filing date file with the trustee, copies of the annual
reports, quarterly reports and other documents which AMPAM would be required to
file with the SEC if the notes were then registered under the Exchange Act and
to make this information available to holders of notes upon request. In
addition, if AMPAM is not subject to the reporting requirements of the Exchange
Act, for so long as any notes remain outstanding, AMPAM will furnish to the
holders of notes and prospective investors, upon their request, the information
required to be delivered under Rule 144A(d)(4) under the Securities Act.
CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.
AMPAM will not, in any transaction or series of transactions, merge or
consolidate with or into, or sell, assign, convey, transfer, lease or otherwise
dispose of all or substantially all of its properties and assets to, any person
or persons, and AMPAM will not permit any of its Restricted Subsidiaries to
enter into any transaction of this type or series of transactions if that
transaction or series of transactions, in the aggregate, would result in a sale,
assignment, conveyance, transfer, lease or other disposition of all or
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substantially all of the properties and assets of AMPAM and its Restricted
Subsidiaries, on a consolidated basis, to any other person or persons, unless:
- either (1) if the transaction or series of transactions is a merger or
consolidation, AMPAM or the Restricted Subsidiary, as the case may be,
shall be the surviving person of the merger or consolidation, or (2) the
person formed by the consolidation or into which AMPAM or the Restricted
Subsidiary, as the case may be, is merged or to which the properties and
assets of AMPAM or the Restricted Subsidiary, as the case may be, are
disposed of shall be a corporation organized and existing under the laws
of the United States of America, any state or the District of Columbia
and shall expressly assume by a supplemental indenture executed and
delivered to the trustee, in form satisfactory to the trustee, all the
obligations of AMPAM under the notes, the indenture and the registration
rights agreement, and in each case, the indenture shall remain in full
force and effect;
- immediately after giving effect to the transaction or series of
transactions on a pro forma basis, no default or event of default shall
have occurred and be continuing; and
- except in the case of any merger of AMPAM with any Restricted Subsidiary
or any merger of guarantors, AMPAM or the surviving entity, as the case
may be, after giving effect to the transaction or series of transactions
on a pro forma basis on the assumption that the transaction or
transactions had occurred on the first day of the period of four fiscal
quarters ending immediately prior to the consummation of the transaction
or transactions, with the appropriate adjustments with respect to the
transaction or transactions being included in the pro forma calculation,
could incur $1.00 of additional Indebtedness in accordance with the
"Limitation on Indebtedness" covenant described above.
Upon any consolidation, merger or any sale, assignment, conveyance,
transfer, lease or other disposition in accordance with the immediately
preceding paragraphs, the successor person formed by the consolidation or into
which AMPAM or a Restricted Subsidiary, as the case may be, is merged or the
successor person to which the sale, assignment, conveyance, transfer, lease or
other disposition is made shall succeed to, and be substituted for, and may
exercise every right and power of AMPAM under the notes, the indenture and/or
the registration rights agreement, as the case may be, with the same effect as
if the successor had been named as AMPAM in the notes, the indenture and/or the
registration rights agreement, as the case may be, and, except in the case of a
lease, AMPAM or the Restricted Subsidiary shall be released and discharged from
its obligations under the notes and the indenture.
For all purposes of the indenture and the notes (including, without
limitation, the provision of this covenant and the covenants described in
"-- Material Covenants -- Limitation on Indebtedness," "-- Limitation on
Restricted Payments," and "-- Limitation on Liens"), Subsidiaries of any
surviving person shall, upon the transaction or series of related transactions,
become Restricted Subsidiaries unless and until designated Unrestricted
Subsidiaries under and in accordance with "-- Limitation on Designations of
Unrestricted Subsidiaries" and all Indebtedness, and all Liens on property or
assets, of AMPAM and the Restricted Subsidiaries in existence immediately after
the transaction or series of related transactions will be considered to have
been incurred upon the transaction or series of related transactions.
EVENTS OF DEFAULT
The following are "events of default" under the indenture:
(1) default in the payment of the principal of or premium, if any, when
due and payable, on any of the notes (at Stated Maturity, upon optional
redemption, required purchase or otherwise) (whether or not prohibited
by the subordination provisions of the indenture); or
(2) default in the payment of an installment of interest on any of the
notes, when due and payable, for 30 days (whether or not prohibited by
the subordination provisions of the indenture); or
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(3) default in the performance or breach of any covenant or agreement of
AMPAM under the indenture (other than a default in the performance or
breach of a covenant or agreement which is specifically dealt with in
clause (1), (2) or (4)) and this default or breach shall continue for a
period of 30 days after written notice has been given, by certified
mail,
- to AMPAM by the trustee or
- to AMPAM and the trustee by the holders of at least 25% in aggregate
principal amount of the outstanding notes; or
(4) failure by AMPAM to comply with the provisions described under the
captions "Consolidation, Merger and Sale of Assets, Etc.," "-- Material
Covenants -- Disposition of Proceeds of Asset Sales" or "Change of
Control"; or
(5) default or defaults under one or more agreements, instruments,
mortgages, bonds, debentures or other evidences of Indebtedness under
which AMPAM or any Restricted Subsidiary then has outstanding
Indebtedness in excess of $10 million, individually or in the aggregate,
and
- the default or defaults include a failure to make a payment of
principal,
- the Indebtedness is already due and payable in full or
- the default or defaults have resulted in the acceleration of the
maturity of this Indebtedness;
provided, that if any default described above is cured or waived or any
acceleration rescinded, or the Indebtedness is repaid, within a period
of 10 days from the continuation of the default beyond the applicable
grace period or the occurrence of the acceleration, as the case may be,
the event of default under the indenture and any consequential
acceleration of the notes shall be automatically rescinded, so long as
the rescission does not conflict with any judgment or decree; or
(6) one or more judgments, orders or decrees of any court or regulatory
or administrative agency of competent jurisdiction for the payment of
money in excess of $10 million, either individually or in the aggregate
(net of applicable insurance coverage which is acknowledged in writing
by the insurer or which has been determined to be applicable by a final
nonappealable determination by a court of competent jurisdiction), shall
be entered against AMPAM or any Restricted Subsidiary or any of their
respective properties and shall not be discharged and there shall have
been a period of 60 days after the date on which any period for appeal
has expired and during which a stay of enforcement of this judgment,
order or decree shall not be in effect; or
(7) the entry of a decree or order by a court having jurisdiction in the
premises (A) for relief in respect of AMPAM or any Significant
Subsidiary or one or more Restricted Subsidiaries that, taken together,
would constitute a Significant Subsidiary, in an involuntary case or
proceeding under the Federal Bankruptcy Code or any other federal, state
or foreign bankruptcy, insolvency, reorganization or similar law or (B)
adjudging AMPAM or any Significant Subsidiary or one or more Restricted
Subsidiaries that, taken together, would constitute a Significant
Subsidiary, bankrupt or insolvent, or approving a petition seeking
reorganization, arrangement, adjustment or composition of or in respect
of AMPAM or any Significant Subsidiary or one or more Restricted
Subsidiaries that taken together, would constitute a Significant
Subsidiary, under the Federal Bankruptcy Code or any other similar
federal, state or foreign law, or appointing a custodian, receiver,
liquidator, assignee, trustee or sequestrator (or other similar
official) of AMPAM or any Significant Subsidiary or one or more
Restricted Subsidiaries that, taken together, would constitute a
Significant Subsidiary or of any substantial part of any of their
properties, or ordering the winding up or liquidation of any of their
affairs, and the continuance of any decree or order unstayed and in
effect for a period of 60 consecutive days; or
(8) the institution by AMPAM or any Significant Subsidiary or one or
more Restricted Subsidiaries that, taken together, would constitute a
Significant Subsidiary of a voluntary case or
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proceeding under the Federal Bankruptcy Code or any other similar
federal, state or foreign law or any other case or proceedings to be
adjudicated a bankrupt or insolvent, or the consent by AMPAM or any
Significant Subsidiary or one or more Restricted Subsidiaries that,
taken together, would constitute a Significant Subsidiary to the entry
of a decree or order for relief in respect of AMPAM or a Significant
Subsidiary or group of Restricted Subsidiaries in any involuntary case
or proceeding under the Federal Bankruptcy Code or any other similar
federal, state or foreign law or to the institution of bankruptcy or
insolvency proceedings against AMPAM or a Significant Subsidiary or
group of Restricted Subsidiaries, or the filing by AMPAM or any
Significant Subsidiary or one or more Restricted Subsidiaries that,
taken together, would constitute a Significant Subsidiary of a petition
or answer or consent seeking reorganization or relief under the Federal
Bankruptcy Code or any other similar federal, state or foreign law, or
the consent by it to the filing of any petition of this type or to the
appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee or sequestrator (or other similar
official) of any of AMPAM or any Significant Subsidiary or one or more
Restricted Subsidiaries that, taken together, would constitute a
Significant Subsidiary or of any substantial part of its property, or
the making by it of an assignment for the benefit of creditors, or the
admission by it in writing of its inability to pay its debts generally
as they become due or the taking of corporate action by AMPAM or any
Significant Subsidiary or one or more Restricted Subsidiaries that,
taken together, would constitute a Significant Subsidiary in furtherance
of any action of this type; or
(9) any of the Guarantees of any Significant Subsidiary or one or more
Restricted Subsidiaries that, taken together, would constitute a
Significant Subsidiary ceases to be in full force and effect or any of
these Guarantees is declared to be null and void and unenforceable or
any of these Guarantees is found to be invalid or any guarantors denies
its liability under its Guarantee, other than by reason of release of
the guarantor in accordance with the terms of the indenture.
If an event of default (other than those covered by clause (7) or (8)
above) shall occur and be continuing, the trustee, by notice to AMPAM, or the
holders of at least 25% in aggregate principal amount of the notes then
outstanding, by notice to the trustee and AMPAM, may declare the principal of,
premium, if any, and accrued and unpaid interest, if any, on all of the
outstanding notes due and payable immediately on which declaration, all amounts
payable in respect of the notes shall be due and payable. If an event of default
specified in clause (7) or (8) above occurs and is continuing, then the
principal of, premium, if any, and accrued and unpaid interest, if any, on all
the outstanding notes shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the trustee or any holder of
notes.
After a declaration of acceleration under the indenture, but before a
judgment or decree for payment of the money due has been obtained by the
trustee, the holders of a majority in aggregate principal amount of the
outstanding notes, by written notice to AMPAM and the trustee, may rescind the
declaration if:
- AMPAM or any guarantor has paid or deposited with the trustee a sum
sufficient to pay
(a) all sums paid or advanced by the trustee under the indenture and the
reasonable compensation, expenses, disbursements and advances of the
trustee, its agents and counsel,
(b) all overdue interest on all notes,
(c) the principal of and premium, if any, on any notes which have become
due otherwise than by the declaration of acceleration and interest
thereon at the rate borne by the notes, and
(d) to the extent that payment of interest is lawful, interest upon
overdue interest and overdue principal at the rate borne by the
notes which has become due otherwise than by a declaration of
acceleration;
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- the rescission would not conflict with any judgment or decree of a court
of competent jurisdiction; and
- all events of default, other than the non-payment of principal of,
premium, if any, and interest on the notes that has become due solely by
a declaration of acceleration, have been cured or waived.
No holder of any of the notes will have any right to institute any
proceeding with respect to the indenture or any remedy thereunder, unless the
holders of at least 25% in aggregate principal amount of the outstanding notes
have made written request, and offered reasonable indemnity, to the trustee to
institute a proceeding of this type as trustee under the notes and the
indenture, the trustee has failed to institute a proceeding of this type within
45 days after receipt of notice and the trustee, within the 45-day period, has
not received directions inconsistent with the written request by holders of a
majority in aggregate principal amount of the outstanding notes. Such
limitations will not apply, however, to a suit instituted by a holder of a note
for the enforcement of the payment of the principal of, premium, if any, or
interest on the note on or after the respective due dates expressed in the note.
During the existence of an event of default, the trustee will be required
to exercise the rights and powers vested in it under the indenture and use the
same degree of care and skill in its exercise of these rights as a prudent
person would exercise under the circumstances in the conduct of that person's
own affairs. Subject to the provisions of the indenture relating to the duties
of the trustee, in case an event of default shall occur and be continuing, the
trustee under the indenture will not be under any obligation to exercise any of
its rights or powers under the indenture at the request or direction of any of
the holder unless the holders shall have offered to the trustee reasonable
security or indemnity. Subject to provisions concerning the rights of the
trustee, the holders of a majority in aggregate principal amount of the
outstanding notes will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the trustee, or exercising
any trust or power conferred on the trustee under the indenture.
If a default or an event of default occurs and is continuing and is known
to the trustee, the trustee shall mail to each holder of the notes notice of the
default or event of default within 30 days after obtaining knowledge of the
default or event of default. Except in the case of a default or an event of
default in payment of principal of premium, if any, or interest on any notes,
the trustee may withhold the notice to the holders of these notes if a committee
of its trust officers in good faith determines that withholding the notice is in
the interest of the Noteholders.
AMPAM must furnish to the trustee annual and quarterly statements as to the
performance by AMPAM of its obligations under the indenture and as to any
default in this performance. AMPAM also will be required to notify the trustee
within five business days of any event which is, or after notice or lapse of
time or both would become, an event of default.
NO LIABILITY FOR CERTAIN PERSONS
No director, officer, employee or stockholder of AMPAM, nor any director,
officer or employee of any guarantor, as such, will have any liability for any
obligations of AMPAM or any guarantor under the notes, the guarantees or the
indenture based on, in respect of, or by reason of the obligations described or
their creation. Each holder by accepting a Note waives and releases all
liability of this type. The foregoing waiver and release are an integral part of
the consideration or the issuance of the notes. Such waiver may not be effective
to waive liabilities under the federal securities laws.
LEGAL DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
AMPAM may, at its option and at any time, terminate the obligations of
AMPAM and the guarantors with respect to the outstanding notes ("Legal
Defeasance") to the extent set forth below. Such
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Legal Defeasance means that AMPAM shall be considered to have paid and
discharged the entire Indebtedness represented by the outstanding notes, except
for:
- the rights of holders of outstanding notes to receive payment in respect
of the principal of, premium, if any, and interest on these notes when
payments are due;
- AMPAM's obligations to issue temporary notes, register the transfer or
exchange of any notes, replace mutilated, destroyed, lost or stolen notes
and maintain an office or agency for payments in respect of the notes;
- the rights, powers, trusts, duties and immunities of the trustee; and
- the Legal Defeasance provisions of the indenture. In addition, AMPAM may,
at its option and at any time, elect to terminate the obligations of
AMPAM and the guarantors with respect to covenants in the indenture, some
of which are described under "-- Material Covenants" above, and any
subsequent failure to comply with these obligations shall not constitute
a default or an event of default with respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
- AMPAM or any guarantor must irrevocably deposit with the trustee, in
trust, for the benefit of the holders of the notes, cash in United States
dollars, U.S. Government Obligations (as defined in the indenture), or
any combination, in amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on the outstanding notes to
redemption or maturity (except lost, stolen or destroyed notes which have
been replaced or paid);
- AMPAM shall have delivered to the trustee an opinion of counsel to the
effect that the holders of the outstanding notes will not recognize
income, gain or loss for federal income tax purposes as a result of this
Legal Defeasance or Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times
as would have been the case if this Legal Defeasance or Covenant
Defeasance had not occurred (in the case of Legal Defeasance, this
opinion must refer to and be based upon a ruling of the Internal Revenue
Service or a change in applicable federal income tax laws);
- no default or event of default shall have occurred and be continuing on
the date of this deposit (other than a default or event of default
relating to the borrowing of funds to be applied to this deposit);
- the Legal Defeasance or Covenant Defeasance shall not cause the trustee
to have a conflicting interest with respect to any securities of AMPAM;
- the Legal Defeasance or Covenant Defeasance shall not result in a breach
or violation of, or constitute a default under, any agreement or
instrument to which AMPAM is a party or by which it is bound;
- AMPAM shall have delivered to the trustee an opinion of counsel to the
effect that after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;
- AMPAM shall have delivered to the trustee an officers' certificate
stating that the deposit was not made by AMPAM with the intent of
preferring the holders of the notes over the other creditors of AMPAM
with the intent of hindering, delaying or defrauding creditors of AMPAM
or others;
- no event or condition shall exist that would prevent AMPAM from making
payments of the principal of, premium, if any, and interest on the notes
on the date of the deposit or at any time ending on the 91st day after
the date of the deposit; and
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- AMPAM shall have delivered to the trustee an officers' certificate and an
opinion of counsel, each stating that all conditions precedent under the
indenture to either Legal Defeasance or Covenant Defeasance, as the case
may be, have been complied with.
AMPAM may exercise its Legal Defeasance option notwithstanding its prior
exercise of its Covenant Defeasance option.
SATISFACTION AND DISCHARGE
The indenture will be discharged and will cease to be of further effect as
to all outstanding notes when:
- either
(a) all the notes theretofore authenticated and delivered (except
lost, stolen or destroyed notes which have been replaced or repaid
and notes for whose payment money has theretofore been deposited in
trust or segregated and held in trust by AMPAM and thereafter repaid
to AMPAM or discharged from the trust) have been delivered to the
trustee for cancellation or
(b) all notes not theretofore delivered to the trustee for
cancellation have become due and payable or will become due and
payable at their Stated Maturity within one year, or are to be called
for redemption within one year under arrangements satisfactory to the
trustee for the serving of notice of redemption by the trustee in the
name, and at the expense, of AMPAM, and AMPAM or any guarantor has
irrevocably deposited or caused to be deposited with the trustee
funds in an amount sufficient to pay and discharge the entire
Indebtedness on the notes not theretofore delivered to the trustee
for cancellation, for principal of, premium, if any, and interest on
the notes to the date of deposit or to the Stated Maturity or date
for redemption, as the case may be, together with irrevocable
instructions from AMPAM directing the trustee to apply these funds to
the payment of the notes at Stated Maturity or redemption, as the
case may be;
- AMPAM or the guarantors have paid all other sums payable under the
indenture by AMPAM or the guarantors; and
- AMPAM has delivered to the trustee an officers' certificate and an
opinion of counsel which, taken together, state that all conditions
precedent under the indenture relating to the satisfaction and discharge
of the indenture have been complied with.
AMENDMENTS AND WAIVERS
From time to time, AMPAM and the guarantors, when authorized by a
resolution of its Board of Directors, and the trustee may, without the consent
of the holders of any outstanding notes, amend or modify the indenture or the
notes for specified purposes, including, among other things, curing ambiguities,
defects or inconsistencies, qualifying, or maintaining the qualification of, the
indenture under the Trust Indenture Act, to provide for the assumption of
AMPAM's or any guarantor's obligations in the case of a merger or consolidation
or sale of all or substantially all of AMPAM's assets, or to make any change
that would provide any additional rights or benefits to the holders of the
notes, in each case, as long as any change of this type does not adversely
affect the rights of any holder of notes. Other amendments and modifications of
the indenture or the notes may be made by AMPAM, the guarantors and the trustee
with the consent of the holders of not less than a majority of the aggregate
principal amount of the outstanding notes; provided, however, that no
modification of this type or amendment may, without the consent of the holder of
each outstanding Note affected thereby:
- change the Stated Maturity of the principal of, or any installment of
interest on, any Note or alter the redemption provisions of the notes;
- reduce the principal amount of (or the premium, if any, on), or interest
on, any notes;
- change the currency in which any notes or any premium or the interest
thereon is payable;
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- reduce the above-stated percentage in principal amount of outstanding
notes that must consent to an amendment or modification of the indenture
or the notes;
- impair the right to institute suit for the enforcement of any payment on
or with respect to the notes or the guarantees;
- reduce the percentage in aggregate principal amount of outstanding notes
necessary to waive compliance with provisions of the indenture or to
waive various defaults under the indenture;
- amend or modify the obligation of AMPAM to make and consummate a Change
of Control Offer after the occurrence of a Change of Control or make and
consummate the Asset Sale Offer with respect to any Asset Sale that has
been consummated or modify any of the provisions or definitions with
respect thereto;
- release any guarantor from its obligations under its guarantee or the
Indenture otherwise than in accordance with the terms of the Indenture;
or
- modify or change any provision of the indenture or the related
definitions affecting the subordination or ranking of the notes or any
guarantee in a manner which adversely affects the Noteholders.
The holders of not less than a majority in aggregate principal amount of
the outstanding notes may on behalf of the holders of all the notes waive (1)
compliance by AMPAM with restrictive provisions of the indenture and (2) any
past defaults under the indenture, except a default in the payment of the
principal of, premium, if any, or interest on any Note, or in respect of a
covenant or provision which under the indenture cannot be modified or amended
without the consent of the holder of each Note outstanding.
THE TRUSTEE
The indenture provides that, except during the continuance of an event of
default, the trustee thereunder will perform only those duties as are
specifically set forth in the indenture. If an event of default has occurred and
is continuing, the trustee will exercise the rights and powers vested in the
trustee under the indenture and use the same degree of care and skill in its
exercise as a prudent person would exercise under the circumstances in the
conduct of a person's own affairs.
The indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the trustee thereunder,
should it become a creditor of AMPAM, to obtain payment of claims in cases or to
realize on property received by it in respect of any claims of the type
previously described, as security or otherwise. The trustee may engage in other
transactions; provided, however, that if it acquires any conflicting interest
(as defined in the Trust Indenture Act), it must eliminate this conflict or
resign.
State Street Bank and Trust Company, is the trustee under the indenture.
GOVERNING LAW
The indenture and the notes are governed by the laws of the State of New
York.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a person (a) assumed in
connection with an Asset Acquisition from that person or (b) existing at the
time this person becomes or is merged into a Subsidiary of any other person.
"Acquisition Agreements" means, collectively, the acquisition agreements
dated February 11, 1999 between AMPAM and each of the stockholders of the
founding companies through which AMPAM acquired the founding companies.
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"Affiliate" means, with respect to any specified person, any other person
directly or indirectly controlling or controlled by or under direct or indirect
common control with that specified person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of this person,
whether through the ownership of Voting Stock, by agreement or otherwise;
provided, however, that beneficial ownership of 10% or more of the Voting Stock
of a person shall be considered to be control.
"Asset Acquisition" means (a) an Investment by AMPAM or any Restricted
Subsidiary in any other person through which this person shall become a
Restricted Subsidiary, or shall be merged with or into AMPAM or any Restricted
Subsidiary, or (b) the acquisition by AMPAM or any Restricted Subsidiary of the
assets of any person which constitute all or substantially all of the assets of
this person, any division or line of business of this person or, other than in
the ordinary course of business, any other properties or assets of this person.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition by AMPAM or any Restricted Subsidiary to any person other than AMPAM
or a Restricted Subsidiary, of:
- any capital stock of any Restricted Subsidiary;
- all or substantially all of the properties and assets of any division or
line of business of AMPAM or any Restricted Subsidiary; or
- any other properties or assets of AMPAM or any Restricted Subsidiary
outside of the ordinary course of business, other than sales of obsolete,
damaged or used equipment or other equipment or inventory sales in the
ordinary course of business, sales of assets in one or a series of
related transactions for an aggregate consideration of less than $2.0
million and sales of accounts receivable for financing purposes.
For the purposes of this definition the term "Asset Sale" shall not include:
- any sale, issuance, conveyance, transfer, lease or other disposition of
properties or assets that is governed by the provisions described under
"-- Consolidation, Merger, Sale of Assets, Etc."; or
- a Restricted Payment that is permitted by the covenant described under
"-- Material Covenants -- Limitation on Restricted Payments", or the
trade or exchange by AMPAM or any Restricted Subsidiary of any property
or assets owned or held by AMPAM or the Restricted Subsidiary for any
property or assets owned or held by another person, provided that the
fair market value of the properties traded or exchanged by AMPAM or the
Restricted Subsidiary (including any cash or Cash Equivalents to be
delivered by AMPAM or the Restricted Subsidiary) is reasonably equivalent
to the fair market value of the properties (together with any cash or
Cash Equivalents) to be received by AMPAM or the Restricted Subsidiary,
and provided further that any cash or Cash Equivalents of this type shall
be considered to constitute Net Cash Proceeds of an Asset Sale for
purposes of the covenant described under "Material
Covenants -- Disposition of Proceeds of Asset Sales."
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value of the obligation of the lessee
for net rental payments during the remaining term of the lease included in the
sale and leaseback transaction including any period for which the lease has been
extended or may, at the option of lessor, be extended. Such present value shall
be calculated using a discount rate equal to the rate of interest implicit in
this transaction, determined in accordance with GAAP.
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"Average Life to Stated Maturity" means, with respect to any Indebtedness,
as at any date of determination, the quotient obtained by dividing: the sum of
the products of
(a) the number of years (and any portion of years) from the date of the
determination to the date or dates of each successive scheduled
principal payment (including, without limitation, any sinking fund or
mandatory redemption payment requirements) of this Indebtedness, and
(b) the amount of each principal payment
by the sum of all principal payments.
"Board of Directors" means the board of directors of a company or its
equivalent, including managers of a limited liability company, general partners
of a partnership or trustees of a business trust, or any duly authorized
committee of the board.
"capital stock" means, with respect to any person, any and all shares,
interests, participations, rights in or other equivalents of this person's
capital stock or equity participations, and any rights, warrants or options
exchangeable for or convertible into capital stock and including, without
limitation, with respect to partnerships, limited liability companies or
business trusts, ownership interests and any other interest or participation
that confers on a person the right to receive a share of the profits and losses
of, or distributions of assets of, partnerships, limited liability companies or
business trusts of this type.
"Capitalized Lease Obligation" means any obligation to pay rent or other
amounts under a lease of (or other agreement conveying the right to use) any
property (whether real, personal or mixed) that is required to be classified and
accounted for as a capital lease obligation under GAAP, and, for the purpose of
the indenture, the amount of an obligation at any date shall be the capitalized
amount of this lease at that date, determined in accordance with GAAP.
"Cash Equivalents" means, at any time,
(a) any evidence of Indebtedness, maturing not more than two years after
that time, issued or guaranteed by the United States Government or any
of its agencies (provided that the full faith and credit of the United
States of America is pledged in support of this Indebtedness);
(b) commercial paper, maturing not more than 270 days from the date of
issue, rated at least A-2 by Standard & Poor's Ratings Group or P-2 by
Moody's Investors Service, Inc.;
(c) any certificate of deposit or bankers acceptance, maturing not more
than one year after that time, or overnight Federal Funds transactions
that are issued or sold by a banking institution that is a member of the
Federal Reserve System and has a combined capital and surplus and
undivided profits of not less than $500 million;
(d) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (a) above entered
into with any bank meeting the specifications of clause (c) above; and
(e) investments in funds investing primarily in investments of the types
described in clauses (a) through (d) above.
"Change of Control" means the occurrence of any of the following events:
- any "Person" or "group" (as these terms are used in Sections 13(d) and
14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a
person shall be considered to have "beneficial ownership" of all
securities that the person has the right to acquire, whether this right
is exercisable immediately or only after the passage of time), directly
or indirectly, of more than 50% of the total Voting Stock of AMPAM;
- AMPAM consolidates with, or merges with or into, another person or sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any person, or any
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person consolidates with, or merges with or into, AMPAM in any event
through a transaction in which the outstanding Voting Stock of AMPAM is
converted into or exchanged for cash, securities or other property, other
than any transaction where:
- the outstanding Voting Stock of AMPAM is converted into or exchanged
for Voting Stock (other than Redeemable capital stock) of the
surviving or transferee corporation; and
- immediately after the transaction no "person" or "group" (as these
terms are used in Sections 13 (d) and 14(d) of the Exchange Act) is
the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a person shall be considered to have
"beneficial ownership" of any securities that this person has the
right to acquire, whether this right is exercisable immediately or
only after the passage of time), directly or indirectly, of more than
50% of the total Voting Stock of the surviving or transferee
corporation;
- during any consecutive two-year period, individuals who at the beginning
of this period constituted the Board of Directors of AMPAM (together with
any new directors whose election by the Board of Directors or whose
nomination for election by the stockholders of AMPAM was approved by a
vote of 66 2/3% of the directors then still in office who were either
directors at the beginning of this period or whose election or nomination
for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of AMPAM then in office;
or
- AMPAM is liquidated or dissolved or adopts a plan of liquidation.
"common stock" means the common stock of AMPAM, par value $0.01 per share.
"Consolidated Cash Flow Available for Fixed Charges" as of any date of
determination means, with respect to any person for any period, the Consolidated
Net Income of a person for a period plus, to the extent deducted from
Consolidated Net Income during this period, the sum of, without duplication, the
amounts for this period, taken as a single accounting period, of (a)
Consolidated Non-cash Charges, (b) Consolidated Interest Expense and (c)
Consolidated Income Tax Expense (other than income tax expense (either positive
or negative) attributable to extraordinary gains or losses) less all cash
payments during this period relating to non-cash charges that were added back in
determining Consolidated Cash Flow Available for Fixed Charges in any prior
period.
"Consolidated Fixed Charge Coverage Ratio" as of any date of determination
means, with respect to any person, the ratio of the aggregate amount of
Consolidated Cash Flow Available for Fixed Charges of this person for the four
full fiscal quarters, treated as one period, for which financial information in
respect of which is available immediately preceding the date of the transaction
(the "Transaction Date") giving rise to the need to calculate the Consolidated
Fixed Charge Coverage Ratio (this four full fiscal quarter period referred to as
the "Four Quarter Period") to the aggregate amount of Consolidated Fixed Charges
of this person for this Four Quarter Period. For purposes of making the
computation referred to above, Consolidated Cash Flow Average for Fixed Charges
and Consolidated Fixed Charges shall be calculated giving pro forma effect (in a
manner consistent with Rule 11-02 of Regulation S-X to the following events
(without duplication):
- any Asset Sale or Asset Acquisition occurring since the first day of the
Four Quarter Period (including to the date of calculation) as if the
acquisition or disposition occurred at the beginning of the Four Quarter
Period (including giving effect to (A) the amount of any reduction in
expenses related to any compensation, remuneration or other benefit paid
or provided to any employee, consultant, Affiliate or equity owner of the
entity involved in any Asset Sale or Asset Acquisition to the extent the
costs are eliminated or reduced (or public announcement has been made of
the intent to eliminate or reduce these costs) prior to the date of this
calculation and not replaced and (B) the amount of any reduction in
general, administrative or overhead costs of the entity involved in any
Asset Sale or Asset Acquisition of this type);
- the incurrence of Indebtedness giving rise to the need to calculate the
Consolidated Fixed Charge Coverage Ratio and (if applicable) the
application of the net proceeds therefrom, including to
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refinance other indebtedness, as if the Indebtedness were incurred at the
beginning of the Four Quarter Period;
- the incurrence, repayment or retirement of any other Indebtedness by
AMPAM and its Restricted Subsidiaries since the first day of the Four
Quarter Period and prior to the date of making this calculation as if the
Indebtedness or obligations were incurred, prepaid or retired at the
beginning of the Four Quarter Period (except that in making this
computation, the amount of Indebtedness under any revolving credit
facility shall be computed based upon the average daily balance of the
Indebtedness during the Four Quarter Period); and
- elimination of Consolidated Cash Flow Available for Fixed Charges and
Consolidated Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, but, with respect to Consolidated
Fixed Charges, only to the extent that the obligations giving rise to
Consolidated Fixed Charges will not be obligations of the referent person
or any of its Restricted Subsidiaries following the Transaction Date.
In calculating Consolidated Fixed Charges for purposes of determining the
denominator (but not the numerator) of the Consolidated Fixed Charge Coverage
Ratio,
- interest on outstanding Indebtedness determined on a fluctuating basis as
of the Transaction Date and which will continue to be so determined
thereafter shall be considered to have accrued at a fixed rate per annum
equal to the rate of interest on this Indebtedness in effect on the
Transaction Date; and
- if interest on any Indebtedness actually incurred on the Transaction Date
may optionally be determined at an interest rate based upon a factor of a
prime or similar rate, a Eurocurrency interbank offered rate, or other
rates, then the interest rate in effect on the Transaction Date will be
considered to have been in effect during the Four Quarter Period. If this
person or any of its Restricted Subsidiaries directly or indirectly
guarantees Indebtedness of a third person, the above provisions shall
give effect to the incurrence of this guaranteed Indebtedness as if the
person or the Subsidiary had directly incurred or otherwise assumed this
guaranteed Indebtedness.
"Consolidated Fixed Charges" means, with respect to any person for any
period, the sum of, without duplication, the amounts for this period of:
- Consolidated Interest Expense; and
- the product of (a) the aggregate amount of dividends and other
distributions paid, accrued or scheduled to be paid during this period in
respect of Redeemable capital stock or Preferred Stock of that person and
its Restricted Subsidiaries on a consolidated basis (other than dividends
or distributions paid solely in shares of capital stock (other than
Redeemable capital stock)) times (b) a fraction, the numerator of which
is one and the denominator of which is one minus the then current
effective consolidated federal, state and local tax rate of the person,
expressed as a decimal.
"Consolidated Income Tax Expense" means, with respect to any person for any
period, the provision for federal, state, local and foreign income taxes of this
person and its Restricted Subsidiaries for that period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any person for any
period, without duplication, the sum of:
- the interest expense of a person and its Restricted Subsidiaries for a
period as determined on a consolidated basis in accordance with GAAP,
including, without limitation;
(a) an amortization of debt discount, capitalized debt issuance costs
and original issue discount,
(b) the net cost under Interest Rate Protection Obligations (including
any amortization of discounts);
(c) the interest portion of any deferred payment obligation;
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(d) all commissions, discounts and other fees and charges owed with
respect to letters of credit, bankers' acceptance financing or similar
facilities;
(e) all accrued interest; and
(f) imputed interest with respect to Attributable Debt; and
- the interest component of Capitalized Lease Obligations paid, accrued
and/or scheduled to be paid or accrued by this person and its Restricted
Subsidiaries during the period as determined on a consolidated basis in
accordance with GAAP.
"Consolidated Net Income" means, with respect to any person, for any
period, the consolidated net income (or loss) of that person and its Restricted
Subsidiaries for the period as determined in accordance with GAAP, adjusted, to
the extent included in calculating the net income, by excluding, without
duplication:
- all items classified as extraordinary gains or losses (net of fees and
expenses relating to the transaction giving rise thereto) on an after-tax
basis;
- net income (or loss) of any person combined with the person or one of its
Restricted Subsidiaries on a "pooling of interests" basis attributable to
any period prior to the date of combination;
- gains or losses in respect of any Asset Sales by the person or one of its
Restricted Subsidiaries (net of fees and expenses relating to the
transaction giving rise thereto), on an after-tax basis;
- the net income of any Restricted Subsidiary of the person to the extent
that the declaration of dividends or similar distributions by that
Restricted Subsidiary of that income is not at the time permitted,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary or its
stockholders;
- any gain or loss realized as a result of the cumulative effect of a
change in accounting principles;
- the net income of any person, other than a Restricted Subsidiary of the
referent person, except to the extent of cash dividends or distributions
paid to the referent person or to a Restricted Subsidiary of the referent
person by the person;
- any restoration to income of any contingency reserve in excess of
$100,000 in the aggregate for any one fiscal quarter, except to the
extent that provision for this reserve was made out of Consolidated Net
Income accrued at any time following the Issue Date and reflected on the
financial statements of the person;
- in the case of a successor to the referent person by consolidation or
merger or as a transferee of the referent person's assets, any earnings
of the successor corporation prior to the consolidation, merger or
transfer of assets; and
- one-time non-cash charges reducing net income resulting from stock issued
to management of AMPAM in connection with AMPAM's organization.
"Consolidated Non-cash Charges" means, with respect to any person for any
period, the aggregate depreciation, amortization (including amortization of
goodwill and other intangibles) and other non-cash charges of that person and
its Restricted Subsidiaries to the extent that reducing Consolidated Net Income
of that person and its Restricted Subsidiaries for that period, determined on a
consolidated basis in accordance with GAAP excluding non-cash charges (other
than any non-cash charge reflected on the financial statements of that person on
the Issue Date) which require an accrual of or a reserve for cash charges for
any future period.
"credit facility" means the Credit Agreement dated as of March 31, 1999
among AMPAM, the First National Bank of Chicago, as Agent, LC Issuer and lender,
Credit Lyonnais, New York Branch, as Documentation Agent, and the Lenders named
in the agreement, including any notes, guarantees,
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collateral documents, instruments and agreements executed in connection
therewith, and in each case as amended (including any amendment and restatement
of it), modified, extended, renewed, refunded, substituted or replaced or
refinanced from time to time, including any agreement extending the maturity of,
refinancing, replacing or otherwise restructuring (including increasing the
amount of available borrowings thereunder or adding Subsidiaries of AMPAM as
additional borrowers or guarantors thereunder) all or any portion of the
Indebtedness under the agreement or any successor or replacement agreement and
whether by the same or any other agents, creditor, lender or group of creditors
or lenders.
"default" means any event that is, or after notice or passage of time or
both would be, an event of default.
"Designated Senior Indebtedness" means (i) all Senior Indebtedness under
the credit facility and (ii) any other Senior Indebtedness which (a) at the time
of the determination is equal to or greater than $25 million in aggregate
principal amount and (b) is specifically designated by AMPAM in the instrument
evidencing the Senior Indebtedness as "Designated Senior Indebtedness."
"Disinterested Member of the Board of Directors of AMPAM" means, with
respect to any transaction or series of related transactions, a member of the
Board of Directors of AMPAM other than a member who has any material direct or
indirect financial interest in or with respect to that transaction or series of
related transactions or is an Affiliate, or an officer, director or an employee
of any person (other than AMPAM) who has any direct or indirect financial
interest in or with respect to that transaction or series of related
transactions (in each case other than an interest arising solely from the
beneficial ownership of capital stock of AMPAM).
"event of default" has the meaning set forth under "-- Events of Default".
"Exchange Act" means the Securities Exchange Act of 1934.
"fair market value" means, with respect to any asset, the price (after
taking into account any liabilities relating to these assets) which could be
negotiated in an arm's length free market transaction between a willing seller
and a willing buyer, neither of which is under pressure or compulsion to
complete the transaction. Fair market value shall be determined by the
Disinterested Members of the Board of Directors of AMPAM in good faith.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in other statements by an other
entity as may be approved by a significant segment of the accounting profession
of the United States of America, which are in effect from time to time.
"guarantee" means, as applied to any obligation:
- a guarantee (other than by endorsement of negotiable instruments for
collection in the ordinary course of business), direct or indirect, in
any manner, of any part or all of the obligation; and
- an agreement, direct or indirect, contingent or otherwise, the practical
effect of which is to assure in any way the payment or performance (or
payment of damages in the event of nonperformance) of all or any part of
this obligation, including, without limiting the foregoing, the payment
of amounts available to be drawn down under letters of credit of another
person. When used as a verb, "guarantee" shall have a corresponding
meaning.
"Guarantor Senior Indebtedness" of a guarantor means the principal of,
premium, if any, and interest on any Indebtedness of this guarantor, whether
outstanding on the Issue Date or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or under which the same is outstanding expressly provides
that the Indebtedness shall not be senior in right of payment to the guarantor's
guarantee. Without limiting the generality of the foregoing, (x) "Guarantor
Senior Indebtedness" shall include all monetary obligations of every nature
under the credit facility, including the principal of, premium, if any, and
interest on all obligations of every
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nature of the guarantor from time to time owed to the lenders under the credit
facility, including, without limitation, principal of and interest on,
reimbursement obligations under letters of credit and all fees, indemnities and
expenses payable under, the credit facility, and (y) in the case of amounts
owing under the credit facility and Guarantees of Designated Senior
Indebtedness, "Guarantor Senior Indebtedness" shall include interest accruing
thereon subsequent to the occurrence of an event of default specified in clause
(7) or (8) under "-- Events of Default" relating to the guarantor, whether or
not the claim for the interest is allowed under any applicable Bankruptcy Code.
Notwithstanding the foregoing, "Guarantor Senior Indebtedness" shall not
include:
- Indebtedness evidenced by the notes or the guarantees;
- Indebtedness that is expressly subordinate or Junior in right of payment
to any other Indebtedness of the guarantor;
- Indebtedness which, when incurred and without respect to any election
under Section 1111(b) of Title 11, United States Code, is by its terms
without recourse to the guarantor;
- Indebtedness which is represented by Redeemable capital stock;
- to the extent it constitutes Indebtedness, any liability for federal,
state, local or other taxes owed or owing by the guarantor;
- Indebtedness of the guarantor to AMPAM or a Subsidiary of AMPAM or any
other Affiliate of AMPAM or any of the Affiliate's Subsidiaries;
- that portion of any Indebtedness which is incurred by the guarantor in
violation of the indenture; and
- trade payables.
"Indebtedness" means, with respect to any person, without duplication:
- all liabilities of a person for borrowed money or for the deferred
purchase price of property or services, excluding any trade payables and
other accrued current liabilities incurred in the ordinary course of
business, but including, without limitation, all obligations, contingent
or otherwise, of a person in connection with any letters of credit,
bankers' acceptance or other similar credit transaction, if, and to the
extent, any of the foregoing would appear as a liability on a balance
sheet of a person prepared in accordance with GAAP;
- all obligations of a person evidenced by bonds, notes, debentures or
other similar instruments, if, and to the extent, any of the foregoing
would appear as a liability on a balance sheet of a person prepared in
accordance with GAAP;
- all indebtedness of a person created or arising under any conditional
sale or other title retention agreement with respect to property acquired
by a person (even if the rights and remedies of the seller or lender
under an agreement in the event of a default are limited to repossession
or sale of property), but excluding consignments and trade accounts
payable arising in the ordinary course of business that are not overdue
by 90 days or more or are being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted;
- all Capitalized Lease Obligations of a person;
- all Indebtedness referred to in the preceding clauses of other persons
and all dividends of other persons, the payment of which is secured by
(or for which the holder of Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon property
(including, without limitation, accounts and contract rights) owned by a
person, even though that person has not assumed or become liable for the
payment of the Indebtedness (the amount of this obligation being
considered to be the lesser of the fair market value of that property or
asset or the amount of the obligation so secured);
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- all guarantees of Indebtedness referred to in this definition by a
person;
- all Redeemable capital stock of a person valued at the greater of its
voluntary or involuntary maximum fixed repurchase price plus accrued
dividends;
- all Interest Rate Protection Obligations of a person; and
- all Attributable Debt in respect of sale and leaseback transactions of a
person;
provided, that the term "Indebtedness" shall not include:
- Indebtedness arising from agreements of AMPAM or any Restricted
Subsidiary providing for indemnification, adjustment or holdback of
purchase price or similar obligations, in each case, incurred or assumed
in connection with the acquisition or disposition of any business, assets
or a Subsidiary, other than guarantees of Indebtedness incurred by any
person acquiring all or any portion of this business, assets or
Subsidiary for the purpose of financing this acquisition; or
- obligations under performance bonds, performance guarantees, surety
bonds, appeal bonds or similar obligations incurred in the ordinary
course of business and consistent with past practices.
For purposes hereof, the "maximum fixed repurchase price" of any Redeemable
capital stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of this Redeemable capital stock as if this
Redeemable capital stock were purchased on any date on which Indebtedness shall
be required to be determined under the indenture, and if the price is based
upon, or measured by, the fair market value of the Redeemable capital stock, the
fair market value shall be approved in good faith by the board of directors of
the issuer of the Redeemable capital stock; provided, however, that if the
Redeemable capital stock is not at the date of determination permitted or
required to be repurchased, the "maximum fixed repurchase price" shall be the
book value of the Redeemable capital stock. In the case of Indebtedness issued
with original issue discount, the amount of the Indebtedness shall be the
accreted value of the Indebtedness as of that date.
"Interest Rate Protection Agreement" means, with respect to any person, any
arrangement with any other person whereby, directly or indirectly a person is
entitled to receive from time to time periodic payments calculated by applying
either a floating or a fixed rate of interest on a stated notional amount in
exchange for periodic payments made by a person calculated by applying a fixed
or a floating rate of interest on the same notional amount and shall include,
without limitation, interest rate swaps, caps, floors, collars and similar
agreements or arrangements designed to protect against or manage a person's
exposure to fluctuations in interest rates.
"Interest Rate Protection Obligations" means the net obligations of any
person under any Interest Rate Protection Agreements.
"Investment" means, with respect to any person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by a person of any capital stock bonds,
notes, debentures or other securities or evidences of Indebtedness issued by,
any other person; provided, however, that the term "Investment" shall not
include:
- extensions of trade credit on commercially reasonable terms in accordance
with normal trade practices; and
- Interest Rate Protection Obligations entered into in the ordinary course
of business.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim or other
encumbrance upon or with respect to any property of any kind. A person shall be
considered to own subject to a Lien any property which that person has acquired
or holds subject to the interest of a vendor or lessor under any conditional
sale agreement, capital lease or other title retention agreement.
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"Maturity Date" means October 15, 2008.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds of
the sale received by AMPAM or any Restricted Subsidiary in the form of cash or
Cash Equivalents including payments in respect of deferred payment obligations
when received in the form of cash or Cash Equivalents (except to the extent that
these obligations are financed or sold with recourse to AMPAM or any Restricted
Subsidiary) net of:
- brokerage commissions and other fees and expenses (including, without
limitation, fees and expenses of legal counsel and investment bankers,
recording fees, transfer fees and appraisers' fees) related to this Asset
Sale;
- provisions for all taxes payable as a result of this Asset Sale;
- amounts required to be paid to an person (other than AMPAM or any
Restricted Subsidiary) owning a beneficial interest in the assets subject
to the Asset Sale;
- payments made to permanently retire Indebtedness where payment of this
Indebtedness is secured by the assets or properties the subject of this
Asset Sale; and
- appropriate amounts to be provided by AMPAM or any Restricted Subsidiary,
as the case may be, as a reserve required in accordance with GAAP against
any liabilities associated with this Asset Sale and retained by AMPAM or
any Restricted Subsidiary, as the case may be, after this Asset Sale,
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities
under any indemnification obligations associated with this Asset Sale;
provided, that any amounts remaining after adjustments, revaluations or
liquidations of reserves shall constitute Net Cash Proceeds.
"Pari Passu Indebtedness" means any Indebtedness of AMPAM that is pari
passu in right of payment to the notes.
"Permitted Indebtedness" means, without duplication:
(a) Indebtedness of AMPAM and the guarantors evidenced by the notes
issued on the date of the Indenture, the Exchange notes and the
guarantees;
(b) Indebtedness of AMPAM and any guarantor under the credit facility in
an aggregate principal amount at any one time outstanding not to exceed
$125 million, less any amounts permanently repaid in accordance with the
covenant described under "-- Material Covenants -- Disposition of
Proceeds of Asset Sales";
(c) Indebtedness of AMPAM or any guarantor outstanding on the Issue
Date;
(d) Indebtedness of AMPAM or any Restricted Subsidiary incurred in
respect of bankers' acceptances and letters of credit in the ordinary
course of business, including Indebtedness evidenced by letters of
credit issued in the ordinary course of business to support the
insurance or self-insurance obligations of AMPAM or any of its
Restricted Subsidiaries (including to secure workers' compensation and
other similar insurance coverages), in an aggregate amount not to exceed
$5.0 million at any time, but excluding letters of credit issued in
respect of or to secure money borrowed;
(e) (1) Interest Rate Protection Obligations of AMPAM or a guarantor
covering Indebtedness of AMPAM or a guarantor and (2) Interest Rate
Protection Obligations of any Restricted Subsidiary covering Permitted
Indebtedness or Acquired Indebtedness of the Restricted Subsidiary;
provided, however, that, in the case of either clause (1) or (2), (x)
any Indebtedness to which any Interest Rate Protection Obligations
correspond bears interest at fluctuating interest rates and is otherwise
permitted to be incurred under the "Limitation on Indebtedness" covenant
and (y) the notional principal amount of any Interest Rate Protection
Obligations that exceeds
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105% of the principal amount of the Indebtedness to which Interest Rate
Protection Obligations relate shall not constitute Permitted
Indebtedness;
(f) Indebtedness of a Restricted Subsidiary owed to and held by AMPAM or
another Restricted Subsidiary, except that:
- any transfer of Indebtedness by AMPAM or a Restricted Subsidiary
(other than to AMPAM or another Restricted Subsidiary);
- the sale, transfer or other disposition by AMPAM or any Restricted
Subsidiary of capital stock of a Restricted Subsidiary which is owed
Indebtedness of another Restricted Subsidiary so that it shall no
longer be a Restricted Subsidiary; and
- the Designation of a Restricted Subsidiary which is owed Indebtedness
of another Restricted Subsidiary as an Unrestricted Subsidiary shall,
in each case, be an incurrence of Indebtedness by a Restricted
Subsidiary subject to the other provisions of the indenture;
(g) Indebtedness of AMPAM owed to and held by a Restricted Subsidiary
which is unsecured and expressly subordinated in right of payment to the
payment and performance of the obligations of AMPAM under the indenture
and the notes, except that:
- any transfer of Indebtedness by a Restricted Subsidiary (other than to
another Restricted Subsidiary);
- the sale, transfer or other disposition by AMPAM or any Restricted
Subsidiary of capital stock of a Restricted Subsidiary which is owed
Indebtedness of AMPAM so that it shall no longer be a Restricted
Subsidiary; and
- the Designation of a Restricted Subsidiary which is owed Indebtedness
of AMPAM shall, in each case, be an incurrence of Indebtedness by
AMPAM, subject to the other provisions of the indenture;
(h) Indebtedness of AMPAM or any guarantor represented by Capitalized
Lease Obligations, mortgage financings or purchase money obligations, in
each case incurred for the purpose of financing all or any part of the
purchase price or cost of construction or improvement of property, plant
or equipment used in the business of AMPAM or a guarantor, in an
aggregate principal amount not to exceed $15 million at any time
outstanding;
(i) Subordinated Indebtedness of AMPAM, in an aggregate principal amount
not to exceed $10 million at any time outstanding, that is convertible
into common stock and issued in connection with an Asset Acquisition of
a business engaged in the plumbing and mechanical contracting and
maintenance services businesses and any other businesses reasonably
related thereto;
(j) Indebtedness of AMPAM, in addition to that described in clauses (a)
through (i) of this definition, in an aggregate principal amount not to
exceed $15 million at any time outstanding;
(k) (1) Indebtedness of AMPAM, the proceeds of which are used solely to
refinance (whether by amendment, renewal, extension or refunding)
Indebtedness of AMPAM or any of the guarantors incurred under the
Consolidated Fixed Charge Coverage Ratio test of the proviso of the
"Limitation on Indebtedness" covenant or clause (a) or (c) of this
definition and (2) Indebtedness of any guarantor the proceeds of which
are used solely to refinance (whether by amendment, renewal, extension
or refunding) Indebtedness of this guarantor incurred under the
Consolidated Fixed Charge Coverage Ratio test of the proviso of the
"Limitation on Indebtedness" covenant or clause (c) or (k) of this
definition; provided, that (x) the principal amount of Indebtedness
incurred under this clause (k) (or if the Indebtedness provides for an
amount less than the principal amount of this Indebtedness to be due and
payable upon a declaration of acceleration of maturity of this
Indebtedness, the original issue price of this Indebtedness) shall not
exceed the sum of the principal amount of Indebtedness so refinanced,
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plus the amount of any premiums and fees required to be paid in
connection with this refinancing under the terms of this Indebtedness,
and (y) any Indebtedness incurred under this clause (k) (A) has an
Average Life to Stated Maturity greater than the remaining Average Life
to Stated Maturity of the notes and (B) is subordinated to the notes or
the guarantees, as the case may be, at least to the same extent that the
Indebtedness being refinanced is subordinated to the notes or the
guarantees, as the case may be;
(l) Indebtedness of any Restricted Subsidiary that constitutes Acquired
Indebtedness not incurred in contemplation of the acquisition of a
Restricted Subsidiary; provided, however, that this Indebtedness is
repaid within 90 days following the consummation of the Asset
Acquisition in which AMPAM acquired this Restricted Subsidiary; and
(m) guarantees by AMPAM or guarantees by a guarantor of Indebtedness
that was permitted to be incurred under the indenture.
For purposes of determining compliance with the "Limitation on
Indebtedness" covenant, (A) in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness described in the clauses
of the preceding paragraph, or is entitled to be incurred under the proviso of
the "Limitation on Indebtedness" covenant, AMPAM, in its sole discretion, shall
classify the item of Indebtedness and only be required to include the amount and
type of this Indebtedness in one clause of this type and (B) the amount of
Indebtedness issued at a price that is either less or greater than the principal
amount of the Indebtedness shall be equal to the amount of the liability in
respect of the Indebtedness determined in conformity with GAAP.
"Permitted Investments" means any of the following:
- Investments in AMPAM or in a Restricted Subsidiary;
- Investments in another person, if as a result of the Investment (A) the
other person becomes a Restricted Subsidiary or (B) the other person is
merged or consolidated with or into, or transfers or conveys all or
substantially all of its assets to AMPAM or a Restricted Subsidiary;
- Investments representing capital stock or obligations issued to AMPAM or
any of its Restricted Subsidiaries in settlement of debts created in the
ordinary course of business or claims against any other person by reason
of a composition or readjustment of debt or a reorganization of any
debtor of AMPAM or the Restricted Subsidiary or in satisfaction of
judgments;
- Investments in Interest Rate Protection Agreements on commercially
reasonable terms entered into by AMPAM or any of its Restricted
Subsidiaries in the ordinary course of business in connection with the
operations of the business of AMPAM or its Restricted Subsidiaries to
hedge against fluctuations in interest rates on its outstanding
Indebtedness;
- Investments in the notes;
- Investments in Cash Equivalents;
- Investments acquired by AMPAM or any Restricted Subsidiary in connection
with an Asset Sale permitted under "-- Material Covenants -- Disposition
of Proceeds of Asset Sales" to the extent these Investments are non-cash
proceeds as permitted under the covenant;
- any Investment to the extent that the consideration therefor is capital
stock (other than Redeemable capital stock) of AMPAM;
- any loans or other advances made under any employee benefit plans
(including plans for the benefit of directors) or employment agreements
or other compensation arrangements (including for the purchase of capital
stock by these employees), in each case as approved by the Board of
Directors of AMPAM in its good faith judgment, not to exceed $1 million
at any one time outstanding; and
- other Investments not to exceed $2 million at any time outstanding.
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"Permitted Junior Securities" means capital stock of AMPAM or debt
securities that are subordinated to all Senior Indebtedness (and any debt
securities issued in exchange for Senior Indebtedness) to at least the same
extent as the notes are subordinated to Senior Indebtedness.
"Permitted Liens" means the following types of Liens:
(a) any Lien existing as of the date of the indenture;
(b) any Lien securing Acquired Indebtedness created prior to (and not
created in connection with, or in contemplation of) the incurrence of
the Indebtedness by AMPAM or any Restricted Subsidiary, if this Lien
does not attach to any property or assets of AMPAM or any Restricted
Subsidiary other than the property or assets subject to the Lien prior
to this incurrence;
(c) Liens in favor of AMPAM or a guarantor;
(d) Liens on and pledges of the capital stock of any Unrestricted
Subsidiary securing any Indebtedness of this Unrestricted Subsidiary;
(e) Liens for taxes, assessments or governmental charges or claims, to
the extent any changes or claims of this type constitute Indebtedness,
either (1) not delinquent or (2) contested in good faith by appropriate
proceedings and as to which AMPAM or its Restricted Subsidiaries shall
have set aside on its books these reserves as may be required under
GAAP;
(f) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance or
other kinds of social security, old age pension or public liability
obligations;
(g) Liens to secure Indebtedness (including Capitalized Lease
Obligations) permitted by clause (h) under the definition of "Permitted
Indebtedness" covering only the assets acquired with this indebtedness;
(h) Liens securing Interest Rate Protection Obligations permitted to be
entered into under "-- Limitation on Indebtedness";
(i) judgment and attachment Liens not giving rise to an event of default
or Liens created by or existing from any litigation or legal proceeding
that are currently being contested in good faith by appropriate
proceedings and for which adequate reserves have been made;
(j) Liens in favor of collecting or payor banks having a right of
setoff, revocation, refund or chargeback with respect to money or
instruments of AMPAM or any Subsidiary on deposit with or in possession
of this bank; and
(k) Liens not otherwise permitted by clauses (a) through (j) that are
incurred in the ordinary course of business of AMPAM or any Restricted
Subsidiary with respect to Indebtedness that does not exceed $5 million
at any one time outstanding.
"person" means any individual, corporation, partnership (general or
limited), limited liability company, joint venture, association, joint-stock
Company, trust, unincorporated organization or government or any agency or
political subdivision of the entities previously described.
"Preferred Stock," as applied to any person, means capital stock of any
class or series (however designated) which is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of this person, over shares
of capital stock of any other class or series of this person.
"Public Equity Offering" means any public sale of common stock of AMPAM in
connection with a registration statement filed with the SEC in accordance with
the Securities Act (other than any public offerings with respect to AMPAM's
common stock registered on Form S-8 or Form S4).
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"Redeemable capital stock" means any class or series of capital stock that,
either by its terms, by the terms of any security into which it is convertible
or exchangeable or by contract or otherwise, is or upon the happening of an
event or passage of time would be required to be redeemed prior to the 91st day
after the Maturity Date or is redeemable at the option of the holder of the
Redeemable capital stock at any time prior to the 91st day after the Maturity
Date, or is convertible into or exchangeable for debt securities at any time
prior to the 91st day after the Maturity Date; provided, however, that (i)
capital stock will not constitute Redeemable capital stock solely because the
holders of the Redeemable capital stock have the right to require AMPAM to
repurchase or redeem this capital stock upon the occurrence of a Change of
Control or an Asset Sale and (ii) the common stock of AMPAM will not constitute
Redeemable capital stock solely because of the redemption trigger features
described under "Certain Transactions--Acquisition of Founding Companies--Common
Stock Redemption Rights."
"Restricted Subsidiary" means any Subsidiary of AMPAM that is not an
Unrestricted Subsidiary.
"Seller Preferred Stock" means the 10% Cumulative Redeemable Convertible
Preferred Stock, Series A of AMPAM.
"Senior Indebtedness" means the principal of, premium, if any, and interest
on any Indebtedness of AMPAM, whether outstanding on the Issue Date or created
afterwards, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or in connection
with which the same is outstanding expressly provides that this Indebtedness
shall not be senior in right of payment to the notes. Without limiting the
generality of the foregoing, (x) "Senior Indebtedness" shall include all
monetary obligations of every nature under the credit facility, including the
principal of, premium, if any, and interest on all obligations of every nature
of AMPAM from time to time owed to the lenders under the credit facility,
including, without limitation, principal of and interest on, reimbursement
obligations under letters of credit, and all fees, indemnities and expenses
payable under, the credit facility and (y) in the case of Designated Senior
Indebtedness, "Senior Indebtedness" shall include interest accruing thereon
subsequent to the occurrence of any event of default specified in clause (vii)
or (viii) under "-- Events of Default" relating to AMPAM, whether or not the
claim for this interest is allowed under any applicable Bankruptcy Code.
Notwithstanding the foregoing, "Senior Indebtedness" shall not include (a)
Indebtedness evidenced by the notes, (b) Indebtedness that is expressly
subordinate or junior in right of payment to any other Indebtedness of AMPAM,
(c) Indebtedness which, when incurred and without respect to any election under
Section 1111(b) of Title 11, United States Code, is by its terms without
recourse to AMPAM, (d) Indebtedness which is represented by Redeemable capital
stock, (e) to the extent it constitutes Indebtedness, any liability for federal,
state, local or other taxes owed or owing by AMPAM, (f) Indebtedness of AMPAM to
a Subsidiary of AMPAM or any other Affiliate of AMPAM or any of this Affiliate's
Subsidiaries, (g) that portion of any Indebtedness which is incurred by AMPAM in
violation of the indenture and (h) trade payables.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated under the Securities Act, as this Regulation is in effect on the
date of the indenture.
"Stated Maturity" means, when used with respect to any note or any
installment of interest on that note, the date specified in this note as the
fixed date on which the principal of this note or the installment of interest is
due and payable, and when used with respect to any other Indebtedness, means the
date specified in the instrument governing that Indebtedness as the fixed date
on which the principal of that Indebtedness, or any installment of interest
thereon, is due and payable.
"Subordinated Indebtedness" means, with respect to AMPAM, Indebtedness of
AMPAM which is expressly subordinated in right of payment to the notes.
"Subsidiary" means, with respect to any person, (1) a corporation a
majority of whose Voting Stock is at the time, directly or indirectly, owned by
that person, by one or more Subsidiaries of that person or by that person and
one or more Subsidiaries of that person and (2) any other person (other than a
corporation), including, without limitation, a partnership, limited liability
company, business trust or joint
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venture, in which that person, one or more of its Subsidiaries of that person or
that person and one or more of its Subsidiaries, directly or indirectly, at the
date of determination of that person, have at least majority ownership interest
entitled to vote in the election of directors, managers or trustees of that
person (or other person performing similar functions). For purposes of this
definition, any directors' qualifying shares or investments by foreign nationals
mandated by applicable law shall be disregarded in determining the ownership of
a Subsidiary.
"Unrestricted Subsidiary" means (1) each Subsidiary of AMPAM designated as
a Subsidiary of AMPAM under and in compliance with the covenant described under
"-- Material Covenants -- Limitation on Designations of Unrestricted
Subsidiaries" and (2) each Subsidiary of any Subsidiary described in clause (1)
of this definition.
"Voting Stock" means any class or classes of capital stock through which
the holders of the capital stock have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any person.
BOOK-ENTRY; DELIVERY AND FORM
Notes offered and sold to QIBs in reliance on Rule 144A under the
Securities Act will be represented by a single, permanent global note in
definitive, fully registered book-entry form (the "Global Security") which will
be registered in the name of a nominee of DTC and deposited on behalf of
purchasers of the notes represented thereby with a custodian for DTC for credit
to the respective accounts of the purchasers (or to such other accounts as they
may direct) at DTC.
THE GLOBAL SECURITY. AMPAM expects that, under procedures established by
DTC, ownership of the notes will be shown on, and the transfer of ownership of
the notes will be effected only through, records maintained by DTC or its
nominee (with respect to interests of Participants (as defined below)) and the
records of Participants (with respect to interests of persons other than
Participants). Such accounts initially will be designated by or on behalf of the
Initial Purchasers and ownership of beneficial interests in the Global Security
will be limited to persons who have accounts with DTC ("Participants") or
persons who hold interests through Participants. QIBs may hold their interests
in the Global Security directly through DTC if they are Participants in this
system, or indirectly through organizations which are Participants in this
system.
So long as DTC or its nominee is the registered owner or holder of any of
the notes, DTC or its nominee will be considered the sole owner or holder of the
notes represented by the Global Security for all purposes under the indenture
and under the notes represented thereby. No beneficial owner of an interest in
the Global Security will be able to transfer the interest except in accordance
with the applicable procedures of DTC in addition to those provided for under
the indenture. The laws of some states require that some persons take physical
delivery in definitive form of securities that they own. Consequently, the
ability to transfer beneficial interest in the Global Security to the persons
will be limited to that extent. Because DTC can act only on behalf of
Participants, which in turn act on behalf of Indirect Participants (as defined
in this prospectus), the ability of a person having beneficial interests in the
Global Security to pledge these interests to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of the
interests, may be affected by the lack of a physical certificate evidencing
these interests.
Payments of the principal of, premium, if any, and interest on the notes
represented by the Global Security will be made to DTC or its nominee, as the
case may be, as the registered owner of the Global Security. None of AMPAM, the
trustee or any paying agent under the indenture will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the Global Security or for maintaining,
supervising or reviewing any records relating to the beneficial ownership
interest.
AMPAM expects that DTC or its nominee, upon receipt of any payment of the
principal of, premium, if any, and interest on the notes represented by the
Global Security, will credit Participants'
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accounts with payments in amounts proportionate to their respective beneficial
interests in the Global Security as shown in the records of DTC or its nominee.
AMPAM also expects that payments by Participants to owners of beneficial
interests in the Global Security held through Participants will be governed by
standing instructions and customary practice as is now the case with securities
held for the accounts of customers registered in the names of nominees for these
customers. Such payment will be the responsibility of the Participants.
DTC has advised AMPAM that DTC will take any action permitted to be taken
by a holder of notes (including the presentation of notes for exchange as
described below) only at the direction of one or more Participants to whose
account the DTC interests in the Global Security are credited and only in
respect of the aggregate principal amount as to which the Participant or
Participants has or have given direction.
DTC has advised AMPAM as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "clearing agency" registered under the provisions of
Section 17A of the Exchange Act. DTC was created to hold securities for its
Participants and facilitate the clearance and settlement of securities
transactions between Participants through electronic book-entry changes in
accounts of its Participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and various other organizations.
Indirect access to the DTC system is available to others like banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants").
Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in the Global Security among Participants of
DTC, is it under no obligation to perform these procedures, and these procedures
may be discontinued at any time. Neither AMPAM nor the trustee will have any
responsibility for the performance by DTC or its direct or indirect participants
of their obligations under the rules and procedures governing their operations.
CERTIFICATED SECURITIES. Interests in the Global Security will be exchanged
for Certificated Securities if DTC notifies AMPAM that it is unwilling or unable
to continue as depositary for the Global Security, or DTC ceases to be a
"Clearing Agency" registered under the Exchange Act, and a successor depositary
is not appointed by AMPAM within 90 days. Upon the occurrence of any of the
events described in the preceding sentence, AMPAM will cause the appropriate
Certificated Securities to be delivered.
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REGISTRATION RIGHTS
AMPAM has entered into a registration rights agreement with the initial
purchasers under which AMPAM and the guarantors have agreed, for the benefit of
the holders of the notes, at AMPAM's cost, to use their reasonable best efforts:
- to file with the SEC the registration statement of which this prospectus
is a part related to the exchange offer of the exchange notes within 60
days after the Issue Date;
- to cause this exchange offer registration statement to be declared
effective under the Securities Act within 150 days of the Issue Date;
- to keep this exchange offer registration statement effective until the
closing of the exchange offer; and
- to cause this exchange offer to be completed within 180 days of the Issue
Date.
Under the registration rights agreement, AMPAM is required to allow
participating broker-dealers to use the prospectus contained in the exchange
offer registration statement (subject to "black out" periods) following the
exchange offer, in connection with the resale of exchange notes received in
exchange for notes acquired by those participating broker-dealers for their own
account as a result of market-making or other trading activities.
The registration rights agreement shall be governed by, and construed
under, the laws of the State of New York. If you have further questions about
registration rights, you should refer to the registration rights agreement, a
copy of which is available upon request to AMPAM. The registration rights
agreement is also attached as an exhibit to this registration statement. In
addition, the information described above concerning interpretations of and
positions taken by the staff of the SEC is not intended to constitute legal
advice, and prospective investors should consult their own advisors on these
matters.
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of the exchange notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of exchange notes received in exchange for existing notes where the
existing notes were acquired as a result of market-making activities or other
trading activities.
AMPAM will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
in the exchange offer may be sold from time to time in one or more transactions
in the over-the-counter market, in negotiated transactions, through the writing
of options on the exchange notes or a combination of these methods of resale, at
market prices prevailing at the time of resale, at prices related to those
prevailing market prices or at negotiated prices. Any 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 broker-dealer or
the purchasers of any exchange notes. Any broker-dealer that resells exchange
notes that were received by it for its own account in the exchange offer and any
broker or dealer that participates in a distribution of the exchange notes may
be an "underwriter" within the meaning of the Securities Act and any profit on
any resale of exchange notes and any commission or concessions received by any
person may be considered underwriting compensation under the Securities Act. The
letter of transmittal states that, by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be regarded as an admission
that it is an "underwriter," within the meaning of the Securities Act.
AMPAM has agreed to pay all expenses incident to the exchange offer
(including the expenses of one counsel for the holders of the notes), other than
commissions or concessions of any broker-dealers, and will indemnify the holders
of the notes (including any broker-dealers) against some liabilities, including
liabilities under the Securities Act.
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LEGAL MATTERS
The validity of the notes offered hereby will be passed upon for AMPAM by
Andrews & Kurth L.L.P., Houston, Texas.
EXPERTS
The audited financial statements of AMPAM and the founding companies
included elsewhere in this prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included in this prospectus in reliance upon the authority of
said firm as experts in accounting and auditing in giving said reports.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement under the Securities
Act on Form S-4 related to the exchange notes offered by this prospectus. As
allowed by SEC rules, this prospectus does not contain all the information
contained in the registration statement. If you have a question on any contract,
agreement or other document filed as an exhibit to the registration statement,
please see the exhibits for a more complete description of the matter involved.
Before filing this registration statement, we have not been subject to the
periodic reporting and other informational requirements of the U.S. Securities
Exchange Act of 1934. We have agreed that, whether or not we are required to do
so by the rules and regulations of the Commission (and within 15 days of the
date that is or would be prescribed thereby), for so long as any of the notes
remain outstanding, we will furnish to the holders of the notes and file with
the Commission (unless the Commission will not accept that filing) (1) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on forms 10-Q and 10-K if we were
required to file forms, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and, with respect to the annual
information only, a report thereon by our independent auditors and (2) all
reports that would be required to be filed with the Commission on Form 8-K if we
were required to file these reports. In addition, for so long as any of the
notes remain outstanding, we have agreed to make available, upon request, to any
prospective purchaser of the notes and beneficial owner of the notes in
connection with the sale of the notes the information required by Rule
144A(d)(4) under the Securities Act. Information may be obtained from us at 1502
Augusta, Suite 425, Houston, Texas 77057, Attention: Secretary.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AMERICAN PLUMBING & MECHANICAL, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Introduction to Unaudited Pro Forma Combined Financial
Statements............................................. F-3
Unaudited Pro Forma Combined Balance Sheet................ F-4
Unaudited Pro Forma Combined Statements of Operations..... F-5
Notes to Unaudited Pro Forma Combined Financial
Statements............................................. F-7
AMERICAN PLUMBING & MECHANICAL, INC.
Report of Independent Public Accountants.................. F-12
Balance Sheets............................................ F-13
Statements of Operations.................................. F-14
Statements of Cash Flows.................................. F-15
Statements of Stockholders' Equity........................ F-16
Notes to Financial Statements............................. F-17
FOUNDING COMPANIES:
CHRISTIANSON ENTERPRISES, INC. AND COMBINED COMPANIES
Report of Independent Public Accountants.................. F-25
Combined Balance Sheets................................... F-26
Combined Statements of Operations......................... F-27
Combined Statements of Cash Flows......................... F-28
Combined Statements of Stockholders' Equity............... F-29
Notes to Combined Financial Statements.................... F-30
RCR PLUMBING, INC. (dba RCR COMPANIES, INC.)
Report of Independent Public Accountants.................. F-39
Balance Sheets............................................ F-40
Statements of Operations.................................. F-41
Statements of Cash Flows.................................. F-42
Statements of Stockholders' Equity........................ F-43
Notes to Financial Statements............................. F-44
TEEPE'S RIVER CITY MECHANICAL, INC.
Report of Independent Public Accountants.................. F-51
Balance Sheets............................................ F-52
Statements of Operations.................................. F-53
Statements of Cash Flows.................................. F-54
Statements of Stockholders' Equity........................ F-55
Notes to Financial Statements............................. F-56
KEITH RIGGS PLUMBING, INC.
Report of Independent Public Accountants.................. F-64
Balance Sheets............................................ F-65
Statements of Operations.................................. F-66
Statements of Cash Flows.................................. F-67
Statements of Stockholders' Equity........................ F-68
Notes to Financial Statements............................. F-69
J.A. CROSON COMPANY AND FRANKLIN FIRE SPRINKLER COMPANY
Report of Independent Public Accountants.................. F-76
Combined Balance Sheets................................... F-77
Combined Statements of Operations......................... F-78
Combined Statements of Cash Flows......................... F-79
Combined Statements of Stockholders' Equity............... F-80
Notes to Combined Financial Statements.................... F-81
</TABLE>
F-1
<PAGE> 132
<TABLE>
<CAPTION>
PAGE
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<S> <C>
J.A. CROSON COMPANY OF FLORIDA
Report of Independent Public Accountants.................. F-88
Balance Sheets............................................ F-89
Statements of Operations.................................. F-90
Statements of Cash Flows.................................. F-91
Statements of Stockholders' Equity........................ F-92
Notes to Financial Statements............................. F-93
POWER PLUMBING, INC. AND SUBSIDIARIES
Report of Independent Public Accountants.................. F-100
Consolidated Balance Sheets............................... F-101
Consolidated Statements of Operations..................... F-102
Consolidated Statements of Cash Flows..................... F-103
Consolidated Statements of Stockholders' Equity........... F-104
Notes to Consolidated Financial Statements................ F-105
NELSON MECHANICAL CONTRACTORS, INC.
Report of Independent Public Accountants.................. F-113
Balance Sheets............................................ F-114
Statements of Operations.................................. F-115
Statements of Cash Flows.................................. F-116
Statements of Stockholders' Equity........................ F-117
Notes to Financial Statements............................. F-118
SHERWOOD MECHANICAL, INC.
Report of Independent Public Accountants.................. F-124
Balance Sheets............................................ F-125
Statements of Operations.................................. F-126
Statements of Cash Flows.................................. F-127
Statements of Stockholders' Equity........................ F-128
Notes to Financial Statements............................. F-129
MILLER MECHANICAL CONTRACTORS, INC. AND SUBSIDIARY
Report of Independent Public Accountants.................. F-137
Balance Sheets............................................ F-138
Statements of Operations.................................. F-139
Statements of Cash Flows.................................. F-140
Statement of Stockholders' Equity......................... F-141
Notes to Consolidated Financial Statements................ F-142
</TABLE>
F-2
<PAGE> 133
AMERICAN PLUMBING & MECHANICAL, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma combined financial statements give effect
to (a) the acquisitions by American Plumbing & Mechanical, Inc. (AMPAM), of the
outstanding capital stock of Christianson, RCR, Teepe's, Keith Riggs, Croson
Ohio, Croson Florida, Power, Nelson, Sherwood and Miller, and related
transactions, and (b) the issuance of the 11 5/8% Senior Subordinated Notes due
2008 and application of the net proceeds therefrom. The acquisitions occurred on
April 1, 1999 and have been accounted for using the purchase method of
accounting. Christianson has been reflected as the accounting acquiror for
financial statement presentation purposes.
The unaudited pro forma combined balance sheet gives effect to the
acquisitions and related transactions, and the issuance of the notes, as if they
had occurred on March 31, 1999. The unaudited pro forma combined statements of
operations give effect to these transactions as if they had occurred on January
1 of the respective period presented.
These pro forma combined financial statements should be read in conjunction
with the financial statements of each of the Founding Companies included
elsewhere herein.
AMPAM has preliminarily analyzed the savings that it expects to be realized
from reductions in salaries, bonuses and certain benefits, including lease
payments to the owners. To the extent the owners of the founding companies have
contractually agreed to prospective changes in salary, bonuses, benefits and
lease payments, these changes have been reflected in the unaudited pro forma
combined statements of operations. With respect to other potential cost savings,
AMPAM cannot fully quantify these savings. Any potential cost savings are
expected to be partially offset by costs related to AMPAM's new corporate
management and by the costs associated with being a public company. However,
because these costs cannot be accurately quantified at this time, they have not
been included in the pro forma combined financial information of AMPAM.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions that AMPAM management deems appropriate and
may be revised as additional information becomes available. The pro forma
financial data do not purport to represent what AMPAM's combined financial
position or results of operations would actually have been if such transactions
in fact had occurred on those dates and are not necessarily representative of
AMPAM's combined financial position or results of operations for any future
period. Since the founding companies were not under common control or
management, historical combined results may not be comparable to, or indicative
of, future performance. The unaudited pro forma combined financial statements
should be read in conjunction with the historical financial statements and notes
thereto included elsewhere in this offering memorandum. See also "Risk Factors"
included elsewhere herein.
F-3
<PAGE> 134
AMERICAN PLUMBING & MECHANICAL, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1999
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
KEITH CROSON CROSON
CHRISTIANSON RCR TEEPE'S RIGGS OHIO FLORIDA POWER NELSON SHERWOOD
------------ ------- ------- ------ ------- ------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents......... $ 5,439 $ 1,420 $ 749 $ 171 $ 379 $ 57 $3,083 $ 601 $ 11
Accounts receivable --
Contract, net................... 6,652 12,813 8,247 4,776 6,302 4,994 3,748 2,034 2,464
Other receivables............... 224 9 36 227 47 -- 264 123 --
Costs and estimated earnings in
excess of billings on
uncompleted contracts........... 350 2,090 1,533 -- 2,951 1,140 239 1,055 929
Inventories....................... 1,182 1,374 210 685 247 2 -- 400 266
Prepaid expenses and other current
assets.......................... 40 22 558 -- 14 539 415 613 459
------- ------- ------- ------ ------- ------ ------ ------ ------
Total current assets........ 13,887 17,728 11,333 5,859 9,940 6,732 7,749 4,826 4,129
PROPERTY AND EQUIPMENT, net........ 1,989 4,175 3,384 1,161 1,567 996 79 1,018 442
OTHER ASSETS....................... -- -- 416 -- -- -- -- -- 9
GOODWILL, NET...................... -- -- -- -- -- -- -- -- --
------- ------- ------- ------ ------- ------ ------ ------ ------
Total assets................ $15,876 $21,903 $15,133 $7,020 $11,507 $7,728 $7,828 $5,844 $4,580
======= ======= ======= ====== ======= ====== ====== ====== ======
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations..................... $ 505 $ 646 $ 934 $ 216 $ 986 $ 840 $ -- $ -- $ 854
Accounts payable and accrued
expenses........................ 4,504 7,379 6,856 2,606 2,940 1,100 1,829 308 1,629
Advances payable to stockholder... -- -- -- -- -- -- -- -- --
Billings in excess of costs and
estimated earnings on
uncompleted contracts........... 622 2,537 1,291 -- 1,081 593 1,799 205 229
Other current liabilities......... -- -- -- -- -- -- 167 4,788 339
------- ------- ------- ------ ------- ------ ------ ------ ------
Total current liabilities... 5,631 10,562 9,081 2,822 5,007 2,533 3,795 5,301 3,051
LONG-TERM OBLIGATIONS, net of
current maturities................ 532 576 596 452 557 -- -- -- 62
SUBORDINATED LOAN.................. -- -- -- -- -- -- -- -- --
SELLER NOTES....................... -- -- -- -- -- -- -- -- --
DEFERRED TAXES..................... 10 -- -- -- -- -- 6 -- 5
OTHER LONG-TERM LIABILITIES........ -- -- 1,064 -- -- -- -- -- --
COMMITMENTS AND CONTINGENCIES
SERIES A REDEEMABLE PREFERRED
STOCK............................. -- -- -- -- -- -- -- -- --
STOCKHOLDERS' EQUITY:
Class B Common Stock.............. -- -- -- -- -- -- -- -- --
Common Stock and additional
paid-in capital................. 93 231 1 259 16 651 1 1,089 284
Retained earnings................. 9,610 10,938 4,391 3,674 5,927 4,544 4,026 (546) 1,178
Treasury stock.................... -- (404) -- (187) -- -- -- -- --
Receivable from stockholders...... -- -- -- -- -- -- -- -- --
------- ------- ------- ------ ------- ------ ------ ------ ------
Total stockholders'
equity..................... 9,703 10,765 4,392 3,746 5,943 5,195 4,027 543 1,462
------- ------- ------- ------ ------- ------ ------ ------ ------
Total liabilities and
stockholders' equity....... $15,876 $21,903 $15,133 $7,020 $11,507 $7,728 $7,828 $5,844 $4,580
======= ======= ======= ====== ======= ====== ====== ====== ======
<CAPTION>
PRO FORMA PRO FORMA
MILLER AMPAM ADJUSTMENTS COMBINED
------ ------ ----------- ---------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents......... $1,985 $ 37 $ (3,074) $ 10,858
Accounts receivable --
Contract, net................... 1,284 -- -- 53,314
Other receivables............... 127 -- -- 1,057
Costs and estimated earnings in
excess of billings on
uncompleted contracts........... 72 -- -- 10,359
Inventories....................... 532 -- -- 4,898
Prepaid expenses and other current
assets.......................... 22 (202) 2,480
------ ------ -------- --------
Total current assets........ 4,022 37 (3,276) 82,966
PROPERTY AND EQUIPMENT, net........ 225 -- (2,038) 12,998
OTHER ASSETS....................... -- 5,618 307 6,350
GOODWILL, NET...................... -- -- 107,730 107,730
------ ------ -------- --------
Total assets................ $4,247 $5,655 $102,723 $210,044
====== ====== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations..................... $ 26 $ -- $ (3,781) $ 1,226
Accounts payable and accrued
expenses........................ 892 2,032 4,281 36,356
Advances payable to stockholder... -- 3,622 (3,622) --
Billings in excess of costs and
estimated earnings on
uncompleted contracts........... 866 -- -- 9,223
Other current liabilities......... -- -- -- 5,294
------ ------ -------- --------
Total current liabilities... 1,784 5,654 (3,122) 52,099
LONG-TERM OBLIGATIONS, net of
current maturities................ 37 -- 121,448 124,260
SUBORDINATED LOAN.................. -- -- -- --
SELLER NOTES....................... -- -- -- --
DEFERRED TAXES..................... 12 -- 1,269 1,302
OTHER LONG-TERM LIABILITIES........ -- -- -- 1,064
COMMITMENTS AND CONTINGENCIES
SERIES A REDEEMABLE PREFERRED
STOCK............................. -- -- 13,635 13,635
STOCKHOLDERS' EQUITY:
Class B Common Stock.............. -- 24 -- 24
Common Stock and additional
paid-in capital................. 74 692 18,198 21,589
Retained earnings................. 2,340 (682) (49,329) (3,929)
Treasury stock.................... -- -- 591 --
Receivable from stockholders...... -- (33) 33 --
------ ------ -------- --------
Total stockholders'
equity..................... 2,414 1 (30,507) 17,684
------ ------ -------- --------
Total liabilities and
stockholders' equity....... $4,247 $5,655 $102,723 $210,044
====== ====== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
F-4
<PAGE> 135
AMERICAN PLUMBING & MECHANICAL, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
KEITH CROSON CROSON
CHRISTIANSON RCR TEEPE'S RIGGS OHIO FLORIDA POWER NELSON SHERWOOD
------------ ------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES........................... $63,374 $63,293 $50,627 $34,464 $25,234 $28,142 $17,109 $15,058 $13,556
COST OF REVENUES (including
depreciation).................... 45,704 51,604 44,048 29,965 20,438 20,483 14,371 10,107 11,066
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit............... 17,670 11,689 6,579 4,499 4,796 7,659 2,738 4,951 2,490
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES......................... 17,078 8,370 4,779 2,943 2,032 2,960 1,268 1,759 2,189
GOODWILL AMORTIZATION.............. -- -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Income from operations..... 592 3,319 1,800 1,556 2,764 4,699 1,470 3,192 301
OTHER INCOME (EXPENSE):
Interest, net.................... (14) (270) (43) (73) (9) (108) 30 (18) (83)
Other, net....................... 70 (11) (177) 97 (7) -- 83 184 3
------- ------- ------- ------- ------- ------- ------- ------- -------
Other income (expense),
net...................... 56 (281) (220) 24 (16) (108) 113 166 (80)
------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME BEFORE PROVISION FOR INCOME
TAXES............................ 648 3,038 1,580 1,580 2,748 4,591 1,583 3,358 221
PROVISION FOR INCOME TAXES......... 32 24 666 -- 33 -- 612 -- 207
------- ------- ------- ------- ------- ------- ------- ------- -------
NET INCOME......................... 616 3,014 914 1,580 2,715 4,591 971 3,358 14
PREFERRED DIVIDENDS................ -- -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
NET INCOME AVAILABLE TO COMMON
STOCKHOLDERS..................... $ 616 $ 3,014 $ 914 $ 1,580 $ 2,715 $ 4,591 $ 971 $ 3,358 $ 14
======= ======= ======= ======= ======= ======= ======= ======= =======
PRO FORMA NET INCOME AVAILABLE TO
COMMON STOCKHOLDERS PER SHARE:
Basic............................
Diluted..........................
SHARES USED IN COMPUTING PRO FORMA
NET INCOME AVAILABLE TO COMMON
STOCKHOLDERS PER SHARE(1)........
<CAPTION>
PRO FORMA PRO FORMA
MILLER AMPAM ADJUSTMENTS COMBINED
------- ------ ----------- ----------
<S> <C> <C> <C> <C>
REVENUES........................... $11,346 $ -- $ -- $ 322,203
COST OF REVENUES (including
depreciation).................... 7,675 -- -- 255,461
------- ------ -------- ----------
Gross profit............... 3,671 -- -- 66,742
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES......................... 2,531 -- (14,654) 31,255
GOODWILL AMORTIZATION.............. -- -- 2,693 2,693
------- ------ -------- ----------
Income from operations..... 1,140 -- 11,961 32,794
OTHER INCOME (EXPENSE):
Interest, net.................... 35 -- (13,783) (14,336)
Other, net....................... 13 -- -- 255
------- ------ -------- ----------
Other income (expense),
net...................... 48 -- (13,783) (14,081)
------- ------ -------- ----------
INCOME BEFORE PROVISION FOR INCOME
TAXES............................ 1,188 -- (1,822) 18,713
PROVISION FOR INCOME TAXES......... 463 -- 6,212 8,249
------- ------ -------- ----------
NET INCOME......................... 725 -- (8,034) 10,464
PREFERRED DIVIDENDS................ -- -- 1,363 1,363
------- ------ -------- ----------
NET INCOME AVAILABLE TO COMMON
STOCKHOLDERS..................... $ 725 $ -- $ (9,397) $ 9,101
======= ====== ======== ==========
PRO FORMA NET INCOME AVAILABLE TO
COMMON STOCKHOLDERS PER SHARE:
Basic............................ $ 0.74
==========
Diluted.......................... $ 0.74
==========
SHARES USED IN COMPUTING PRO FORMA
NET INCOME AVAILABLE TO COMMON
STOCKHOLDERS PER SHARE(1)........ 12,316,135
==========
</TABLE>
- ---------------
(1) Includes (a) 3,417,517 shares of common stock and class B common stock
issued to Sterling City Capital LLC, the management of AMPAM and certain
other individuals and (b) 8,898,618 shares issued to acquire founding
companies. These share amounts exclude additional shares of common stock
that may be issued to the stockholders of the founding companies if certain
targeted earnings thresholds are satisfied during the year ended December
31, 1999. See "Certain Transaction -- Acquisition of Founding
Companies -- Additional Consideration" included elsewhere herein. These
share amounts also exclude 2,142,115 shares of common stock subject to
options granted in connection with the acquisitions at an exercise price
equal to their then fair market value.
See accompanying notes to unaudited pro forma combined financial statements.
F-5
<PAGE> 136
AMERICAN PLUMBING & MECHANICAL, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
KEITH CROSON CROSON
CHRISTIANSON RCR TEEPE'S RIGGS OHIO FLORIDA POWER NELSON SHERWOOD
------------ ------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES........................... $16,824 $19,815 $10,546 $ 8,917 $ 7,247 $ 8,274 $ 5,620 $ 4,670 $ 4,069
COST OF REVENUES (including
depreciation).................... 11,390 15,735 9,287 7,457 6,081 5,482 4,022 2,510 3,552
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit............... 5,434 4,080 1,259 1,460 1,166 2,792 1,598 2,160 517
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES......................... 1,863 2,452 1,126 728 676 869 346 1,029 612
GOODWILL AMORTIZATION.............. -- -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Income from operations..... 3,571 1,628 133 732 490 1,923 1,252 1,131 (95)
OTHER INCOME (EXPENSE):
Interest, net.................... (16) (30) (49) 2 (4) (7) 19 (71) (27)
Other, net....................... 9 613 5 227 (9) -- 4 425 (3)
------- ------- ------- ------- ------- ------- ------- ------- -------
Other income (expense),
net...................... (7) 583 (44) 229 (13) (7) 23 354 (30)
------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME BEFORE PROVISION FOR INCOME
TAXES............................ 3,564 2,211 89 961 477 1,916 1,275 1,485 (125)
PROVISION FOR INCOME TAXES......... 162 26 27 -- (6) -- 488 -- (122)
------- ------- ------- ------- ------- ------- ------- ------- -------
NET INCOME......................... 3,402 2,185 62 961 483 1,916 787 1,485 (3)
PREFERRED DIVIDENDS................ -- -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
NET INCOME (LOSS) AVAILABLE TO
COMMON STOCKHOLDERS.............. $ 3,402 $ 2,185 $ 62 $ 961 $ 483 $ 1,916 $ 787 $ 1,485 $ (3)
======= ======= ======= ======= ======= ======= ======= ======= =======
PRO FORMA NET INCOME AVAILABLE TO
COMMON STOCKHOLDERS PER SHARE:...
Basic............................
Diluted..........................
SHARES USED IN COMPUTING PRO FORMA
NET INCOME AVAILABLE TO COMMON
STOCKHOLDERS PER SHARE(1)........
<CAPTION>
PRO FORMA PRO FORMA
MILLER AMPAM ADJUSTMENTS COMBINED
------- ------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES........................... $ 2,497 $ -- $ -- $ 88,479
COST OF REVENUES (including
depreciation).................... 1,662 -- -- 67,178
------- ------- ------- -----------
Gross profit............... 835 -- -- 21,301
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES......................... 458 682 (1,159) 9,682
GOODWILL AMORTIZATION.............. -- -- 673 673
------- ------- ------- -----------
Income from operations..... 377 (682) 486 10,946
OTHER INCOME (EXPENSE):
Interest, net.................... 16 -- (3,405) (3,572)
Other, net....................... 14 -- (896) 389
------- ------- ------- -----------
Other income (expense),
net...................... 30 -- (4,301) (3,183)
------- ------- ------- -----------
INCOME BEFORE PROVISION FOR INCOME
TAXES............................ 407 (682) (3,815) 7,763
PROVISION FOR INCOME TAXES......... 173 -- 2,808 3,556
------- ------- ------- -----------
NET INCOME......................... 234 (682) (6,623) 4,207
PREFERRED DIVIDENDS................ -- -- 341 341
------- ------- ------- -----------
NET INCOME (LOSS) AVAILABLE TO
COMMON STOCKHOLDERS.............. $ 234 $ (682) $(6,282) $ 3,866
======= ======= ======= ===========
PRO FORMA NET INCOME AVAILABLE TO
COMMON STOCKHOLDERS PER SHARE:...
Basic............................ $ 0.31
Diluted.......................... $ 0.31
SHARES USED IN COMPUTING PRO FORMA
NET INCOME AVAILABLE TO COMMON
STOCKHOLDERS PER SHARE(1)........ 12,316,135
===========
</TABLE>
- ---------------
(1) Includes (a) 3,417,517 shares of common stock and class B common stock
issued to Sterling City Capital LLC, the management of AMPAM and certain
other individuals and (b) 8,898,618 shares issued to acquire founding
companies. These share amounts exclude additional shares of common stock
that may be issued to the stockholders of the founding companies if certain
targeted earnings thresholds are satisfied during the year ended December
31, 1999. See "Certain Transaction -- Acquisition of Founding
Companies -- Additional Consideration" included elsewhere herein. These
share amounts also exclude 2,142,115 shares of common stock subject to
options granted in connection with the acquisitions at an exercise price
equal to their then fair market value.
See accompanying notes to unaudited pro forma combined financial statements.
F-6
<PAGE> 137
AMERICAN PLUMBING & MECHANICAL, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. GENERAL:
American Plumbing & Mechanical, Inc. (AMPAM) was founded to be the leading
national provider of plumbing and mechanical contracting services to the
residential and commercial/institutional markets. AMPAM conducted no operations
prior to April 1, 1999, when it acquired the founding companies concurrently
with entering into the credit facility and the subordinated loan.
The historical financial statements reflect the financial position and
results of operations of the founding companies and were derived from the
respective founding companies' financial statements. The periods included in
these financial statements for the individual founding companies are for the
year ended December 31, 1998, except for Miller, Sherwood and Croson Ohio for
which the period is the twelve months ended September 30, 1998.
2. ACQUISITION OF FOUNDING COMPANIES:
On April 1, 1998, AMPAM acquired all of the outstanding capital stock and
other equity interests of the founding companies. The acquisitions were
accounted for using the purchase method of accounting, with Christianson being
reflected as the accounting acquiror. As the accounting acquiror, for accounting
purposes under SEC SAB No. 97, Christianson is treated as (a) having acquired
all the other founding companies (even though AMPAM legally made such
acquisitions), (b) having merged with AMPAM (with purchase accounting reflected
for AMPAM's non-management stock ownership) and (c) representing the financial
history of AMPAM prior to April 1, 1999.
The following table sets forth the consideration paid (a) in cash, (b)
seller notes and (c) stock to the stockholders of each of the founding
companies. This initial consideration excludes certain additional shares of
common stock and cash that may be issued to the stockholders of the founding
companies if certain targeted earnings thresholds are satisfied during the year
ended December 31, 1999, which could increase goodwill and amortization of
goodwill from the amounts reflected herein. See "Certain
Transactions -- Acquisition of Founding Companies -- Additional Consideration"
included elsewhere herein for further discussion. The table below also reflects
net transfers of $30.6 million in owner amounts which represent $28.7 million in
distribution of excess working capital and $1.9 million in distribution of
nonoperating assets, net of nonoperating liabilities. The owner amounts will be
adjusted based on certain balance sheet amounts as of the closing of the
acquisitions.
<TABLE>
<CAPTION>
IN THOUSANDS
--------------------------------------------------------------
COMMON STOCK
------------------ PREFERRED TOTAL
VALUE STOCK PURCHASE
CASH NOTES SHARES OF SHARES VALUE PRICE
------- ------ ------ --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Founding Companies:
RCR..................................................... $10,048 $1,675 1,675 $11,574 $ -- $ 23,297
Teepe's................................................. 5,538 990 1,036 7,159 -- 13,687
Keith Riggs............................................. 5,128 -- 575 3,973 -- 9,101
Croson Ohio............................................. 4,708 -- 1,079 7,456 -- 12,164
Croson Florida.......................................... 5,776 -- 1,219 8,423 -- 14,199
Power................................................... 3,035 -- 474 3,275 -- 6,310
Nelson.................................................. 6,059 1,010 1,010 6,979 -- 14,048
Sherwood................................................ 1,765 294 294 2,032 -- 4,091
Miller.................................................. 4,261 306 610 4,215 -- 8,782
AMPAM shares issued to Promoter, other investors and
certain Management...................................... -- -- 2,296(a) 12,906 -- 12,906
Acquisition Costs......................................... -- -- -- -- -- 2,000
------- ------ ------ ------- ------- --------
Total Purchase Consideration...................... 46,318 4,275 10,268 67,992 -- 120,585
------- ------ ------ ------- ------- --------
Accounting Acquiror:
Christianson............................................ 34,585 1,491 927 6,406 13,635 56,117
------- ------ ------ ------- ------- --------
Total............................................. $80,903 $5,766 11,195 $74,398 $13,635 $176,702
======= ====== ====== ======= ======= ========
</TABLE>
- ---------------
(a) Included in the 2,296,000 shares is 150,000 of common and 2,146,000 of class
B common shares.
F-7
<PAGE> 138
AMERICAN PLUMBING & MECHANICAL, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS:
The following tables summarize unaudited pro forma combined balance sheet
adjustments related to the acquisitions and related transactions, and the
issuance of the notes (in thousands):
<TABLE>
<CAPTION>
ADJUSTMENT
---------------------------------------------------------------------------------------------
(A) (B) (C) (D) (E) (F) (G) (H) (I)
-------- ------- -------- -------- ------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS --
Cash and cash
equivalents............. $(10,000) $ -- $ -- $ -- $ -- $ 98,580 $(97,680) $(5,621) $ 11,647
Prepaid expenses and other
current assets.......... -- (202) -- -- -- -- -- -- --
-------- ------- -------- -------- ------- -------- -------- ------- --------
Total current assets.... (10,000) (202) -- -- -- 98,580 (97,680) (5,621) 11,647
Property and equipment,
net....................... -- (2,038) -- -- -- -- -- -- --
Other long-term assets...... -- -- -- (5,618) -- 1,675 -- -- 4,250
Goodwill, net............... -- -- -- 107,730 -- -- -- -- --
-------- ------- -------- -------- ------- -------- -------- ------- --------
Total assets............ $(10,000) $(2,240) $ -- $102,112 $ -- $100,255 $(97,680) $(5,621) $ 15,897
======== ======= ======== ======== ======= ======== ======== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES --
Current maturities of
long-term obligations... $ 12,372 $ -- $ 34,585 $ 46,318 $ -- $ -- $(97,056) $ -- $ --
Accounts payable and
accrued expenses........ 6,313 -- -- -- -- -- -- (2,032) $ --
Advances payable to
stockholder............. -- -- -- -- -- -- -- (3,622) --
-------- ------- -------- -------- ------- -------- -------- ------- --------
Total current
liabilities........... 18,685 -- 34,585 46,318 -- -- (97,056) (5,654) --
LONG-TERM DEBT, net......... -- (346) -- -- -- 70,255 (624) 52,163
SUBORDINATED LOAN........... -- -- -- -- -- 29,700 -- -- (29,700)
SELLER NOTES................ -- -- 1,491 4,275 -- -- -- -- (5,766)
DEFERRED TAXES.............. -- -- -- 1,269 -- -- -- -- --
SERIES A REDEEMABLE
PREFERRED STOCK........... -- -- 13,635 -- -- -- -- -- --
STOCKHOLDERS' EQUITY --
Common Stock and
additional paid-in
capital................. -- -- (49,711) 60,928 6,681 -- -- -- 300
Warrants.................. -- -- -- -- -- 300 -- -- (300)
Retained earnings......... (28,685) (1,894) -- (11,269) (6,681) -- -- -- (800)
Treasury Stock............ -- -- -- 591 -- -- -- -- --
Receivable from
stockholders............ -- -- -- -- -- -- -- 33 --
-------- ------- -------- -------- ------- -------- -------- ------- --------
Total stockholders'
equity................ (28,685) (1,894) (49,711) 50,250 -- 300 -- 33 (800)
-------- ------- -------- -------- ------- -------- -------- ------- --------
Total liabilities and
stockholders'
equity................ $(10,000) $(2,240) $ -- $102,112 $ -- $100,255 $(97,680) $(5,621) $ 15,897
======== ======= ======== ======== ======= ======== ======== ======= ========
<CAPTION>
PRO FORMA
ADJUSTMENTS
-----------
<S> <C>
ASSETS
CURRENT ASSETS --
Cash and cash
equivalents............. $ (3,074)
Prepaid expenses and other
current assets.......... (202)
--------
Total current assets.... (3,276)
Property and equipment,
net....................... (2,038)
Other long-term assets...... 307
Goodwill, net............... 107,730
--------
Total assets............ $102,723
========
CURRENT LIABILITIES --
Current maturities of
long-term obligations... $ (3,781)
Accounts payable and
accrued expenses........ 4,281
Advances payable to
stockholder............. (3,622)
--------
Total current
liabilities........... (3,122)
LONG-TERM DEBT, net......... 121,448
SUBORDINATED LOAN........... --
SELLER NOTES................ --
DEFERRED TAXES.............. 1,269
SERIES A REDEEMABLE
PREFERRED STOCK........... 13,635
STOCKHOLDERS' EQUITY --
Common Stock and
additional paid-in
capital................. 18,198
Warrants.................. --
Retained earnings......... (49,329)
Treasury Stock............ 591
Receivable from
stockholders............ 33
--------
Total stockholders'
equity................ (30,507)
--------
Total liabilities and
stockholders'
equity................ $102,723
========
</TABLE>
Pro Forma Adjustments:
(a) Records the transfer in connection with the acquisitions of $28.7 million
of owner amounts, representing previously undistributed S corporation
accumulated adjustment accounts, previously undistributed retained
earnings of C corporations and excess working capital to the owners of the
founding companies. A portion of such amount was funded using $12.4
million of notes payable to the owners which was retired with proceeds of
the credit facility and the subordinated loan and $10.0 million of
available operating cash from the founding companies. The remaining $6.3
million of excess working capital (subject to adjustment as described
above) will be paid to the owners of the founding companies upon
finalization of the working capital balances as of March 31, 1999.
(b) Records the distribution of $1.9 million of nonoperating assets, net of
nonoperating liabilities, to certain stockholders of the founding
companies as part of the owner amounts prior to the acquisitions.
F-8
<PAGE> 139
AMERICAN PLUMBING & MECHANICAL, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Records a liability for the cash, seller notes and the preferred stock
(valued at its liquidation value of $13.00 per share) of the acquisition
consideration paid to Christianson, the accounting acquirer, and records
the merger of AMPAM and Christianson as part of the acquisitions.
(d) Records the purchase of the founding companies by AMPAM, consisting of
notes payable incurred to finance the $46.3 million in cash, $4.3 million
in seller notes, 8.1 million shares of common stock valued at its
estimated fair market value of $6.91 per share and 2.1 million shares of
Class B common stock issued to Sterling City Capital, LLC and certain
individuals or consultants valued at its estimated fair market value of
$5.53 per share. Also records estimated transaction costs (including
accounting, legal and other) of $5.5 million, $2.0 million of which were
related to the acquisitions and $3.5 million of which were related to the
common stock issuance. The total purchase price was approximately $120.6
million resulting in purchase price in excess of net assets acquired
(goodwill) of $107.7 million. Also, records deferred taxes for differences
between the financial reporting and tax basis of assets and liabilities,
including on certain of the founding companies that have historically
elected S corporation status for tax purposes as if they were C
corporations. Excludes additional shares of common stock and cash that may
be issued to the stockholders of the founding companies if certain
targeted earnings thresholds are satisfied during the year ended December
31, 1999. See "Certain Transactions -- Acquisition of Founding
Companies -- Additional Consideration" included elsewhere herein.
The following reconciles the combined historical net assets of the
founding companies to the fair value of net assets acquired (in
thousands):
<TABLE>
<CAPTION>
ACQUIRED
FOUNDING
TOTAL COMBINED LESS: CHRISTIANSON CORPORATIONS
-------------- ------------------ ------------
<S> <C> <C> <C>
Historical net assets....................... $ 48,093 $(9,703) $ 38,390
Transfer of owner amounts (see (a) and
(b) above)............................. (30,579) 6,057 (24,522)
Purchase adjustments -- deferred taxes... (1,269) 157 (1,112)
-------- ------- --------
Net assets after transfers and purchase
adjustments............................ $ 16,245 $(3,489) $ 12,756
======== ======= ========
</TABLE>
(e) Reflects the effects on the pro forma balance sheet of a $6.7 million
non-recurring, non-cash compensation charge which management expects to
record related to the issuance of stock to certain members of AMPAM's
management. The $6.7 million compensation charge represents the fair value
of the 844,000 common and 276,930 Class B common shares (their values per
share of $6.91 and $5.53, respectively) which were issued to management of
the Company: 1) who were formerly management of the accounting acquiror
and 2) who did not participate in negotiating the acquisitions of the
founding companies. The amount of the charge represents the difference
between the estimated fair value of the shares issued and their recorded
values. This charge has not been reflected in the pro forma combined
statements of operations because it was not recorded in the periods
presented.
(f) Records the borrowings of $70.3 million under the credit facility (net of
financing costs of $1.2 million) and $30.0 million under the subordinated
loan net of financing costs of $0.5 million and a discount of $0.3 million
related to the estimated fair value of the warrants issued in connection
with the subordinated loan.
(g) Reflects the repayment of $97.0 million of short-term debt and $0.8
million of long-term debt assumed by AMPAM with proceeds obtained from the
subordinated loan and the credit facility.
(h) Reflects the repayment of the advances from Sterling City Capital, LLC and
other payables for transaction expenses and reflects the collection of the
receivable from the stockholders of AMPAM.
F-9
<PAGE> 140
AMERICAN PLUMBING & MECHANICAL, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(i) Records the net cash proceeds of this notes offering, the deferral of $4.8
million of related debt issuance costs and the use of such proceeds to
repay the subordinated loan and credit facility advances. Also reflects
the write off of $0.5 million of deferred loan costs and $0.3 million of
discount related to the subordinated loan and the write off of $0.3
million recorded value of the warrants issued in connection with the
subordinated loan and which will be cancelled in connection with the
repayment of the subordinated loan.
4. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS:
The following tables summarize unaudited pro forma combined statement of
operations adjustments for the year ended December 31, 1998 related to the
acquisitions and related transactions, and the issuance of the notes (in
thousands):
<TABLE>
<CAPTION>
ADJUSTMENT
------------------------------------------------- PRO FORMA
(A) (B) (C) (D) (E) ADJUSTMENTS
-------- ------- -------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Selling, general and
administrative expenses......... $(14,654) $ -- $ -- $ -- $ -- $(14,654)
Goodwill amortization............. -- 2,693 -- -- -- 2,693
-------- ------- -------- ------- ------- --------
Income from
operations............ 14,654 (2,693) -- -- -- 11,961
Interest expense.................. -- -- (13,783) -- -- (13,783)
-------- ------- -------- ------- ------- --------
Income before income
taxes................. 14,654 (2,693) (13,783) -- -- (1,822)
Provisions for income taxes....... -- -- -- 6,212 -- 6,212
-------- ------- -------- ------- ------- --------
Net income........................ 14,654 (2,693) (13,783) (6,212) -- (8,034)
Preferred dividends............... -- -- -- -- 1,363 1,363
-------- ------- -------- ------- ------- --------
Net income available to common
shareholders.................... $ 14,654 $(2,693) $(13,783) $(6,212) $(1,363) $ (9,397)
======== ======= ======== ======= ======= ========
</TABLE>
The following tables summarize unaudited pro forma combined statement of
operations adjustments for the three months ended March 31, 1999 related to the
acquisitions (in thousands):
<TABLE>
<CAPTION>
ADJUSTMENT
--------------------------------------------- PRO FORMA
(A) (B) (C) (D) (E) ADJUSTMENTS
------- ----- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Selling, general and administrative
expenses........................... $(1,159) $ -- $ -- $ -- $ -- $(1,159)
Goodwill amortization................ -- 673 -- -- -- 673
------- ----- ------- ------- ------- -------
Income from operations..... 1,159 (673) -- -- -- 486
Interest expense..................... -- -- (3,405) -- -- (3,405)
Other income......................... (896) -- -- -- -- (896)
------- ----- ------- ------- ------- -------
Income before income
taxes.................... 263 (673) (3,405) -- -- (3,815)
Provisions for income taxes.......... -- -- -- 2,808 -- 2,808
------- ----- ------- ------- ------- -------
Net income........................... 263 (673) (3,405) (2,808) -- (6,623)
Preferred dividends.................. -- -- -- -- 341 341
------- ----- ------- ------- ------- -------
Net income available to common
shareholders....................... $ 263 $(673) $(3,405) $(2,808) $ (341) $(6,282)
======= ===== ======= ======= ======= =======
</TABLE>
F-10
<PAGE> 141
AMERICAN PLUMBING & MECHANICAL, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Pro Forma Adjustments:
(a) Reflects the $17.6 million and $1.9 million reduction in salaries,
bonuses, benefits and lease payments to the owners of the founding
companies for the year ended December 31, 1998 and the three months ended
March 31, 1999, respectively. These reductions in salaries, bonuses,
benefits and lease payments have been agreed to prospectively in
accordance with the terms of employment and lease agreements executed as
part of the acquisitions. Such employment agreements are primarily for
five years, contain restrictions related to competition and provide
severance for termination of employment in certain circumstances. This
reversal is partially offset by a $2.9 million and $0.7 million charge for
recurring contractual salaries of AMPAM management for the year ended
December 31, 1998 and the three months ended March 31, 1999, respectively.
Also, for the three months ended March 31, 1999, reflects the reduction of
other income to eliminate the gain on disposal of assets related to
AMPAM's acquisition of the founding companies.
Upon consummation of the acquisitions, AMPAM also expects to record a
non-recurring, non-cash compensation charge of $6.7 million related to
shares of common stock and Class B common stock owned by management. Such
charge represents the difference between the estimated fair value of the
shares issued and their recorded values. The issuances of the management
shares were made in connection with the organization of AMPAM, and no
further issuances of this nature are anticipated.
(b) Reflects the amortization of goodwill to be recorded as a result of these
acquisitions over a 40-year estimated life, which is management's estimate
as the period to be benefitted. Upon consummation of the acquisitions,
AMPAM will record on its balance sheet $107.7 million of goodwill,
representing the excess of the purchase price for the founding companies
over the fair value of the net assets to be acquired. Neither the goodwill
amortization nor the compensation charge will be deductible for federal
income tax purposes.
(c) Reflects the net effect on interest expense related to the $114.6 million
portion of the original issuance of the notes to be used to repay existing
debt at an estimated rate of 11 5/8% per annum and related amortization of
unamortized debt discount and offering costs
(d) Reflects the incremental provision for federal and state income taxes at a
39% overall tax rate, before nondeductible goodwill and other permanent
items, relating to the other statements of operations adjustments and for
income taxes on the pretax income of founding companies that have
historically elected S corporation tax status.
(e) Reflects the dividends which would have been owed to the shareholders of
the redeemable preferred stock.
F-11
<PAGE> 142
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Plumbing & Mechanical, Inc.
We have audited the accompanying balance sheet of American Plumbing &
Mechanical, Inc. as of December 31, 1998, and March 31, 1999, and the related
statements of operations, cash flows and stockholders' equity for the period
from inception (June 29, 1998) through December 31, 1998, and for the three
months ended March 31, 1999. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with 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 American Plumbing &
Mechanical, Inc. as of December 31, 1998, and March 31, 1999, and the results of
its operations and its cash flows for the period from inception (June 29, 1998)
through December 31, 1998, and for the three months ended March 31, 1999, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
June 14, 1999
F-12
<PAGE> 143
AMERICAN PLUMBING & MECHANICAL, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ ----------
<S> <C> <C>
CASH AND CASH EQUIVALENTS................................... $ -- $ 37,291
OTHER ASSETS................................................ -- 45,000
DEFERRED TRANSACTION COSTS.................................. 4,520,976 5,573,373
---------- ----------
Total assets...................................... $4,520,976 $5,655,664
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
ACCOUNTS PAYABLE............................................ $1,954,692 $2,032,463
AMOUNTS DUE TO STOCKHOLDERS................................. 2,565,284 3,622,201
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 10,000,000 authorized,
none issued and outstanding............................ -- --
Class B common stock, $.01 par value, 5,000,000 shares
authorized, 2,417,517 and 2,423,517 shares issued and
outstanding............................................ 24,175 24,235
Common stock, $.01 par value, 100,000,000 authorized,
900,000 and 994,000 shares issued and outstanding...... 9,000 9,940
Additional paid-in capital................................ -- 681,720
Receivable from stockholders.............................. (32,175) (33,175)
Retained earnings......................................... -- (681,720)
---------- ----------
Total stockholders' equity........................ 1,000 1,000
---------- ----------
Total liabilities and stockholders' equity........ $4,520,976 $5,655,664
========== ==========
</TABLE>
Reflects a 1,683-for-one stock split effected in April 1999.
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE> 144
AMERICAN PLUMBING & MECHANICAL, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
INCEPTION FOR THE
(JUNE 29, THREE
1998) MONTHS
THROUGH ENDED
DECEMBER 31, MARCH 31,
1998 1999
------------ ---------
<S> <C> <C>
REVENUES.................................................... $ -- $ --
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ -- 681,720
-------- ---------
LOSS BEFORE INCOME TAXES.................................... -- (681,720)
PROVISION FOR INCOME TAXES.................................. -- --
-------- ---------
NET LOSS.................................................... $ -- $(681,720)
======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE> 145
AMERICAN PLUMBING & MECHANICAL, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
INCEPTION
(JUNE 29, FOR THE THREE
1998) MONTHS
THROUGH ENDED
DECEMBER 31, MARCH 31,
1998 1999
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ -- $ (681,720)
Adjustments to reconcile net loss to net cash used in
operating activities --
Non-cash compensation charge........................... -- 681,720
Changes in assets and liabilities --
Increase in other assets............................. -- (45,000)
Increase in deferred transaction costs............... (4,520,976) (1,052,397)
Increase in amounts due to stockholders.............. 2,565,284 1,056,917
Increase in accounts payable......................... 1,954,692 77,771
----------- -----------
Net cash provided (used) in operating
activities...................................... (1,000) 37,291
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Initial capitalization.................................... 1,000 --
----------- -----------
Net cash provided by financing activities......... 1,000 --
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... -- 37,291
CASH AND CASH EQUIVALENTS, beginning of period.............. -- --
----------- -----------
CASH AND CASH EQUIVALENTS, end of period.................... $ -- $ 37,291
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE> 146
AMERICAN PLUMBING & MECHANICAL, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
RESTRICTED
COMMON STOCK COMMON STOCK ADDITIONAL RECEIVABLE TOTAL
------------------- ---------------- PAID-IN FROM RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS EARNINGS EQUITY
--------- ------- ------- ------ ---------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INITIAL CAPITALIZATION AND
SUBSEQUENT SHARE ISSUANCE, June
29, 1998........................ 2,417,517 $24,175 900,000 $9,000 $ -- $(32,175) $ -- $ 1,000
NET INCOME (LOSS)................ -- -- -- -- -- -- -- --
--------- ------- ------- ------ -------- -------- --------- --------
BALANCE, December 31, 1998....... 2,417,517 24,175 900,000 9,000 -- (32,175) -- 1,000
SHARE ISSUANCE................... 6,000 60 94,000 940 681,720 (1,000) -- 681,720
NET LOSS......................... -- -- -- -- -- -- (681,720) (681,720)
--------- ------- ------- ------ -------- -------- --------- --------
BALANCE, March 31, 1999.......... 2,423,517 $24,235 994,000 $9,940 $681,720 $(33,175) $(681,720) $ 1,000
========= ======= ======= ====== ======== ======== ========= ========
</TABLE>
Reflects a 1,683-for-one stock split effected in April 1999.
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE> 147
AMERICAN PLUMBING & MECHANICAL, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS, ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
American Plumbing & Mechanical, Inc., a Delaware corporation (AMPAM or the
"Company"), was organized in June 1998 to be the leading provider of plumbing
and mechanical contracting services in the United States, focusing primarily on
the commercial/institutional and residential markets. On April 1, 1999, AMPAM
acquired ten U.S. businesses (see Note 4, the Acquisitions) and completed the
initial financings (see Note 5). On May 19, 1999, the Company completed
additional financings (see Note 6) and intends to continue to acquire through
merger or purchase similar companies to expand its national or regional
operations.
AMPAM has not conducted any operations, and all activities to date have
related to the Acquisitions. All expenditures of the Company to March 31, 1999
were funded by its founder and then primary stockholder, Sterling City Capital,
LLC, on behalf of the Company. AMPAM has treated these costs as deferred
transaction costs in the accompanying balance sheet. The ability of AMPAM to
generate future income is dependent upon the ability of the Company to manage
the integration of the acquisitions as well as the effect on the combined
companies of the following factors which are discussed in more detail in "Risk
Factors" -- substantial indebtedness and potential incurrence of additional debt
that would be senior to the notes offer (discussed in Note 6), absence of
combined operating history and dependence on future operating performance,
exposure to cyclicality and downturns in construction, availability of skilled
labor, management of growth, reliance on acquisitions, competition, dependence
on key personnel, amortization of goodwill and acquisition and other related
accounting issues, availability of acquisition financing, use of fixed price
contracting and potential materials and labor cost escalations, the Year 2000
issue, potential adverse effect of future acquisitions, potential inability of
the Company to repurchase the notes from the offering (discussed in Note 6) upon
a change of control, lack of a trading market for the notes, seasonality and
fluctuation of quarterly operating results, concentration of customers,
regulations, liability and insurance.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Deferred Transaction Costs
Following is a detail of deferred transaction costs as of March 31, 1999
(in thousands):
<TABLE>
<S> <C>
Third party costs --
Accounting fees.......................................... $3,385
Legal fees............................................... 391
Travel................................................... 370
Consultants.............................................. 328
Interest on Note to Sterling City Capital, LLC........... 146
Other deferred transaction costs --
Compensation............................................. 477
Other.................................................... 476
------
Deferred transaction costs....................... $5,573
======
</TABLE>
F-17
<PAGE> 148
AMERICAN PLUMBING & MECHANICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. STOCKHOLDERS' EQUITY:
Common Stock
In connection with the organization and initial capitalization of AMPAM,
the Company issued 2,092,401 shares of Class B common stock at $.01 par value
(Class B common stock). AMPAM has subsequently issued 1,225,116 additional
shares of Class B common stock and common stock to certain management of AMPAM
and other individuals. The shares of Class B common stock have rights similar to
shares of common stock, except that such shares are entitled to elect one member
of the board of directors and are entitled to one-fourth of one vote for each
share held on all other matters, and are subordinate in liquidation to all other
classes of stock.
Each share of Class B common stock will automatically convert to common
stock (as adjusted proportionately to give effect to any stock dividends,
combinations, splits or other similar events with respect to the common stock)
on a share-for-share basis in the event AMPAM consummates any of the following
events: (i) an IPO, (ii) any sale of all or substantially all of our assets in
one transaction or a series of related transactions, (iii) any merger or
consolidation that involves AMPAM in which AMPAM is not the surviving entity or
(iv) any transaction after which the common stock held by persons other than the
holders of common stock as of April 1, 1999 constitutes 50% or more of the
common stock outstanding as of the date of the consummation of such transaction.
Furthermore, if the restricted common stock has not previously been converted
into common stock before April 1, 2002, AMPAM will have the option to redeem all
outstanding shares of restricted common stock for $.01 a share. Consequently, as
of December 31, 1998 and as restated for the 1,683-for-one stock split discussed
below, the Company had issued a total of 1,598,901 shares to Sterling City
Capital, LLC and an aggregate of 1,718,616 shares to the executive management of
the Company and other individuals. The shares issued prior to December 1998 were
recorded at their estimated fair value at that time of $.01 par value. The fair
value at that time of all such shares was based on specific factors related to
the Company and the transaction including restrictions on transferability and
sale, the time value of money during the holding period and the substantive
progress of the transaction at each issuance date. During the three months ended
March 31, 1999, 94,000 and 6,000 shares of common stock and Class B common
stock, respectively were issued to employees of the Company at $0.01 per share.
Such shares were recorded in the accompanying financial statements at their fair
values per share (as set forth below), and compensation expense of $681,720 was
recorded for the excess of the fair value of such shares over the amount paid.
On April 1, 1999, the Company reflected the shares previously issued to Sterling
City Capital, LLC and certain consultants as acquisition costs (i.e., goodwill)
in connection with the acquisitions. Additionally, the Company recorded a
nonrecurring, noncash compensation charge related to the shares issued on April
1, 1999 to management of $6.7 million which represented the difference between
the estimated fair value ($6.91 for common stock and $5.53 for Class B common
stock) of such shares and their recorded values. The management and Sterling
City Capital, LLC shares were issued in contemplation of the acquisitions, and
no further stock issuances of this nature are anticipated.
AMPAM effected a 1,683-for-one stock split in April 1999 for each share of
Class B common stock and each share of common stock of the Company then
outstanding. In addition, the Company increased the number of authorized shares
of common stock to 100,000,000 and increased the number of authorized shares of
$.01 par value preferred stock to 10,000,000. The effects of the stock split and
the increase in the shares of authorized common stock have been retroactively
reflected on the balance sheet, statement of stockholders' equity and in the
accompanying notes. Additionally, the difference between the initial
capitalization value and the par value of total shares outstanding subsequent to
the stock split has been reflected as a receivable from stockholders.
F-18
<PAGE> 149
AMERICAN PLUMBING & MECHANICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Preferred Stock
An aggregate of 1,048,820 shares of preferred stock was issued to certain
stockholders of Christianson at the closing of the acquisitions. Such
Christianson stockholders received their acquisition consideration solely in the
form of cash and shares of preferred stock. The preferred stock is cumulative,
redeemable and convertible and will be recorded at its estimated fair value of
$13 per share.
The holders of the preferred stock are entitled to receive dividends at an
annual rate of 10% based on the liquidation value (as defined below). The
dividends will be payable in cash semiannually in arrears. The dividend payment
dates are June 30 and December 31, beginning on June 30, 1999. The holders of
the preferred stock are also entitled to receive additional dividends on an
equal share for share basis with the common stock to the extent that the Company
has paid cumulative dividends on a base amount of $13.00 per share of common
stock, as proportionately adjusted for any stock dividends, combinations, splits
or other similar events with respect to such shares, a common stock base amount.
However, the right of the holders of the preferred stock to receive this
preferential dividend will extinguish 40 days after the 25th day following the
date of the final prospectus related to an initial public offering of the
Company's common stock. After such time, the holders will be entitled to share
equally, on a per share basis, in any dividends of the Company with the holders
of common stock.
The preferred stock is senior to all other classes of the Company's capital
stock (including the common stock) in right of liquidation, dividends and
distributions.
The liquidation value of the preferred stock is $13.00 per share, plus
accrued and unpaid dividends, as adjusted proportionately for any stock
dividends, combinations, splits or other similar events with respect to such
shares, a liquidation value. In addition, the preferred stock shares equally, on
a per share basis, with the common stock after each share is paid the common
stock base amount plus a cumulative amount of dividends equal to 10% from the
later to occur of the date of issuance of the preferred stock or the date of
issuance of such share of common stock.
Except under certain circumstances, the preferred stock is not entitled to
vote as a separate class, but votes together with the holders of shares of all
other classes of capital stock of the Company as one class on all matters
submitted to a vote of the Company's stockholders. Each holder of shares of
preferred stock is entitled to the number of votes equal to the largest number
of full shares of common stock into which all shares of preferred stock held by
such holder could be converted at the record date for the determination of the
stockholders entitled to vote on such matters. In all cases where the holders of
shares of preferred stock are required by law to vote separately as a class,
such holders are entitled to one vote for each such share.
The preferred stock is redeemable at the Company's option at any time and
from time to time, in whole or in part prior to an initial public offering of
AMPAM common stock or an "IPO" for the greater of (i) the fair market value of
the preferred stock and (ii) $13.00 per share of preferred stock, plus, in each
case, accrued and unpaid dividends thereon. After an IPO, the Company has the
right to redeem the preferred stock at any time and from time to time, in whole
or in part, at a price equal to the trading price of the common stock at the
time of redemption but in no event for less than $13.00 per share of preferred
stock, plus accrued and unpaid dividends. After the third anniversary of the
date of issuance, the holders of the preferred stock may require the Company to
redeem the preferred stock. In each such case, the redemption price per share
will be equal to the liquidation value plus accrued and unpaid dividends through
the date of redemption.
Prior to the filing of a registration statement by the Company with the
Securities and Exchange Commission with respect to an IPO, the holders of
preferred stock may convert the preferred stock into common stock on a
share-for-share basis. Not later than the twenty-fifth day after the date of the
final prospectus relating to such IPO, the Company will give notice to each
holder of preferred stock to the
F-19
<PAGE> 150
AMERICAN PLUMBING & MECHANICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
effect that the preferred stock will automatically convert into shares of common
stock on the 40th day thereafter unless such holder gives the Company written
notice on or before such date that such holder elects such conversion not occur
with respect to such holder's shares of preferred stock. In the event the
Company does not receive such notice on or before such date, the preferred stock
shall be converted into common stock at a conversion ratio equal to the
liquidation value (without inclusion of accrued but unpaid dividends) divided by
the price per share to the public in the IPO, effective as of such date.
The Company may convert the preferred stock following the consummation of
an IPO on a share-for-share basis, unless such conversion would result in the
holder of preferred stock receiving common stock having a value of less than
$13.00 per share, in which case the conversion would be made at a conversion
ratio equal to the liquidation value (without inclusion of accrued but unpaid
dividends) divided by the price per share to the public in the IPO.
Other Preferred Stock
Additionally, the board of directors of the Company may authorize the
issuance from time to time shares of one or more new classes or series of
preferred stock. Subject to the provisions of the Company's amended and restated
certificate of incorporation and limitations prescribed by law, the board of
directors is expressly authorized to adopt resolutions to issue the shares, to
fix the number of shares and to change the number of shares constituting any
series, and to provide for or change the voting powers, designations,
preferences and relative, participating, optional or other special rights,
qualifications, limitations or restrictions thereof, including dividend rights
(including whether dividends are cumulative), dividend rates, terms of
redemption (including sinking fund provisions), redemption prices, conversion
rights and liquidation preferences of the shares constituting any class or
series of the preferred stock, in each case without any further action or vote
by the stockholders. The Company has no current plans to issue any shares of
preferred stock of any class or series other than the preferred stock.
Stock Plan
In February 1999, the Company's board of directors and stockholders
approved the Company's 1999 Stock Plan, or the "stock plan", which provides for
the granting or awarding of incentive or nonqualified stock options, stock
appreciation rights, restricted or phantom stock, and other incentive awards to
directors, officers, key employees and consultants of the Company. The number of
shares authorized and reserved for issuance under the stock plan is the greater
of 3.7 million shares or 15% of the aggregate number of shares of common stock
outstanding. The terms of the option awards will be established by the
Compensation Committee of the Company's board of directors. The Company granted
nonqualified stock options to purchase a total of approximately 2.1 million
shares of common stock at a price of $7.00 per share to key employees of the
Company at the consummation of the acquisitions. These options vest at the rate
of 20 percent per year, commencing on the first anniversary of the grant date
and will expire at the earliest of ten years from the date of grant, three
months following termination of employment other than due to death or
disability, or one year following termination of employment due to death or
disability. As described below, the Company has elected to account for employee
stock options under Accounting Principles Board (APB) Opinion No. 25. Because
these options were issued at an exercise price in excess of the fair market
value per share of the Common Stock, no accounting was afforded the options in
the accompanying financial statements.
3. STOCK-BASED COMPENSATION:
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," allows entities to choose between a new fair value
method of accounting for employee stock options or similar equity instruments
and the current method of accounting prescribed by APB
F-20
<PAGE> 151
AMERICAN PLUMBING & MECHANICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Opinion No. 25 under which compensation expense is recorded to the extent that
the fair market value of the related stock is in excess of the options exercise
price at date of grant. Entities electing to remain with the accounting in APB
Opinion No. 25 must make pro forma disclosures of net income and earnings per
share as if the fair value method of accounting prescribed in SFAS No. 123 had
been applied. The Company will measure compensation expense attributable to
stock options based on the method prescribed in APB Opinion No. 25 and will
provide the required pro forma disclosure of net income and earnings per share,
as applicable, in the notes to future consolidated annual financial statements.
4. FOUNDING COMPANY ACQUISITIONS:
On April 1, 1999 AMPAM acquired the following entities contemporaneously
with the related initial financings. The entities acquired were:
Christianson Enterprises, Inc., Christianson Service Company and
Professional Services, Inc. (collectively, Christianson)
R.C.R. Plumbing, Inc.
Teepe's River City Mechanical, Inc.
Keith Riggs Plumbing, Inc.
J. A. Croson Company and Franklin Fire Sprinkler Company
J. A. Croson Company of Florida
Power Plumbing, Inc.
Nelson Mechanical Contractors, Inc.
Sherwood Mechanical, Inc.
Miller Mechanical Contractors, Inc.
The Company's results of operations will include the founding companies
beginning April 1, 1999. Prior to April 1, 1999 the Company's results of
operations will be reflected as those of Christianson, since it has been
identified as the accounting acquiror.
The acquisition consideration delivered upon the closing of the
acquisitions consisted of (i) $99.9 million in cash (which represents a portion
of the $106.3 million cash consideration, subject to adjustment as discussed
below, to be paid to the stockholders of the founding companies), (ii) $5.8
million of seller notes, (iii) 8,898,618 shares of common stock and (iv)
1,048,820 shares of preferred stock. Additionally, approximately 2.1 million
shares of Class B common stock issued to Sterling City Capital, LLC and certain
consultants will be reflected as goodwill as part of the acquisition
transactions.
Included in the $99.9 million cash acquisition consideration paid upon
closing was a portion of the cash payments to be made to the stockholders of the
founding companies based upon the level of working capital of such founding
company as of the closing date. In the event that the adjusted level of working
capital as of the closing date is more or less than the unadjusted level, the
cash portion of the acquisition consideration payable to such stockholder will
be adjusted accordingly. The stockholders of each founding company were also
entitled to distributions of certain nonoperating assets of such founding
company (subject to assumption of related liabilities), retained earnings of
such founding company (if a C corporation) or the positive amount of the
accumulated adjustment account (if an S corporation). In addition to the
acquisition consideration and other payments and distributions described above,
the stockholders of each founding company (including certain former shareholders
of Christianson) may receive additional consideration in the event such founding
company generates actual adjusted net income for the year ending December 31,
1999, in excess of a designated target level of net income for that period. Any
additional stock issued or cash paid will be recorded as additional
consideration and, accordingly, will be reflected as goodwill in the financial
statements of the Company.
F-21
<PAGE> 152
AMERICAN PLUMBING & MECHANICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The acquisitions will result in a substantial amount of goodwill recorded
on the Company's balance sheet. Goodwill from the acquisitions to be amortized
on a straight-line basis over 40 years. The Company's management will
periodically evaluate recorded goodwill balances, net of accumulated
amortization, for impairment based on the undiscounted cash flows associated
with the asset compared to the carrying amount of that asset.
In addition, the Company has entered into employment agreements with
certain key executives of the founding companies and is currently negotiating
and expects to enter into employment agreements with the executive officers of
AMPAM. These employment agreements will generally prohibit such individuals from
disclosing confidential information and trade secrets, and restrict such
individuals from competing with the Company for a period of two years following
termination of employment. The initial term of these employment agreements is
five years with provisions for annual extensions at the end of the initial term.
5. INITIAL FINANCINGS
On April 1, 1999, the Company obtained debt financing in the form of a
credit facility, a subordinated loan, seller notes and a note to Sterling City
Capital, LLC or a sponsor note, which all comprise the initial financings. The
key terms of these debt instruments are as follows:
The Credit Facility
The credit facility is a senior secured revolving credit facility in an
aggregate principal amount of $95 million. Amounts borrowed under the credit
facility were used to fund a part of the cash portion of the acquisition
consideration and will be used to fund future acquisitions and to provide
financing of general corporate purposes. The credit facility bears interest, at
the option of the Company, at the base rate of the arranging bank plus an
applicable margin or at LIBOR plus an applicable margin. The applicable margin
fluctuates based on the Company's ratio of funded debt to EBITDA and will be
between 1.50% and 2.50% above LIBOR or 0.00% and 1.00% above the arranging banks
base rate. Interest is payable no less frequently than quarterly in arrears. The
term of the credit facility is three years from the date of closing of the
acquisitions and all principal amounts borrowed will be payable in full at
maturity.
The credit facility is secured by (1) the accounts receivable, the seller
notes, inventory, equipment and other personal property of the Company and (2)
all of the capital stock owned by AMPAM of its existing or later-formed domestic
subsidiaries. The Company is required to make prepayments or commitment
reductions on the credit facility under certain circumstances.
The credit facility requires the Company to maintain compliance with
certain specified financial covenants including maximum ratios of funded debt to
EBITDA, a minimum fixed charge coverage ratio, a minimum net worth and other
restrictive covenants. Additionally, the terms of the credit facility limit the
ability of the Company to incur additional indebtedness, dispose of assets, make
acquisitions or other investments and to make various other payments.
As of April 1, 1999, $70.3 million was outstanding on the credit facility.
The Company repaid such outstanding amount in full with the proceeds from the
offering discussed in Note 6.
The Subordinated Loan
The subordinated loan was a senior subordinated loan in an aggregate
principal amount of $30.0 million. The subordinated loan was a senior
subordinated obligation of the Company, subordinated to all other of the
Company's senior debt (including the credit facility) and senior to all other
subordinated debt of the Company (including the seller notes). Amounts borrowed
under the subordinated loan were
F-22
<PAGE> 153
AMERICAN PLUMBING & MECHANICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
used to fund a portion of the cash acquisition consideration. The subordinated
loan bore interest at an annual rate equal to three months LIBOR plus 350 basis
points. Interest was payable quarterly in arrears.
Concurrently with entering into the subordinated loan, AMPAM deposited into
escrow, for the benefit of the lenders, warrants to purchase common stock. The
warrants terminated when the subordinated loan was repaid, upon closing of the
offering discussed in Note 6. The warrants were immediately exercisable at a
price of $0.01 per share in the event that the subordinated loan was not repaid
prior to or at maturity. Upon exercise, the warrants would have represented
approximately 5.0% of the outstanding common stock and would have been subject
to customary anti-dilution provisions. The Company recorded the warrants as an
increase to stockholder's equity for their estimated fair value (approximately
$0.3 million) and a corresponding discount to the subordinated loan recorded
value. The discount was amortized as additional interest expense.
As of April 1, 1999, $30.0 million was outstanding on the subordinated
loan. The Company repaid such outstanding amount in full with the proceeds from
the offering discussed below. Upon repayment, the Company wrote off deferred
loan issuance costs of $0.5 million and the discount of approximately $0.3
million.
The Seller Notes
The Company issued $5.8 million principal amount of seller notes due on
April 1, 2002. The seller notes bore interest at the rate of 10% per annum.
Interest on the seller notes was payable quarterly, commencing 90 days from
the date of issuance. The seller notes were unsecured obligations of the
Company, subordinated in the right of payment to any and all existing and future
senior indebtedness of the Company (including the credit facility and the
subordinated loan). The seller notes were repaid upon completion of the offering
discussed in Note 6.
The Sponsor Note
The Company issued a subordinated note payable to Sterling City Capital,
LLC on April 1, 1999 in settlement of the amounts due to stockholders of $3.5
million ($2.5 million at December 31, 1998). The sponsor note was due on April
1, 2002 and bore interest payable quarterly at the annual rate of 10%. The
sponsor note was redeemed by the Company upon completion of the offering
discussed in Note 6.
6. THE OFFERING AND THE EXCHANGE OFFERING
On May 19, 1999, the Company completed an offering of $125.0 million of
senior subordinated notes due in 2008. The notes are subordinated to all
existing and future senior indebtedness of the Company and are guaranteed by
each of the Company's current and future subsidiaries. The Company has the
option to redeem the notes at any time on or after 2004, at specified redemption
prices. Before 2002, the Company also has the option, under certain
circumstances, to redeem up to 35% of the aggregate principal amount of the
notes at specified redemption prices. Additionally, the Company is required
under certain circumstances to repurchase the notes at specified redemption
prices in the event of a change in control.
Additionally, the terms of the notes limit the ability of the Company to,
among other things, incur additional indebtedness, dispose of assets, make
acquisitions, make other investments, pay dividends and to make various other
payments. In conjunction with this offering, the Company entered into a
registration rights agreement whereby the Company agreed to file a registration
statement within 60 days after the close of the offering that would enable
noteholders to exchange their privately placed notes for publicly registered
notes with substantially identical terms. Additionally, the Company agreed,
among other things, to use their reasonable best efforts to cause the
registration statement to become effective within 150 days after the close of
the offering and to be completed within 180 days after the close of the
offering. If the
F-23
<PAGE> 154
AMERICAN PLUMBING & MECHANICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company does not comply with their obligations (including their reasonable best
efforts) under the registration rights agreement, the interest rate on the notes
will increase.
The net proceeds from the offering of approximately $117.7 million, were
used (1) to repay the outstanding indebtedness ($70.3 million as of April 1,
1999) under the $95.0 million credit facility discussed above (2) to repay the
$30.0 million subordinated loan (3) to repay the seller notes and the sponsor
note ($9.3 million as of April 1, 1999) and (4) for general corporate purposes.
The Company is currently in the process of registering the privately placed
notes with the Securities and Exchange Commission and, accordingly, intends to
meet their obligations, as described above, under the registration rights
agreement. No assurance can be made that the exchange offering will be
completed.
F-24
<PAGE> 155
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Christianson Enterprises, Inc.,
and Combined Companies:
We have audited the accompanying combined balance sheets of Christianson
Enterprises, Inc., and Combined Companies (the Company) as of December 31, 1997
and 1998 and March 31, 1999, and the related combined statements of operations,
cash flows and stockholders' equity for the year ended August 31, 1996, the four
months ended December 31, 1996, the years ended December 31, 1997 and 1998 and
the three months ended March 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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 combined financial position of the Company as of
December 31, 1997 and 1998 and March 31, 1999, and the results of their
operations and their cash flows for each of the year ended August 31, 1996, the
four months ended December 31, 1996, the years ended December 31, 1997 and 1998,
and the three months ended March 31, 1999 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Austin, Texas
May 14, 1999
F-25
<PAGE> 156
CHRISTIANSON ENTERPRISES, INC.
AND COMBINED COMPANIES
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
---------------- MARCH 31
1997 1998 1999
------ ------- --------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 165 $ 1,980 $ 5,439
Accounts receivable --
Contract, net.......................................... 4,835 6,301 6,652
Other.................................................. 166 93 221
Related parties........................................ 32 3 3
Inventories............................................... 376 450 1,182
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 143 273 350
Prepaid expenses and other current assets................. 165 233 40
------ ------- -------
Total current assets.............................. 5,882 9,333 13,887
PROPERTY AND EQUIPMENT, net................................. 1,590 1,699 1,989
OTHER ASSETS................................................ 162 178 --
------ ------- -------
Total assets...................................... $7,634 $11,210 $15,876
====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of capital lease obligations........... $ 396 $ 480 $ 505
Accounts payable and accrued expenses..................... 944 3,213 4,165
Accounts payable, related parties......................... 17 37 --
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 174 611 622
Income taxes payable...................................... 66 169 339
Deferred income taxes..................................... 6 31 --
------ ------- -------
Total current liabilities......................... 1,603 4,541 5,631
LONG-TERM LIABILITIES:
Capital lease obligations, net of current maturities...... 329 349 532
Deferred income taxes..................................... 17 19 10
------ ------- -------
Total liabilities................................. 1,949 4,909 6,173
------ ------- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value and 1,000,000 shares
authorized for each of Christianson Enterprises, Inc.
(CEI), GGR Leasing Corporation (GGR) and Christianson
Service Company (CSC), 1,200, 78,000 and 3,000 issued
and outstanding for CEI, GGR and CSC, respectively..... 82 82 82
Additional paid-in capital................................ 11 11 11
Retained earnings......................................... 5,592 6,208 9,610
------ ------- -------
Total stockholders' equity........................ 5,685 6,301 9,703
------ ------- -------
Total liabilities and stockholders' equity........ $7,634 $11,210 $15,876
====== ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-26
<PAGE> 157
CHRISTIANSON ENTERPRISES, INC.
AND COMBINED COMPANIES
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOUR MONTHS YEAR ENDED THREE MONTHS ENDED
YEAR ENDED ENDED DECEMBER 31 DECEMBER 31 MARCH 31
AUGUST 31, --------------------- ----------------- ---------------------
1996 1995 1996 1997 1998 1998 1999
---------- ----------- ------- ------- ------- ----------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES.................. $50,330 $14,619 $15,576 $50,909 $63,374 $12,744 $16,824
COST OF REVENUES
(Including
depreciation)........... 38,203 11,044 11,868 37,504 45,704 9,024 11,390
------- ------- ------- ------- ------- ------- -------
Gross profit......... 12,127 3,575 3,708 13,405 17,670 3,720 5,434
------- ------- ------- ------- ------- ------- -------
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES................ 11,051 3,430 5,142 11,497 17,078 3,253 1,863
------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations......... 1,076 145 (1,434) 1,908 592 467 3,571
------- ------- ------- ------- ------- ------- -------
OTHER INCOME (EXPENSE):
Interest and dividend
income............... 109 24 39 126 102 4 11
Interest expense........ (92) (29) (33) (102) (116) (37) (27)
Other................... 250 230 26 35 70 15 9
------- ------- ------- ------- ------- ------- -------
Other income
(expense), net..... 267 225 32 59 56 (18) (7)
------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) BEFORE
PROVISION FOR INCOME
TAXES................... 1,343 370 (1,402) 1,967 648 449 3,564
PROVISION (BENEFIT) FOR
INCOME TAXES............ 345 74 (56) 77 32 20 162
------- ------- ------- ------- ------- ------- -------
NET INCOME (LOSS)......... $ 998 $ 296 $(1,346) $ 1,890 $ 616 $ 429 $ 3,402
======= ======= ======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-27
<PAGE> 158
CHRISTIANSON ENTERPRISES, INC.
AND COMBINED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOUR MONTHS YEAR ENDED THREE MONTHS ENDED
YEAR ENDED ENDED DECEMBER 31 DECEMBER 31 MARCH 31
AUGUST 31, --------------------- ----------------- --------------------
1996 1995 1996 1997 1998 1998 1999
---------- ----------- ------- ------- ------- ----------- ------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)............... $ 998 $ 296 $(1,346) $ 1,890 $ 616 $ 429 $3,402
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities --
Depreciation and
amortization................ 461 152 184 595 673 159 136
Loss on disposal of property
and equipment............... 1 -- 14 1 -- -- 1
Deferred income taxes......... 145 (53) (135) 49 (35) (9) (8)
Changes in operating assets
and liabilities --
(Increase) decrease in --
Accounts receivable...... (870) 421 1,425 (648) (1,363) (115) (479)
Inventories.............. (160) (282) (269) 411 (75) (473) (732)
Prepaid expenses and
other current assets... (234) (234) (80) (16) (153) -- 263
Increase (decrease) in --
Accounts payable and
accrued expenses....... 2,008 2,958 2,312 (5,631) 2,290 3,943 1,102
Other current
liabilities............ 6 123 207 14 540 -- 11
------ ------ ------- ------- ------- ------ ------
Net cash provided by
(used in) operating
activities............. 2,355 3,381 2,312 (3,335) 2,493 3,934 3,696
------ ------ ------- ------- ------- ------ ------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions of property and
equipment..................... (269) (76) (61) (166) (167) (15) (92)
------ ------ ------- ------- ------- ------ ------
Net cash used in
investing
activities........... (269) (76) (61) (166) (167) (15) (92)
------ ------ ------- ------- ------- ------ ------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings of long-term debt.... 103 103 -- -- -- -- --
Payments of long-term debt...... (454) (149) (147) (425) (511) (134) (145)
------ ------ ------- ------- ------- ------ ------
Net cash used in
financing
activities........... (351) (46) (147) (425) (511) (134) (145)
------ ------ ------- ------- ------- ------ ------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS............ 1,735 3,259 2,104 (3,926) 1,815 3,785 3,459
CASH AND CASH EQUIVALENTS,
beginning of period............. 252 252 1,987 4,091 165 165 1,980
------ ------ ------- ------- ------- ------ ------
CASH AND CASH EQUIVALENTS, end of
period.......................... $1,987 $3,511 $ 4,091 $ 165 $ 1,980 $3,950 $5,439
====== ====== ======= ======= ======= ====== ======
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for --
Interest...................... $ 92 $ 29 $ 33 $ 102 $ 116 $ 29 $ 27
Income taxes.................. 200 127 80 28 29 -- --
Capital lease additions......... 630 141 -- 460 615 197 394
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-28
<PAGE> 159
CHRISTIANSON ENTERPRISES, INC.
AND COMBINED COMPANIES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, August 31, 1995.................... 79,200 $79 $11 $ 4,050 $ 4,140
Net income................................ -- -- -- 998 998
------ --- --- ------- -------
BALANCE, August 31, 1996.................... 79,200 79 11 5,048 5,138
Net loss.................................. -- -- -- (1,346) (1,346)
------ --- --- ------- -------
BALANCE, December 31, 1996.................. 79,200 79 11 3,702 3,792
Formation of Christianson Service
Company................................ 3,000 3 -- -- 3
Net income................................ -- -- -- 1,890 1,890
------ --- --- ------- -------
BALANCE, December 31, 1997.................. 82,200 82 11 5,592 5,685
Net income................................ -- -- -- 616 616
------ --- --- ------- -------
BALANCE, December 31, 1998.................. 82,200 82 11 6,208 6,301
Net income................................ -- -- -- 3,402 3,402
------ --- --- ------- -------
BALANCE, March 31, 1999..................... 82,200 $82 $11 $ 9,610 $ 9,703
====== === === ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-29
<PAGE> 160
CHRISTIANSON ENTERPRISES, INC.
AND COMBINED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Christianson Enterprises, Inc., a Texas Corporation, and its wholly owned
subsidiaries, together with Christianson Service Company and GGR Leasing
Corporation, both Texas Corporations (the Combined Companies), which are owned
by the stockholders of Christianson Enterprises, Inc., are collectively referred
to herein as the "Company." The Company provides plumbing and air conditioning
installation and repair services primarily for single-family residential markets
in Texas. The Company performs the majority of its services under fixed-price
contracts which generally span three months.
The Company and its stockholders entered into a definitive agreement with
American Plumbing & Mechanical, Inc. (AMPAM), pursuant to which all outstanding
shares of the Company's common stock were exchanged for cash, notes and shares
of AMPAM common and preferred stock concurrently with the consummation of the
related financing.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation and Combination
The accompanying financial statements present Christianson Enterprises,
Inc., consolidated with its wholly owned subsidiaries, together with
Christianson Service Company and GGR Leasing Corporation on a combined basis.
All significant intercompany transactions have been eliminated in consolidation
and combination.
Effective December 31, 1997, Christianson Enterprises, Inc., and its
subsidiaries changed their year ends from August 31 to December 31. Christianson
Service Company and GGR Leasing Corporation have each reported on a December 31
year-end since inception. For the years ended August 31, 1995 and 1996, the
results of operations for Christianson Service Company and GGR Leasing
Corporation have been conformed to an August 31 year-end. Generally accepted
accounting principles have been consistently applied to the financial statements
for all periods presented.
Interim Financial Information
The interim financial statements for the four months ended December 31,
1995, and the three months ended March 31, 1998, are unaudited and have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the Company's management, the unaudited
interim financial statements contain all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation. The results
of operations for the interim periods are not necessarily indicative of the
results for the entire fiscal year.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Inventories
Inventories consist of parts and supplies held for use in the ordinary
course of business and are stated at the lower of cost or market using the
first-in, first-out (FIFO) method.
F-30
<PAGE> 161
CHRISTIANSON ENTERPRISES, INC.
AND COMBINED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statement of operations.
Revenue Recognition
The Company recognizes revenue when services are performed except when work
is being performed under a construction contract. Revenues from construction
contracts are recognized on the percentage-of-completion method measured by the
percentage of cost incurred to date to total estimated costs for each contract.
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance, such as indirect labor and depreciation
costs. Provisions for the total estimated losses on uncompleted contracts are
made in the period in which such losses are determined. Changes in job
performance, job conditions, estimated profitability and final contract
settlements may result in revisions to costs and income and their effects are
recognized in the period in which the revisions are determined. An amount equal
to contract costs attributable to claims is included in revenues when
realization is probable and the amount can be reliably estimated.
The current asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The current liability, "Billings in excess of costs and estimated
earnings on uncompleted contracts," represents billings in excess of revenues
recognized.
Warranty Costs
For certain contracts, the Company warrants labor for one year after
completion of a plumbing or air conditioning installation. The Company generally
warrants labor for 90 days after plumbing and air conditioner repairs. A reserve
for warranty costs is recorded based upon the historical level of warranty
claims and management's estimate of future costs.
Provision for Doubtful Accounts
The Company provides an allowance for doubtful accounts based upon an
estimate of uncollectable balances.
Officers' Compensation
Total officers' compensation for the years ended August 31, 1996, and
December 31, 1997 and 1998, the four months ended December 31, 1995 and 1996,
and the three months ended March 31, 1999, was $6,905,000, $6,643,000,
$10,701,000, $2,257,000 (unaudited), $3,763,000, and $400,000, respectively.
Such amounts are included within selling, general and administrative expenses in
the accompanying statements of operations.
Income Taxes
Effective January 1, 1997, Christianson Enterprises, Inc., including its
wholly owned subsidiaries, elected S Corporation status. Christianson Service
Company and GGR Leasing Corporation have elected
F-31
<PAGE> 162
CHRISTIANSON ENTERPRISES, INC.
AND COMBINED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
S Corporation status. Under S Corporation status, as defined by the Internal
Revenue Code, the Company itself is not subject to taxation for federal
purposes; rather, the stockholders report their share of the Company's taxable
earnings or losses in their personal tax returns. Certain states do not
recognize S Corporation status for purposes of state taxation. Consequently, the
provision for current and deferred income taxes for the years ended December 31,
1997, 1998 and the three months ended March 31, 1999, consists of only state
income taxes. The Company terminated its S Corporation status concurrently with
the effective date of the merger discussed in Note 13.
The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." Under this method, deferred assets and
liabilities are recorded for future tax consequences of temporary differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets or liabilities are recovered or settled.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities,
disclosures of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Realization of Long-Lived Assets
The Company has adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
Accordingly, in the event that facts and circumstances indicate that property
and equipment or other assets may be impaired, an evaluation of recoverability
would be performed. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset are compared to the asset's
carrying amount to determine if an impairment of such property is necessary. The
effect of any impairment would be to expense the difference between the fair
value of such property and its carrying value. Adoption of this standard did not
have a material effect on the financial position or results of operations of the
Company.
Reclassifications
Certain reclassifications have been made to the prior-year financial
statements to conform to the current-year presentation.
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Contract receivables consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
---------------- MARCH 31,
1997 1998 1999
------ ------ ---------
<S> <C> <C> <C>
Billed.................................................. $4,957 $6,402 $6,739
Allowance for uncollectible accounts.................... (122) (101) (87)
------ ------ ------
Contract receivables, net............................... $4,835 $6,301 $6,652
====== ====== ======
</TABLE>
F-32
<PAGE> 163
CHRISTIANSON ENTERPRISES, INC.
AND COMBINED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Activity in the Company's allowance for doubtful accounts receivable
consists of the following (in thousands):
<TABLE>
<CAPTION>
FOUR MONTHS ENDED YEAR ENDED THREE MONTHS
YEAR ENDED DECEMBER 31 DECEMBER 31 ENDED
AUGUST 31, ------------------ ----------- MARCH 31,
1996 1995 1996 1997 1998 1999
---------- ----------- ---- ---- ---- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period.... $ 74 $74 $117 $109 $122 $101
Additions to costs and expenses... 74 25 2 63 59 10
Deductions for uncollectible
receivables written off and
recoveries...................... (31) (6) (10) (50) (80) (24)
---- --- ---- ---- ---- ----
Balance at end of period.......... $117 $93 $109 $122 $101 $ 87
==== === ==== ==== ==== ====
</TABLE>
Plumbing and air conditioning installation contracts in progress are as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
----------------- MARCH 31,
1997 1998 1999
------- ------- ---------
<S> <C> <C> <C>
Costs incurred on contracts in progress................. $ 1,200 $ 1,848 $ 3,569
Estimated earnings, net of losses....................... 1,100 4,259 3,200
------- ------- -------
2,300 6,107 6,769
Less -- Billings to date................................ (2,331) (6,445) (7,041)
------- ------- -------
$ (31) $ (338) $ (272)
======= ======= =======
Costs and estimated earnings in excess of billings on
uncompleted contracts................................. $ 143 $ 273 $ 350
Billings in excess of costs and estimated earnings on
uncompleted contracts................................. (174) (611) (622)
------- ------- -------
$ (31) $ (338) $ (272)
======= ======= =======
</TABLE>
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------- MARCH 31,
1997 1998 1999
---- ------ ---------
<S> <C> <C> <C>
Accounts payable, trade.................................. $239 $2,101 $$2,845
Accrued warranty......................................... 315 410 410
Accrued payroll.......................................... 25 132 475
Accrued bonuses.......................................... 74 173 --
Accrued vacation......................................... 258 205 205
Self-insurance reserve................................... -- 115 153
Other accrued expenses................................... 33 77 77
---- ------ ------
$944 $3,213 $4,165
==== ====== ======
</TABLE>
F-33
<PAGE> 164
CHRISTIANSON ENTERPRISES, INC.
AND COMBINED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT, NET:
Property and equipment, net consists of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31
USEFUL LIVES ----------------- MARCH 31,
IN YEARS 1997 1998 1999
------------ ------- ------- ---------
<S> <C> <C> <C> <C>
Vehicles and equipment.......................... 5 $ 4,531 $ 5,180 $ 5,507
Office equipment................................ 5-7 403 378 391
------- ------- -------
4,934 5,558 5,898
Less -- Accumulated depreciation and
amortization.................................. (3,344) (3,859) (3,909)
------- ------- -------
Property and equipment, net................... $ 1,590 $ 1,699 $ 1,989
======= ======= =======
</TABLE>
Capital leases of approximately $1,666,000, $1,529,000 and $1,118,000 as of
March 31, 1999, December 31, 1998 and 1997 are included in vehicles and
equipment.
5. LONG-TERM DEBT:
Long-term debt consists of capital lease obligations. The maturities of
capital lease obligations are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ ---------
<S> <C> <C>
1999........................................................ $ 522 $ 421
2000........................................................ 328 402
2001........................................................ 95 309
----- ------
Total lease payments.............................. 945 1,132
Less -- Amounts representing interest....................... (116) (95)
----- ------
Present value of minimum lease payments..................... 829 1,037
Less -- Current maturities.................................. (480) (505)
----- ------
Capital lease obligations, net of current maturities........ $ 349 $ 532
===== ======
</TABLE>
6. LEASES:
The Company leases facilities under operating leases from related parties.
The Company also leases certain vehicles and equipment under operating leases
from third parties. Lease expiration dates vary, and approximate lease payments
were as follows (in thousands):
<TABLE>
<CAPTION>
RELATED THIRD
PARTIES PARTIES
------- -------
<S> <C> <C>
Four months ended December 31 --
1995 (unaudited).......................................... $ 52 $15
1996...................................................... 52 11
Year ended August 31, 1996.................................. 156 43
Year ended December 31 --
1997...................................................... 466 33
1998...................................................... 492 18
Three months ended March 31, 1999........................... 135 35
</TABLE>
F-34
<PAGE> 165
CHRISTIANSON ENTERPRISES, INC.
AND COMBINED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments under these noncancelable operating leases
are as follows (in thousands):
<TABLE>
<CAPTION>
RELATED THIRD
PARTIES PARTIES
------- -------
<S> <C> <C>
Year ending December 31 --
1999...................................................... $ 495 $19
2000...................................................... 554 2
2001...................................................... 559 --
2002...................................................... 69 --
2003...................................................... 24 --
------ ---
$1,701 $21
====== ===
</TABLE>
7. INCOME TAXES:
Federal and state income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
FOUR MONTHS YEAR ENDED THREE MONTHS
YEAR ENDED ENDED DECEMBER 31 DECEMBER 31 ENDED
AUGUST 31, ------------------- ------------ MARCH 31,
1996 1995 1996 1997 1998 1999
---------- ----------- ---- ---- ---- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Federal --
Current.............. $155 $105 $ 71 $ -- $ -- $ --
Deferred............. 126 (49) (64) (16) -- --
State --
Current.............. 45 22 8 28 67 170
Deferred............. 19 (4) (71) 65 (35) (8)
---- ---- ---- ---- ---- ----
$345 $ 74 $(56) $ 77 $ 32 $162
==== ==== ==== ==== ==== ====
</TABLE>
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate rate of 35 percent to income
(loss) before provision for income taxes as follows (in thousands):
<TABLE>
<CAPTION>
FOUR MONTHS YEAR ENDED
YEAR ENDED ENDED DECEMBER 31 DECEMBER 31 THREE MONTHS ENDED
AUGUST 31, ------------------- ------------- MARCH 31,
1996 1995 1996 1997 1998 1999
---------- ----------- ----- ----- ----- ------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Provision (benefit) at the
statutory rate.................. $ 470 $130 $(491) $ 688 $ 227 $ 1,247
Increase (decrease) resulting
from --
Earnings of combined
corporations taxed as S
Corporations................. (199) (78) 501 (688) (227) (1,247)
Permanent differences, primarily
meals and entertainment...... 31 10 (3) 5 -- --
State income tax, net of benefit
for federal deduction........ 43 12 (63) 88 32 162
Reversal of C Corporation
federal deferred taxes....... -- -- -- (16) -- --
----- ---- ----- ----- ----- -------
$ 345 $ 74 $ (56) $ 77 $ 32 $ 162
===== ==== ===== ===== ===== =======
</TABLE>
F-35
<PAGE> 166
CHRISTIANSON ENTERPRISES, INC.
AND COMBINED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences, representing deferred
tax assets and liabilities, result principally from the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31
------------ MARCH 31,
1997 1998 1999
---- ---- ---------
<S> <C> <C> <C>
Deferred income tax assets --
Reserves and accrued expenses............................ $ 25 $ 62 $ 34
Other.................................................... 1 -- (4)
---- ---- ----
Total deferred income tax assets................. 26 62 30
---- ---- ----
Deferred income tax liabilities --
Property and equipment................................... (17) (15) (10)
Revenue recognition...................................... (32) (23) --
Other.................................................... -- (12) --
---- ---- ----
Total deferred income tax liabilities............ (49) (50) (10)
---- ---- ----
Net deferred income tax assets (liabilities)..... $(23) $ 12 $ 20
==== ==== ====
</TABLE>
The net deferred tax assets and liabilities are comprised of the following
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
------------ MARCH 31,
1997 1998 1999
---- ---- ---------
<S> <C> <C> <C>
Deferred tax assets --
Current................................................... $ 26 $ 56 $ 34
Long-term................................................. -- 6 --
---- ---- ----
Total deferred income tax assets.................. 26 62 34
---- ---- ----
Deferred tax liabilities --
Current................................................... (32) (31) (4)
Long-term................................................. (17) (19) (10)
---- ---- ----
Total deferred income tax liabilities............. (49) (50) (14)
---- ---- ----
Net deferred income tax assets (liabilities)........... $(23) $ 12 $ 20
==== ==== ====
</TABLE>
Effective January 1, 1997, Christianson Enterprises, Inc., elected S
Corporation status. As such, Christianson Enterprises, Inc., was no longer
directly responsible for any federal deferred tax liability. The removal of the
federal deferred tax liability of $16,000 at December 31, 1996, is recognized in
the 1997 statement of operations for the year ended December 31, 1997.
8. STOCKHOLDERS' EQUITY:
Effective May 13, 1998, the outstanding shares of common stock of
Christianson Enterprises, Inc., were split 10 for 1. This split has been
reflected retroactively for all periods presented in the accompanying financial
statements.
Shares of common stock of Christianson Enterprises, Inc., are not
transferable unless they are first offered for sale to Christianson Enterprises,
Inc. and secondly to the other shareholders of Christianson Enterprises, Inc.
F-36
<PAGE> 167
CHRISTIANSON ENTERPRISES, INC.
AND COMBINED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. RELATED-PARTY TRANSACTIONS:
Leases
As discussed in Note 6, the Company leases its facilities and its furniture
and fixtures in Austin and San Antonio, Texas, from related parties. It is
management's opinion that such leases are at market value.
Other
Through December 31, 1995, the Company subcontracted its construction labor
to a related party. The Company was charged for such labor based on the related
party's actual costs. For the year ended August 31, 1996, and the four months
ended December 31, 1995, subcontractor labor costs reflected within cost of
revenues in the accompanying statements of operations were $2,663,000 and
$2,663,000 (unaudited), respectively. This relationship was terminated effective
December 31, 1995.
Also through December 31, 1995, the related party provided workers'
compensation insurance to its employees through a self-insurance program. The
related party charged the Company an agreed-upon rate for such insurance based
on an estimate of the cost of workers' compensation insurance as a subscriber
under the Texas risk pool. Claims were administered and paid by the related
party. For the year ended August 31, 1996, and the four months ended December
31, 1995, workers' compensation insurance costs reflected within cost of
services in the accompanying statements of operations were $268,000 and $268,000
(unaudited), respectively. This relationship was terminated effective December
31, 1995.
In connection with various administrative and management services provided
to the related party, the Company charged a fee to the related party for such
services. For the years ended August 31, 1996, and the four months ended
December 31, 1995, the Company charged the related party $225,000 and $225,000
(unaudited), respectively. These amounts are included within other income in the
accompanying statements of operations. As discussed above, the relationship was
terminated December 31, 1995; therefore, no fees were charged subsequent to this
date.
10. FINANCIAL INSTRUMENTS:
The Company's financial instruments consist of cash and cash equivalents,
capital lease obligations and debt. The Company believes that the carrying value
of these instruments on the accompanying balance sheets approximates their fair
values.
11. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is involved in disputes or legal actions arising in the
ordinary course of business. Management does not believe the outcome of such
legal actions will have a material adverse effect on the Company's financial
position or results of operations.
Insurance
The Company carries a broad range of insurance coverage, including business
auto liability, general liability, workers' compensation and an umbrella policy.
The Company has not incurred significant claims or losses on any of these
insurance policies.
Beginning on May 1, 1998, the Company self-insured for medical claims up to
$50,000 per year per individual covered, with a $642,000 aggregate maximum
exposure per year. Claims in excess of these amounts are covered by a stop-loss
policy. At December 31, 1998, and March 31, 1999, the Company has
F-37
<PAGE> 168
CHRISTIANSON ENTERPRISES, INC.
AND COMBINED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
recorded reserves within accounts payable and accrued liabilities for its
portion of self-insurance claims based on estimated claims.
12. MAJOR CUSTOMERS AND RISK CONCENTRATION:
The Company had sales of approximately 24.1 percent, 22.8 percent, 23.1
percent, 23.5 percent (unaudited), 23.4 percent and 18.4 percent of total sales
to one major customer during the years ended August 31, 1996, December 31, 1997
and 1998, the four months ended December 31, 1995 and 1996 and the three months
ended March 31, 1999, respectively.
In general, the Company performs its services under contract terms that
entitle it to progress payments and is, by law, granted a lien interest on the
work until paid. The Company is exposed to potential credit risk related to
changes in business and economic factors within the region. However, management
believes that its contract acceptance, billing and collection policies are
adequate to minimize the potential credit risk.
The Company's customers are primarily in the construction industry.
Accordingly, the Company is exposed to risks of fluctuations in construction in
the areas in which it operates.
13. SUBSEQUENT EVENT:
On April 1, 1999, AMPAM acquired through merger all the stock of the
Company in exchange for cash, notes and common and preferred stock of AMPAM,
after which the Company is a wholly owned subsidiary of AMPAM. In connection
with the merger, the Company made cash distributions which represent the
Company's estimated S Corporation accumulated adjustment account.
As discussed in Note 2, in connection with the merger, the Company
converted from an S Corporation to a C Corporation. Upon conversion to C
Corporation status, the Company recorded deferred taxes for which it will be
responsible. If the S Corporation status had been terminated as of December 31,
1998 or March 31, 1999, the Company would have recorded an additional deferred
tax asset of approximately $471,000 and $296,000, respectively, due primarily to
reserves and accrued expenses and an additional deferred tax liability of
approximately $379,000 and $121,000, respectively, due primarily to differences
between book and tax depreciation and revenue recognition.
Concurrently with the merger, the Company entered into agreements with the
stockholders to lease land and buildings used in the Company's operations for a
negotiated amount and term.
F-38
<PAGE> 169
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To RCR Plumbing, Inc.:
We have audited the accompanying balance sheets of RCR Plumbing, Inc. (dba
RCR Companies, Inc.) as of December 31, 1997 and 1998, and March 31, 1999, and
the related statements of operations, cash flows and stockholders' equity for
each of the three years in the period ended December 31, 1998, and for the three
months ended March 31, 1999. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with 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 RCR Plumbing, Inc., as of
December 31, 1997 and 1998, and March 31, 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, and for the three months ended March 31, 1999, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
June 3, 1999
F-39
<PAGE> 170
RCR PLUMBING, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
----------------- MARCH 31,
1997 1998 1999
------- ------- -----------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ -- $ 1,378 $ 1,420
Accounts receivable --
Contract, net.......................................... 10,350 10,360 12,813
Other.................................................. 59 132 9
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 1,557 1,536 2,090
Inventories............................................... 1,706 1,308 1,374
Prepaid expenses and other current assets................. 95 128 22
------- ------- -------
Total current assets.............................. 13,767 14,842 17,728
PROPERTY AND EQUIPMENT, net................................. 4,848 5,484 4,175
------- ------- -------
Total assets...................................... $18,615 $20,326 $21,903
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft............................................ $ 772 $ 130 $ --
Lines of credit........................................... 1,910 -- --
Current maturities of long-term debt...................... 144 129 171
Current maturities of capital lease obligations........... 465 495 475
Accounts payable and accrued expenses..................... 3,739 4,804 7,379
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 2,000 2,612 2,537
------- ------- -------
Total current liabilities......................... 9,030 8,170 10,562
LONG-TERM LIABILITIES:
Long-term debt, net of current maturities................. 1,543 1,415 --
Capital lease obligations................................. 229 521 576
------- ------- -------
Total liabilities................................. 10,802 10,106 11,138
------- ------- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value, 75,000 shares authorized,
12,163 shares issued and outstanding................... 194 194 194
Additional paid-in capital................................ 37 37 37
Retained earnings......................................... 7,986 10,393 10,938
Treasury stock, 14,601, shares, at cost................... (404) (404) (404)
------- ------- -------
Total stockholders' equity........................ 7,813 10,220 10,765
------- ------- -------
Total liabilities and stockholders' equity........ $18,615 $20,326 $21,903
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE> 171
RCR PLUMBING, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31,
--------------------------- -------------------------
1996 1997 1998 1998 1999
------- ------- ------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES................................. $40,430 $49,738 $63,293 $13,200 $19,815
COST OF REVENUES (including depreciation
and amortization)...................... 35,102 42,377 51,604 10,744 15,735
------- ------- ------- ------- -------
Gross profit........................ 5,328 7,361 11,689 2,456 4,080
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................... 3,979 5,712 8,370 1,724 2,452
------- ------- ------- ------- -------
Income from operations.............. 1,349 1,649 3,319 732 1,628
------- ------- ------- ------- -------
OTHER INCOME (EXPENSE):
Interest income........................ 34 25 1 1 6
Interest expense....................... (118) (251) (271) (90) (36)
Other.................................. 96 98 (11) 1 8
Gain on Sale of Buildings.............. -- -- -- -- 605
------- ------- ------- ------- -------
Other income (expense), net......... 12 (128) (281) (88) 583
------- ------- ------- ------- -------
INCOME BEFORE PROVISION FOR INCOME
TAXES.................................. 1,361 1,521 3,038 644 2,211
PROVISION FOR INCOME TAXES............... 19 5 24 8 26
------- ------- ------- ------- -------
NET INCOME............................... $ 1,342 $ 1,516 $ 3,014 $ 636 $ 2,185
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE> 172
RCR PLUMBING, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
--------------------------- ---------------------
1996 1997 1998 1998 1999
------- ------- ------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 1,342 $ 1,516 $ 3,014 $ 636 $ 2,185
Adjustments to reconcile net income to net cash provided
by (used in) operating activities --
Depreciation and amortization........................... 345 561 879 185 231
Loss (gain) on sale of property and equipment........... (14) (12) 19 -- (605)
Changes in operating assets and liabilities:
(Increase) decrease in --
Accounts receivable................................. (1,221) (4,838) (83) 379 (2,330)
Costs and estimated earnings in excess of billings
on uncompleted contracts.......................... (263) (228) 21 (237) (554)
Inventories......................................... 419 (85) 398 (238) (66)
Prepaid expenses and other current assets........... 34 117 (33) 96 106
Increase (decrease) in --
Accounts payable and accrued expenses............... 396 423 1,065 1,330 2,575
Billings in excess of costs and estimated earnings
on uncompleted contracts.......................... 314 1,032 612 (312) (75)
------- ------- ------- ------- -------
Net cash provided by (used in) operating
activities...................................... 1,352 (1,514) 5,892 1,839 1,467
------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment.............. 67 512 103 -- 42
Additions of property and equipment....................... (2,053) (1,112) (607) (269) (299)
------- ------- ------- ------- -------
Net cash used in investing activities............. (1,986) (600) (504) (269) (257)
------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft............................................ -- 772 (642) (772) (130)
Borrowings on line of credit.............................. -- 1,910 -- -- --
Payments on line of credit................................ -- -- (1,910) (350) --
Borrowings on long-term debt and capital lease
obligations............................................. 1,153 184 -- -- --
Payments on long-term debt and capital lease
obligations............................................. (322) (966) (851) (170) (210)
Distributions to stockholders............................. (25) (948) (607) (197) (828)
------- ------- ------- ------- -------
Net cash provided by (used in) financing
activities...................................... 806 952 (4,010) (1,489) (1,168)
------- ------- ------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 172 (1,162) 1,378 81 1,252
CASH AND CASH EQUIVALENTS, beginning of period.............. 990 1,162 -- -- 1,378
------- ------- ------- ------- -------
CASH AND CASH EQUIVALENTS, end of period.................... $ 1,162 $ -- $ 1,378 $ 81 $ 1,420
======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for --
Interest................................................ $ 177 $ 362 $ 397 $ 120 $ 75
Capital lease additions................................. 415 902 1,030 284 204
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
In connection with the completion of the AMPAM Agreement, the Company transferred certain assets of the
Company to the stockholders with a fair market value of approximately $2,144. In return the stockholders assumed
liabilities related to those assets of approximately $1,332. The difference between the fair market value of the
assets transferred and the liabilities assumed was approximately $812 and was accounted for as a distribution to
stockholders equity.
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-42
<PAGE> 173
RCR PLUMBING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN RETAINED TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
------ ------ ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995......... 12,163 $194 $-- $ 6,101 $(404) $ 5,891
Distributions to stockholders.... -- -- -- (25) -- (25)
Net income....................... -- -- -- 1,342 -- 1,342
Stockholder contribution of
assets........................ -- -- 37 -- -- 37
------ ---- --- ------- ----- -------
BALANCE, December 31, 1996......... 12,163 194 37 7,418 (404) 7,245
Distributions to stockholders.... -- -- -- (948) -- (948)
Net income....................... -- -- -- 1,516 -- 1,516
------ ---- --- ------- ----- -------
BALANCE, December 31, 1997......... 12,163 194 37 7,986 (404) 7,813
Distributions to stockholders.... -- -- -- (607) -- (607)
Net income....................... -- -- -- 3,014 -- 3,014
------ ---- --- ------- ----- -------
BALANCE, December 31, 1998......... 12,163 194 37 10,393 (404) 10,220
Distributions to stockholders.... -- -- -- (1,640) -- (1,640)
Net income....................... -- -- -- 2,185 -- 2,185
------ ---- --- ------- ----- -------
BALANCE, March 31, 1999............ 12,163 $194 $37 $10,938 $(404) $10,765
====== ==== === ======= ===== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-43
<PAGE> 174
RCR PLUMBING, INC.
NOTES TO FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION:
RCR Plumbing, Inc., a California corporation (the Company), focuses on
providing installation of plumbing and heating, ventilation, and air
conditioning (HVAC) primarily for developers and builders of single-family and
multi-family developments, apartment buildings and condominiums. The Company
performs the majority of its contract work under fixed price arrangements with
contract terms generally ranging from six to 12 months. The Company performs the
majority of its work in California and Nevada.
The Company and its stockholders entered into a definitive agreement with
American Plumbing & Mechanical, Inc. (AMPAM), pursuant to which all outstanding
shares of the Company's common stock were exchanged for cash, notes and shares
of AMPAM common stock concurrently with the consummation of the related
financing.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information
The interim financial statements for the three months ended March 31, 1998,
are unaudited and have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of the Company's
management, the unaudited interim financial statements contain all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Accounts Receivable and Provision for Doubtful Accounts
The Company provides an allowance for doubtful accounts based upon an
estimate of uncollectable balances.
Inventories
Inventories consist of parts and supplies held for use in the ordinary
course of business and are stated at the lower of cost or market using the
first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the lease or the estimated useful life of the asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.
F-44
<PAGE> 175
RCR PLUMBING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
The Company recognizes revenue when services are performed except when work
is being performed under a construction contract. Revenues from construction
contracts are recognized on the percentage-of-completion method measured by the
percentage of cost incurred to date to total estimated costs for each contract.
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance, such as indirect labor and depreciation
costs. Provisions for the total estimated losses on uncompleted contracts are
made in the period in which such losses are determined. Changes in job
performance, job conditions, estimated profitability and final contract
settlements may result in revisions to costs and income and their effects are
recognized in the period in which the revisions are determined. An amount equal
to contract costs attributable to claims is included in revenues when
realization is probable and the amount can be reliably estimated.
A portion of the Company's receivables are comprised of retainages. These
balances billed but not paid by customers pursuant to retainage provisions in
construction contracts will be due upon completion of the contracts and
acceptance by the customer. Based on the Company's experience with similar
contracts in recent years, the retention balance at each balance sheet date will
be collected within the subsequent fiscal year.
The current asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The current liability, "Billings in excess of costs and estimated
earnings on uncompleted contracts," represents billings in excess of revenues
recognized.
Warranty Costs
The Company generally warrants labor and materials for twelve months after
installation of a new plumbing or HVAC contract. A reserve for warranty costs is
recorded based upon the historical level of warranty claims and management's
estimate of future costs.
Income Taxes
The Company has elected S Corporation status as defined by the Internal
Revenue Code, whereby the Company is not subject to taxation for federal
purposes. Under S Corporation status, the stockholders report their shares of
the Company's taxable earnings or losses in their personal tax returns. Certain
states do not recognize the S Corporation status for purposes of state taxation.
The provision for income taxes in the accompanying statements of operations
represents the state tax provision related to such states. The Company
terminated its S Corporation status concurrently with the effective date of the
merger discussed in Note 13.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities,
disclosures of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Realization of Long-Lived Assets
The Company has adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
Accordingly, in the event that facts and circumstances indicate that property
and equipment or other assets may be impaired, an evaluation of
F-45
<PAGE> 176
RCR PLUMBING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
recoverability would be performed. If an evaluation is required, the estimated
future undiscounted cash flows associated with the asset are compared to the
asset's carrying amount to determine if an impairment of such property is
necessary. The effect of any impairment would be to expense the difference
between the fair value of such property and its carrying value. Adoption of this
standard did not have a material effect on the financial position or results of
operations of the Company.
(3) DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Contract receivables consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
----------------- MARCH 31,
1997 1998 1999
------- ------- -----------
<S> <C> <C> <C>
Billed................................................. $10,055 $ 9,529 $12,280
Retainage.............................................. 379 473 412
Other.................................................. 66 476 248
Allowance for uncollectible accounts................... (150) (118) (127)
------- ------- -------
Balance at end of period..................... $10,350 $10,360 $12,813
======= ======= =======
</TABLE>
Plumbing and HVAC installation contracts in progress are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31
------------------- MARCH 31,
1997 1998 1999
-------- -------- -----------
<S> <C> <C> <C>
Costs incurred on contracts in progress.............. $ 13,351 $ 22,929 $27,008
Estimated earnings, net of losses.................... 4,763 9,008 10,265
-------- -------- -------
18,114 31,937 37,273
Less -- billings to date............................. (18,557) (33,013) 37,720
-------- -------- -------
$ (443) $ (1,076) $ (447)
======== ======== =======
Costs and estimated earnings in excess of billings on
uncompleted contracts.............................. $ 1,557 $ 1,536 $ 2,090
Billings in excess of costs and estimated earnings on
uncompleted contracts.............................. (2,000) (2,612) (2,537)
-------- -------- -------
$ (443) $ (1,076) $ (447)
======== ======== =======
</TABLE>
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31
--------------- MARCH 31,
1997 1998 1999
------ ------ -----------
<S> <C> <C> <C>
Accounts payable, trade.................................. $2,726 $3,420 $ 4,656
Accrued compensation and benefits........................ 524 800 2,094
Other accrued expenses................................... 489 584 629
------ ------ -------
Balance at end of period................................. $3,739 $4,804 $ 7,379
====== ====== =======
</TABLE>
F-46
<PAGE> 177
RCR PLUMBING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(4) PROPERTY AND EQUIPMENT:
Property and equipment, including capital lease assets, consist of the
following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31
USEFUL LIVES ----------------- MARCH 31,
IN YEARS 1997 1998 1999
------------ ------- ------- -----------
<S> <C> <C> <C> <C>
Land....................................... $ 446 $ 423 $ --
Transportation equipment................... 2 - 6 2,195 3,055 3,185
Machinery and equipment.................... 3 - 7 585 678 724
Computer and telephone equipment........... 3 - 7 802 946 683
Building and leasehold improvements........ 5 -39 2,338 2,411 1,253
Furniture and fixtures..................... 7 207 221 628
------- ------- -------
6,573 7,734 6,473
Less -- accumulated depreciation and
amortization............................. (1,725) (2,250) (2,298)
------- ------- -------
Property and equipment, net................ $ 4,848 $ 5,484 $ 4,175
======= ======= =======
</TABLE>
(5) LINES OF CREDIT AND LONG-TERM DEBT:
During 1997, the Company negotiated two lines of credit, with an aggregate
credit limit of $4.5 million. The lines of credit expired May 1, 1999, and are
to be used for working capital and equipment purchases, and bear interest
ranging from the Bank's Reference Rate (8.5% at December 31, 1998) to the Bank's
Reference Rate plus .5%. The lines of credit are collateralized by machinery and
equipment, inventory and receivables. Borrowings on the lines of credit at
December 31, 1997 totaled $1.9 million. At December 31, 1998, and March 31,
1999, the Company had no borrowings against this line of credit. The line of
credit was terminated on April 5, 1999.
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
--------------- MARCH 31,
1997 1998 1999
------ ------ -----------
<S> <C> <C> <C>
Notes payable to a bank, due in monthly installments of
$2,218 including interest at 9.5% through October 2002,
collateralized by real estate with a carrying value of
$241,000 and $235,000 at December 31, 1997 and 1998,
respectively and $0 at March 31, 1999................... $ 225 $ 221 $ --
Notes payable to a bank, due in monthly installments
ranging from $359 to $5,365 at interest rates ranging
from 8.25% to 11%, maturity dates ranging from February
1999 to December 2003. Notes are collateralized by
vehicles and real estate, with a carrying value of
$1,335,000 and $1,313,000 at December 31, 1997 and 1998,
respectively and $243,000 at March 31, 1999............. $ 727 $ 679 $ 171
</TABLE>
F-47
<PAGE> 178
RCR PLUMBING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31
--------------- MARCH 31,
1997 1998 1999
------ ------ -----------
<S> <C> <C> <C>
Notes payable to a bank, due in monthly installments from
$7,896 to $8,917 at interest rates ranging from 9% to
9.75%, maturity date of October 2000. Notes are
collateralized by real estate, with a carrying value of
$1,215,000 and $1,171,000 at December 31, 1997 and 1998,
respectively and $0 at March 31, 1999................... 735 644 --
------ ------ ---------
Totals.......................................... 1,687 1,544 171
Less -- current maturities................................ (144) (129) (171)
------ ------ ---------
Total long-term debt............................ $1,543 $1,415 $ --
====== ====== =========
</TABLE>
The maturities of long-term debt as of December 31, 1998, are as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C> <C>
1999............................................................. $ 129
2000............................................................. 730
2001............................................................. 13
2002............................................................. 216
2003............................................................. 456
------
$1,544
======
</TABLE>
(6) LEASES:
The Company leases various automobiles and equipment under capital lease
and noncancelable operating arrangements. Future minimum lease payments under
capital lease arrangements at December 31, 1998, and March 31, 1999, are as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
------ ------
<S> <C> <C>
1999.............................................. $ 609 $ 453
2000.............................................. 394 476
2001.............................................. 210 276
2002.............................................. 25 39
2003.............................................. 27 30
------ ------
1,265 1,274
Amounts representing interest....................... (249) (223)
------ ------
1,016 1,051
Less -- current maturities.......................... (495) (475)
------ ------
Noncurrent.......................................... $ 521 $ 576
====== ======
</TABLE>
F-48
<PAGE> 179
RCR PLUMBING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments under these noncancelable operating leases at
December 31, 1998, are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C> <C>
1999.............................................................. $305
2000.............................................................. 297
2001.............................................................. 125
----
$727
====
</TABLE>
Lease expense for the years ended December 31, 1996, 1997 and 1998 and the
three months ended March 31, 1999 totaled approximately $230,000, $243,000,
$312,000 and $78,000, respectively.
(7) RELATED-PARTY TRANSACTIONS:
Two of the Company's stockholders owned a partnership which leased vehicles
to the Company at rates that in management's opinion, approximated market.
During 1996, these stockholders contributed all such leased vehicles to the
Company, at their historical cost, less accumulated depreciation. Upon the
contribution of these assets, the net book value approximated zero.
A Company stockholder and employee owned a partnership, which leased steel
storage containers to the Company at rates that in management's opinion,
approximated market. During 1996, this stockholder and employee contributed all
such leased assets to the Company. These assets were contributed at the
approximate historical cost, less accumulated depreciation, of approximately
$37,000.
A Company stockholder and employee owned a partnership, which leased
certain equipment to the Company at rates that in management's opinion,
approximate market. The Company incurred lease expense under this arrangement of
approximately $87,000, $52,000, $77,000 and $10,000 for the years ended December
31, 1996, 1997 and 1998 and the three months ended March 31, 1999, respectively.
The Company funds three life insurance policies for certain officers of the
Company. Two of the policies name the Company as the beneficiary, while the
other names one of the Company's stockholders as the beneficiary. Total payments
for these policies approximated $41,000, $29,000, $12,000 and $0 for the years
ended December 31, 1996, 1997 and 1998 and the three months ended March 31,
1999, respectively.
The Company leases its two primary facilities from one of its stockholders
at rates that in management's opinion, approximate market. Lease expense related
to these buildings totaled approximately $220,000, $220,000, $220,000 and
$55,000 for the years ended December 31, 1996, 1997 and 1998 and the three
months ended March 31, 1999, respectively.
(8) EMPLOYEE BENEFIT PLAN:
The Company has a defined contribution profit-sharing plan. The Plan
provides for the Company to match 25% to 100%, depending on length of service,
of the first 6% contributed by each employee. Total contributions by the Company
under the Plan were approximately $150,000, $172,000, $222,000 and $50,000 for
the years ending December 31, 1996, 1997 and 1998 and the three months ended
March 31, 1999, respectively. The Company may also make discretionary
contributions. The Company made no discretionary contributions for the years
ended December 31, 1996, 1997 and 1998 and for the three months ended March 31,
1999.
(9) FINANCIAL INSTRUMENTS:
The Company's financial instruments consist of cash and cash equivalents,
lines of credit and debt. The Company believes that the carrying value of these
instruments on the accompanying balance sheets approximate their fair value.
F-49
<PAGE> 180
RCR PLUMBING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(10) COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is involved in disputes or legal actions arising in the
ordinary course of business. Management does not believe the outcome of such
legal actions will have a material adverse effect on the Company's financial
position or results of operations.
Insurance
The Company carries a broad range of insurance coverage, including business
auto liability, general liability and an umbrella policy. The Company has not
incurred significant claims or losses on any of these insurance policies.
(11) CONCENTRATION OF CREDIT RISK:
In general, the Company performs its services under contract terms that
entitle it to progress payments and is, by law, granted a lien interest in the
work until paid. The Company is exposed to potential credit risk related to
changes in business and economic factors within the region. However, management
believes that its contract acceptance, billing and collection policies are
adequate to minimize the potential credit risk.
The Company's customers are primarily in the construction industry.
Accordingly, the Company is exposed to risks of fluctuations in construction in
the areas which it operates.
(12) SALE OF COMMON STOCK:
During 1998, one of the Company's stockholders sold all his shares to
another stockholder. Subsequent to this transaction, the Company was owned by
the two remaining stockholders.
(13) SUBSEQUENT EVENT:
On April 1, 1999, AMPAM acquired through merger all the stock of the
Company in exchange for cash, notes and stock of AMPAM, after which the Company
is a wholly owned subsidiary of AMPAM.
In connection with the completion of the AMPAM Agreement, the Company
transferred certain assets of the Company to the stockholders with a fair market
value of approximately $2,144,000. In return the stockholders assumed
liabilities related to those assets of approximately $1,332,000. In accordance
with Accounting Principles Board No. 29, Accounting for Nonmonetary
Transactions, the Company recognized a gain on the transfer of the property of
approximately $605,000. The difference between the fair market value of the
assets transferred and the liabilities assumed was approximately $812,000 and
was accounted for as a distribution to stockholders. Additionally, the Company
made cash distributions which represent the Company's estimated S corporation
accumulated adjustment account.
As discussed in Note 2, in connection with the merger, the Company
converted from an S Corporation to a C Corporation. Upon conversion to C
Corporation status, the Company recorded deferred taxes for which it will be
responsible. If the S Corporation had been terminated as of December 31, 1998 or
March 31, 1999, the Company would have recorded a net current deferred tax
liability of approximately $1,850,356 and $719,318, respectively, and a net
non-current deferred tax liability of approximately $156,908 and $168,038,
respectively. Deferred tax assets are a result of bad debt allowances, and
warranty and other liability reserves. Deferred tax liabilities are a result of
differences between book and tax depreciation, and differences between the
percentage of completion and completed contract method of accounting for its
contracts.
Concurrently with the merger, the Company entered into agreements with the
stockholders to lease office space used in the Company's operations for a
negotiated amount and term.
F-50
<PAGE> 181
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Teepe's River City Mechanical, Inc.:
We have audited the accompanying balance sheets of Teepe's River City
Mechanical, Inc. as of December 31, 1997, 1998 and March 31, 1999, and the
related statements of operations, cash flows and stockholders' equity for each
of the three years in the period ended December 31, 1998 and for the three
months ended March 31, 1999. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with 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 Teepe's River City
Mechanical, Inc. as of December 31, 1997, 1998 and March 31, 1999, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, and for the three months ended March 31, 1999,
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
St. Louis, Missouri
May 21, 1999
F-51
<PAGE> 182
TEEPE'S RIVER CITY MECHANICAL, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
----------------- MARCH 31,
1997 1998 1999
------- ------- ---------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 802 $ 1,177 $ 749
Accounts receivable --
Contract, net.......................................... 6,729 8,709 8,247
Other.................................................. 77 44 36
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 336 1,263 1,533
Inventories............................................... 128 201 210
Prepaid expenses and other current assets................. 169 178 178
Deferred income taxes..................................... 398 388 380
------- ------- -------
Total current assets.............................. 8,639 11,960 11,333
PROPERTY AND EQUIPMENT, net................................. 3,710 3,394 3,384
RELATED PARTY RECEIVABLES................................... 214 219 220
OTHER ASSETS................................................ 202 200 196
------- ------- -------
Total assets...................................... $12,765 $15,773 $15,133
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt...................... $ 338 $ 308 $ 258
Note payable.............................................. 520 498 676
Accounts payable and accrued expenses..................... 3,520 6,268 5,524
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 2,226 1,463 1,291
Retainage payable......................................... 1,036 1,221 1,332
------- ------- -------
Total current liabilities......................... 7,640 9,758 9,081
LONG-TERM DEBT, net of current maturities................... 1,318 601 596
OTHER LONG-TERM OBLIGATIONS................................. 391 1,084 1,064
------- ------- -------
Total liabilities................................. 9,349 11,443 10,741
------- ------- -------
STOCKHOLDERS' EQUITY:
Common stock, no par value, $15 stated value, 500 shares
authorized, 90 shares issued and outstanding........... 1 1 1
Retained earnings......................................... 3,415 4,329 4,391
------- ------- -------
Total stockholders' equity........................ 3,416 4,330 4,392
------- ------- -------
Total liabilities and stockholders' equity........ $12,765 $15,773 $15,133
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-52
<PAGE> 183
TEEPE'S RIVER CITY MECHANICAL, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
--------------------------- ---------------------
1996 1997 1998 1998 1999
------- ------- ------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES................................... $35,400 $42,687 $50,627 $11,449 $10,546
COST OF REVENUES (including depreciation).. 30,410 37,170 44,048 10,066 9,287
------- ------- ------- ------- -------
Gross profit.......................... 4,990 5,517 6,579 1,383 1,259
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES................................. 3,414 4,158 4,779 1,205 1,126
------- ------- ------- ------- -------
Income from operations................ 1,576 1,359 1,800 178 133
------- ------- ------- ------- -------
OTHER INCOME (EXPENSE):
Interest income.......................... 54 71 82 17 12
Interest expense......................... (76) (145) (125) (33) (61)
Other.................................... 13 14 (177) -- 5
------- ------- ------- ------- -------
Other income (expense), net........... (9) (60) (220) (16) (44)
------- ------- ------- ------- -------
INCOME BEFORE PROVISION FOR INCOME TAXES... 1,567 1,299 1,580 162 89
PROVISION FOR INCOME TAXES................. 658 522 666 55 27
------- ------- ------- ------- -------
NET INCOME................................. $ 909 $ 777 $ 914 $ 107 $ 62
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-53
<PAGE> 184
TEEPE'S RIVER CITY MECHANICAL, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
-------------------------- --------------------
1996 1997 1998 1998 1999
------ ------- ------- ----------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................... $ 909 $ 777 $ 914 $ 107 $ 62
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities --
Depreciation and amortization.............. 272 388 303 76 88
(Gain) loss on sale of property and
equipment................................ 1 2 114 -- 5
Deferred income taxes...................... 52 72 (33) 47 --
Other, net................................. 2 (9) 2 9 4
Changes in operating assets and
liabilities --
(Increase) decrease in --
Accounts receivable................... (783) (1,681) (1,952) (1,537) 470
Costs and estimated earnings in excess
of billings on uncompleted
contracts........................... (983) 720 (927) (564) (270)
Inventories........................... 28 (62) (73) (23) (9)
Prepaid expenses and other current
assets.............................. 9 (39) (9) 15 --
Increase (decrease) in --
Accounts payable and accrued
expenses............................ 1,511 (803) 2,933 2,447 (633)
Billings in excess of costs and
estimated earnings on uncompleted
contracts........................... (468) 1,137 (763) 59 (172)
------ ------- ------- ------- ------
Net cash provided by operating
activities....................... 550 502 509 636 (455)
------ ------- ------- ------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and
equipment.................................. 15 141 349 -- 7
Additions of property and equipment........... (677) (1,488) (450) (79) (90)
Other investing activities.................... -- -- 736 -- (13)
------ ------- ------- ------- ------
Net cash (used in) provided by
investing activities................ (662) (1,347) 635 (79) (96)
------ ------- ------- ------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) proceeds from note payable..... -- 520 (22) (220) 178
Borrowings of long-term debt.................. 226 1,280 326 2 35
Payments of long-term debt.................... (210) (846) (1,073) (127) (90)
------ ------- ------- ------- ------
Net cash provided by (used in)
financing activities................ 16 954 (769) (345) 123
------ ------- ------- ------- ------
Net (decrease) increase in cash and
cash equivalents.................... (96) 109 375 212 (428)
CASH AND CASH EQUIVALENTS, beginning of
period........................................ 789 693 802 802 1,177
------ ------- ------- ------- ------
CASH AND CASH EQUIVALENTS, end of period........ $ 693 $ 802 $ 1,177 $ 1,014 $ 749
====== ======= ======= ======= ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for --
Interest................................... $ 76 $ 145 $ 120 $ 33 $ 55
Income taxes............................... $ 624 $ 607 $ 299 $ -- $ 145
Capital lease additions....................... $ -- $ 378 $ -- $ -- $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-54
<PAGE> 185
TEEPE'S RIVER CITY MECHANICAL, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
--------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------ -------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995............................. 90 $1 $1,729 $1,730
Net income........................................... -- -- 909 909
-- -- ------ ------
BALANCE, December 31, 1996............................. 90 1 2,638 2,639
Net income........................................... -- -- 777 777
-- -- ------ ------
BALANCE, December 31, 1997............................. 90 1 3,415 3,416
Net income........................................... -- -- 914 914
-- -- ------ ------
BALANCE, December 31, 1998............................. 90 1 4,329 4,330
Net income........................................... -- -- 62 62
-- -- ------ ------
BALANCE, March 31, 1999................................ 90 $1 $4,391 $4,392
== == ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-55
<PAGE> 186
TEEPE'S RIVER CITY MECHANICAL, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Teepe's River City Mechanical, Inc., an Ohio corporation (the Company),
provides plumbing and mechanical services for commercial and industrial
properties. The Company performs the majority of its contract work under fixed
price contracts with contract terms generally ranging from six to twelve months.
The Company performs the majority of its work in Ohio, Kentucky and Indiana.
The Company and its stockholders intend to enter into a definitive
agreement with American Plumbing & Mechanical, Inc. (AMPAM), pursuant to which
all outstanding shares of the Company's common stock will be exchanged for cash,
notes and shares of AMPAM common stock concurrently with the consummation of the
related financing.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information
The interim financial statements for the three months ended March 31, 1998,
are unaudited and have been pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of the Company's management,
the unaudited interim financial statements contain all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation.
The results of operations for the interim periods are not necessarily indicative
of the results for the entire fiscal year.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Accounts Receivable and Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts based upon an
estimate of uncollectable balances.
Inventories
Inventories consist of parts and supplies held for use in the ordinary
course of business and are stated at the lower of cost or market using the
first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the lease or the estimated useful life of the asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.
F-56
<PAGE> 187
TEEPE'S RIVER CITY MECHANICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
Revenues from construction contracts are recognized on the
percentage-of-completion method measured by the percentage of cost incurred to
date to total estimated costs for each contract. Contract costs include all
direct material and labor costs and those indirect costs related to contract
performance, such as indirect labor and depreciation costs. Provisions for the
total estimated losses on uncompleted contracts are made in the period in which
such losses are determined. Changes in job performance, job conditions,
estimated profitability and final contract settlements may result in revisions
to costs and income and their effects are recognized in the period in which the
revisions are determined. An amount equal to contract costs attributable to
claims is included in revenues when realization is probable and the amount can
be reliably estimated. Revenue from noncontract work is recognized when the
services are performed.
The balances billed but not paid by customers pursuant to retainage
provisions in construction contracts will be due upon completion of the
contracts and acceptance by the customer.
The current asset, "costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The current liability, "billings in excess of costs and estimated
earnings on uncompleted contracts," represents billings in excess of revenues
recognized.
Warranty Costs
For certain contracts, the Company warrants labor for one year after
installation of plumbing or mechanical systems. A reserve for warranty costs is
recorded based upon the historical level of warranty claims and management's
estimate of future costs.
Income Taxes
The Company, which is a C Corporation, follows the liability method of
accounting for income taxes in accordance with Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." Under this method,
deferred assets and liabilities are recorded for future tax consequences of
temporary differences between the financial reporting and tax basis of assets
and liabilities, and are measured using the enacted tax rates and laws that will
be in effect when the underlying assets or liabilities are recovered or settled.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities,
disclosures of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Realization of Long-Lived Assets
The Company has adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
Accordingly, in the event that facts and circumstances indicate that property
and equipment or other assets may be impaired, an evaluation of recoverability
would be performed. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset are compared to the asset's
carrying amount to determine if an impairment of such property is necessary. The
effect of any impairment would be to expense the difference between the fair
value of such property and its carrying value. Adoption of this standard did not
have a material effect on the financial position or results of operations of the
Company.
F-57
<PAGE> 188
TEEPE'S RIVER CITY MECHANICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Contract receivables consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31,
1997 1998 1999
------ ------ ---------
<S> <C> <C> <C>
Trade................................................... $4,855 $6,087 $5,828
Unbilled retainage...................................... 1,849 2,186 2,052
Billed retainage........................................ 225 636 567
Allowance for uncollectible accounts.................... (200) (200) (200)
------ ------ ------
Balance at end of year............................. $6,729 $8,709 $8,247
====== ====== ======
</TABLE>
Installation contracts in progress are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1997 1998 1999
------- ------- ---------
<S> <C> <C> <C>
Costs incurred on contracts in progress............... $45,748 $60,913 $58,710
Estimated earnings, net of losses..................... 4,995 8,213 7,867
------- ------- -------
50,743 69,126 66,577
Less -- Billings to date.............................. 52,633 69,326 66,335
------- ------- -------
$(1,890) $ (200) $ 242
======= ======= =======
Costs and estimated earnings in excess of billings on
uncompleted contracts............................... $ 336 $ 1,263 $ 1,533
Billings in excess of costs and estimated earnings on
uncompleted contracts............................... (2,226) (1,463) (1,291)
------- ------- -------
$(1,890) $ (200) $ 242
======= ======= =======
</TABLE>
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31,
1997 1998 1999
------ ------ ---------
<S> <C> <C> <C>
Accounts payable, trade................................. $2,737 $5,226 $5,040
Accrued compensation and benefits....................... 357 664 311
Other accrued expenses.................................. 426 378 173
------ ------ ------
$3,520 $6,268 $5,524
====== ====== ======
</TABLE>
F-58
<PAGE> 189
TEEPE'S RIVER CITY MECHANICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT:
Property and equipment, including capital lease assets, consists of the
following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES ----------------- MARCH 31,
IN YEARS 1997 1998 1999
------------ ------- ------- ---------
<S> <C> <C> <C> <C>
Land, Building and leasehold improvements... 15-40 $ 1,613 $ 1,078 $ 1,006
Machinery and equipment..................... 6-10 1,338 1,671 1,741
Transportation equipment.................... 5-10 1,140 1,387 1,402
Furniture and fixtures...................... 5-12 720 779 801
Property held under capital lease........... 12 378 378 378
Tools....................................... 5-7 56 55 56
------- ------- -------
5,245 5,348 5,384
Less -- Accumulated depreciation and
amortization (1,535) (1,954) (2,000)
------- ------- -------
$ 3,710 $ 3,394 $ 3,384
======= ======= =======
</TABLE>
5. LONG-TERM DEBT:
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- MARCH 31,
1997 1998 1999
------ ----- ---------
<S> <C> <C> <C>
Mortgage note payable in monthly installments through
November 2003. The interest rate (8.5% at December 31,
1997) is subject to annual adjustment based upon
current market interest rates. Land and building are
pledged as collateral. The shareholders of the Company
are guarantors........................................ $ 363 $ -- $ --
Mortgage note payable requires monthly installments of
$3 through October 2012. The interest rate (8.3% at
December 31, 1997) is subject to triennial adjustment
based upon current market interest rates. Land and
building are pledged as collateral. The shareholders
of the Company are guarantors......................... 301 -- --
Various installment notes payable with interest rates
ranging from 6.7% to 9.0%, payable in monthly
installments of $21 including interest, with various
maturities through August 2004, collateralized by
equipment............................................. 631 592 553
Capital lease obligation, payable in monthly
installments of $5, maturing September 2004, bearing
interest at 4.2%. The lease is collateralized by
equipment............................................. 361 317 301
------ ----- -----
Totals........................................ 1,656 909 854
Less -- Current portion................................. (338) (308) (258)
------ ----- -----
Long-term..................................... $1,318 $ 601 $ 596
====== ===== =====
</TABLE>
F-59
<PAGE> 190
TEEPE'S RIVER CITY MECHANICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
Year ending December 31:
1999...................................................... $258
2000...................................................... 279
2001...................................................... 133
2002...................................................... 79
2003...................................................... 59
Thereafter................................................ 46
----
$854
====
</TABLE>
6. NOTE PAYABLE:
The Company has a note payable to a bank that provided for borrowings of up
to $1,500,000 at December 31, 1997, 1998 and March 31, 1999. The note had
outstanding balances of $520,000, $498,000 and $676,000 at December 31, 1997,
1998 and March 31, 1999, respectively. At December 31, 1997, the note bore
interest at 8.5%, payable monthly with a maturity date of July 1998. At December
31, 1998, and March 31, 1999, the note bore interest at 7.75%, payable monthly
with a maturity date of July 1999. The note is secured by the Company's assets
and is subject to certain restrictive covenants.
7. LEASES:
The Company leases vehicles and office equipment under operating leases.
Lease expense related to these lease agreements totaled $30,000, $98,000,
$40,000 and $7,833 for the years ended December 31, 1996, 1997 and 1998, and the
three months ended March 31, 1999, respectively. The Company also leases a crane
under a capital lease from a third party. The capital lease requires payments of
$63,000 per year through September 2004. Future minimum lease payments under
noncancelable operating leases at December 31, 1998, are as follows (in
thousands):
<TABLE>
<S> <C>
Year ending December 31:
1999...................................................... $ 88
2000...................................................... 82
2001...................................................... 64
2002...................................................... 37
----
$271
====
</TABLE>
8. INCOME TAXES:
Federal and state income tax expenses are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31 THREE MONTHS
-------------------- ENDED MARCH 31,
1996 1997 1998 1999
---- ---- ---- ---------------
<S> <C> <C> <C> <C>
Federal:
Current..................................... $485 $362 $653 $13
Deferred.................................... 42 60 (45) --
State:
Current..................................... 121 88 46 14
Deferred.................................... 10 12 12 --
---- ---- ---- ---
$658 $522 $666 $27
==== ==== ==== ===
</TABLE>
F-60
<PAGE> 191
TEEPE'S RIVER CITY MECHANICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate rate of 34% to income before
provision for income taxes as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31 THREE MONTHS
-------------------- ENDED MARCH 31,
1996 1997 1998 1999
---- ---- ---- ---------------
<S> <C> <C> <C> <C>
Provision at the statutory rate............... $533 $442 $537 $ 30
Increase resulting from:
State income tax, net of benefit for federal
deduction................................ 79 57 58 14
Benefit of lower marginal tax rates......... (15) (13) (13) (13)
Other....................................... 61 36 84 (4)
---- ---- ---- ----
$658 $522 $666 $ 27
==== ==== ==== ====
</TABLE>
Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences, representing deferred
tax assets and liabilities, result principally from the following (in
thousands):
<TABLE>
<CAPTION>
AS OF
DECEMBER 31 THREE MONTHS
-------------- ENDED MARCH 31,
1997 1998 1999
----- ----- ---------------
<S> <C> <C> <C>
Deferred income tax assets:
Allowance for doubtful accounts................... $ 82 $ 82 $ 82
Accrued expenses.................................. 316 306 298
----- ----- ----
Total deferred income tax asset........... 398 388 380
----- ----- ----
Deferred income tax liabilities:
Property and equipment............................ (388) (335) (333)
Other............................................. (3) (13) (7)
----- ----- ----
Total deferred income tax liability
(included in other long-term
obligations)............................ (391) (348) (340)
----- ----- ----
Net deferred income tax asset............. $ 7 $ 40 $ 40
===== ===== ====
</TABLE>
The net deferred tax assets and liabilities are comprised of the following
(in thousands):
<TABLE>
<CAPTION>
AS OF
DECEMBER 31 THREE MONTHS
-------------- ENDED MARCH 31,
1997 1998 1999
----- ----- ---------------
<S> <C> <C> <C>
Deferred tax assets:
Current........................................... $ 398 $ 388 $ 380
Long-term......................................... -- -- --
----- ----- -----
Total..................................... 398 388 380
----- ----- -----
Deferred tax liabilities:
Current........................................... -- -- --
Long-term......................................... (391) (348) (340)
----- ----- -----
Net deferred income tax asset............. $ 7 $ 40 $ 40
===== ===== =====
</TABLE>
F-61
<PAGE> 192
TEEPE'S RIVER CITY MECHANICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. RELATED-PARTY TRANSACTIONS:
In July 1998, the Company sold certain property to an entity controlled by
the Company's majority stockholder. Concurrent with the sale, the Company
entered into a lease with the entity for the same property. The lease calls for
monthly lease payments of approximately $12,000. The sale leaseback was recorded
under the deposit method using Statement of Financial Accounting Standards
(SFAS) No. 98, "Accounting for Leases" and, as such, the liability of $736,000
and $724,000 is recorded at December 31, 1998, and March 31, 1999, respectively,
as a deposit and all payments will be charged against the deposit liability,
that is included in other long-term obligations on the balance sheet.
In 1997, the Company entered into an operating lease for its Columbus, Ohio
building with a related entity. The building lease expires in August 2003 with
an option to renew for two five year terms. The lease calls for monthly lease
payments of approximately $5,000. Total rent paid under this was $18,000,
$55,000 and $15,000 in 1997, 1998 and for the three months ended March 31, 1999,
respectively.
As of December 31, 1997 and 1998, and March 31, 1999, the Company has loans
to a shareholder and to an officer. Both receivables are classified as related
party receivables for balance sheet presentation. The loan to the shareholder
has an outstanding balance of $114,000, $122,940 and $121,752 at December 31,
1997, 1998, and March 31, 1999, respectively. The loan bears interest at the
applicable federal rate (5.9% at December 31, 1997, 1998 and 5.9% at March 31,
1999). Total interest income related to this loan was $7,000 for December 31,
1997 and 1998, and $1,771 for the three months ended March 31, 1999. The loan to
the officer of the Company had an outstanding balance of $100,000, $98,000 and
$98,000 at December 31, 1997, 1998, and March 31, 1999, respectively. The loan
bears interest at the prime rate, 8.5% at December 31, 1997 and 1998, and 7.75%
at March 31, 1999, respectively, and matures in August 1999.
10. EMPLOYEE BENEFIT PLAN:
The Company has a defined contribution profit-sharing plan for all
employees with immediate vesting. The plan provides for the Company to match the
first $500 contributed by each employee, which vests over a period of seven
years. Total contributions by the Company under the plan were approximately
$50,000, $57,000, $71,000 and $54,000 for the years ended December 31, 1996,
1997, 1998 and the three months ended March 31, 1999, respectively.
The Company's field personnel elected to have the Company contribute a
portion of their wages earned on prevailing wage contracts to a multiemployer
plan. The expense related to this plan was $333,000, $570,000, $501,700 and
$103,941 for the years ended December 31, 1996, 1997, 1998 and the three months
ended March 31, 1999, respectively.
11. FINANCIAL INSTRUMENTS:
The Company's financial instruments consist of cash and cash equivalents, a
notes payable and long-term debt. The Company believes that the carrying value
of these instruments on the accompanying balance sheets approximates their fair
value.
12. COMMITMENTS AND CONTINGENCIES:
Guarantees
The Company is the guarantor on several loans entered into by a company
affiliated through common ownership. The loans had outstanding balances
$1,937,000, $3,037,000 and $3,020,000 at December 31, 1997, 1998, and March
31,1999, respectively.
F-62
<PAGE> 193
TEEPE'S RIVER CITY MECHANICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Litigation
The Company is involved in disputes or legal actions arising in the
ordinary course of business. Management does not believe the outcome of such
legal actions will have a material adverse effect on the Company's financial
position or results of operations.
Insurance
The Company carries a broad range of insurance coverage, including business
auto liability, general liability and an umbrella policy. The Company has not
incurred significant claims or losses on any of these insurance policies. The
Company participates in a state-wide workers' compensation program. In June
1998, the Company received a one-time refund of $422,000 as a result of positive
claims experience and strong earnings of the workers' compensation fund. The
refund is reflected as a reduction in cost of services in 1998.
13. MAJOR CUSTOMERS AND RISK CONCENTRATION:
The Company had sales greater than 10% of the total revenues for one, two,
two and one major customers during the years ended December 31, 1996, 1997,
1998, and for the three months ended March 31, 1999, respectively. These
customers represented approximately 10.4% of total revenues during 1996, 11.9%
and 10.9% during 1997, 13.4% and 10.0% during 1998, and 10.0% during 1999.
In general, the Company performs its services under contract terms that
entitle it to progress payments and is, by law, granted a lien interest in the
work until paid. The Company is exposed to potential credit risk related to
changes in business and economic factors within Ohio, Kentucky and Indiana.
However, management believes that its contract acceptance, billing and
collection policies are adequate to minimize the potential credit risk.
The Company's customers are primarily in the construction industry.
Accordingly, the Company is exposed to risks of fluctuations in construction in
the areas which it operates.
14. SUBSEQUENT EVENT:
On April 1, 1999, AMPAM acquired through merger all the stock of the
Company in exchange for cash, notes and stock of AMPAM, after which the Company
is a wholly owned subsidiary of AMPAM.
Concurrently with the merger, the Company entered into agreements with the
stockholder to lease land and buildings used in the Company's operations for a
negotiated amount and term.
F-63
<PAGE> 194
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Keith Riggs Plumbing, Inc.:
We have audited the accompanying balance sheets of Keith Riggs Plumbing,
Inc., (an Arizona corporation), as of December 31, 1997 and 1998, and March 31,
1999, and the related statements of operations, cash flows and stockholders'
equity for each of the two years in the period ended December 31, 1998, and for
the three months ended March 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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 Keith Riggs Plumbing, Inc.,
as of December 31, 1997 and 1998, and March 31, 1999, and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1998, and for the three months ended March 31, 1999, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Phoenix, Arizona
June 18, 1999
F-64
<PAGE> 195
KEITH RIGGS PLUMBING, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------- MARCH 31,
1997 1998 1999
------ ------ -----------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 64 $ 194 $ 171
Accounts receivable --
Contract, net.......................................... 4,927 4,207 4,776
Other.................................................. 7 4 227
Inventories............................................... 314 516 685
Prepaid expenses and other current assets................. 29 21 --
------ ------ ------
Total current assets.............................. 5,341 4,942 5,859
PROPERTY AND EQUIPMENT, net................................. 1,432 1,227 1,161
OTHER ASSETS................................................ 4 -- --
------ ------ ------
Total assets...................................... $6,777 $6,169 $7,020
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft............................................ $ 224 $ -- $ --
Line of credit............................................ 450 -- --
Current maturities of long-term debt...................... 224 214 200
Current maturities of notes payable -- related parties.... 32 16 16
Accounts payable and accrued expenses..................... 3,035 2,482 2,606
------ ------ ------
Total current liabilities......................... 3,965 2,712 2,822
LONG-TERM LIABILITIES:
Long-term debt, net of current maturities................. 562 437 382
Notes payable -- related parties, net of current
maturities............................................. 89 84 70
------ ------ ------
Total liabilities................................. 4,616 3,233 3,274
------ ------ ------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; 1,000,000 shares authorized;
10,250 shares issued and 8,200 shares outstanding...... 10 10 10
Additional paid-in capital................................ 249 249 249
Retained earnings......................................... 2,089 2,864 3,674
Treasury stock, at cost, 2,050 shares..................... (187) (187) (187)
------ ------ ------
Total stockholders' equity........................ 2,161 2,936 3,746
------ ------ ------
Total liabilities and stockholders' equity........ $6,777 $6,169 $7,020
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-65
<PAGE> 196
KEITH RIGGS PLUMBING, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------- --------------------
1997 1998 1998 1999
------- ------- ----------- ------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES.......................................... $29,680 $34,464 $7,279 $8,917
COST OF REVENUES (including depreciation)......... 25,865 29,965 6,190 7,457
------- ------- ------ ------
Gross profit................................. 3,815 4,499 1,089 1,460
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES...... 2,583 2,943 655 728
------- ------- ------ ------
Income from operations....................... 1,232 1,556 434 732
------- ------- ------ ------
OTHER INCOME (EXPENSE):
Interest income................................. 8 17 2 11
Interest expense................................ (74) (90) (26) (9)
Other........................................... 165 97 (14) 227
------- ------- ------ ------
Other income (expense)....................... 99 24 (38) 229
------- ------- ------ ------
NET INCOME........................................ $ 1,331 $ 1,580 $ 396 $ 961
======= ======= ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-66
<PAGE> 197
KEITH RIGGS PLUMBING, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
----------------- -------------------
1997 1998 1998 1999
------- ------- ----------- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 1,331 $ 1,580 $ 396 $ 961
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization.................... 420 438 105 97
(Gain) loss on sale of property and equipment.... 9 2 15 (28)
Changes in operating assets and liabilities:
(Increase) decrease in --
Accounts receivable, contract, net.......... (818) 720 351 (569)
Accounts receivable, other.................. 4 3 (14) (223)
Inventories................................. 49 (202) -- (170)
Prepaid expenses and other current assets... 19 8 -- 21
Other noncurrent assets..................... -- 4 (2) --
Increase (decrease) in --
Accounts payable and accrued expenses....... 244 (553) (666) 124
------- ------- ----- -----
Net cash provided by operating
activities............................. 1,258 2,000 185 213
------- ------- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment........ 35 22 -- 64
Additions of property and equipment................. (327) (148) (41) (66)
------- ------- ----- -----
Net cash used in investing activities..... (292) (126) (41) (2)
------- ------- ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in borrowings under line of
credit........................................... 450 (450) (450) --
Proceeds from long-term debt........................ 248 -- -- --
Payments of long-term debt.......................... (341) (246) (62) (69)
Distributions to stockholders....................... (974) (805) (202) (151)
Payments to related parties......................... (20) (19) (8) (14)
Increase in treasury stock.......................... (55) -- -- --
Decrease in bank overdraft.......................... (540) (224) 602 --
------- ------- ----- -----
Net cash used in financing activities..... (1,232) (1,744) (120) (234)
------- ------- ----- -----
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS......................................... (266) 130
CASH AND CASH EQUIVALENTS, beginning of period........ 330 64 64 194
------- ------- ----- -----
CASH AND CASH EQUIVALENTS, end of period.............. $ 64 $ 194 $ 88 $ 171
======= ======= ===== =====
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for -- interest........................... $ 74 $ 90 $ 26 $ 15
======= ======= ===== =====
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Additions of property and equipment via debt
financing........................................ $ 183 $ 110 $ 16 $ --
======= ======= ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-67
<PAGE> 198
KEITH RIGGS PLUMBING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK
--------------- ADDITIONAL TOTAL
SHARES PAID-IN RETAINED TREASURY STOCKHOLDERS'
ISSUED AMOUNT CAPITAL EARNINGS STOCK EQUITY
------ ------ ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996......... 10,250 $10 $249 $1,732 $(132) $1,859
Distributions to stockholders.... -- -- -- (974) -- (974)
Net income....................... -- -- -- 1,331 -- 1,331
Other (Note 7)................... -- -- -- -- (55) (55)
------ --- ---- ------ ----- ------
BALANCE, December 31, 1997......... 10,250 10 249 2,089 (187) 2,161
Distributions to stockholders.... -- -- -- (805) -- (805)
Net income....................... -- -- -- 1,580 -- 1,580
------ --- ---- ------ ----- ------
BALANCE, December 31, 1998......... 10,250 $10 $249 $2,864 $(187) $2,936
Distributions to stockholders.... -- -- -- (151) -- (151)
Net income....................... -- -- -- 961 -- 961
------ --- ---- ------ ----- ------
BALANCE, March 31, 1999............ 10,250 $10 $249 $3,674 $(187) $3,746
====== === ==== ====== ===== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-68
<PAGE> 199
KEITH RIGGS PLUMBING, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Keith Riggs Plumbing, Inc., an Arizona corporation (the Company), provides
plumbing services primarily for residential contractors. The Company performs
the majority of its contract work under fixed price contracts in the state of
Arizona.
The Company and its stockholders intend to enter into a definitive
agreement with American Plumbing & Mechanical, Inc. (AMPAM), pursuant to which
all outstanding shares of the Company's common stock will be exchanged for cash
and shares of AMPAM common stock concurrently with the consummation of the
related financing.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information
The interim financial statements for the three months ended March 31, 1998,
are unaudited and have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of the Company's
management, the unaudited interim financial statements contain all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents.
Receivable and Provision for Doubtful Accounts
The Company provides an allowance for doubtful accounts based upon an
estimate of uncollectable balances.
Inventories
Inventories consist of parts and supplies held for use in the ordinary
course of business and are stated at the lower of cost or market using the
first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the lease or the estimated useful life of the asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.
Revenue Recognition
The Company recognizes revenue when services are performed except when work
is being performed under a construction contract. Revenue from construction
contracts is generally recognized on the
F-69
<PAGE> 200
KEITH RIGGS PLUMBING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
percentage-of-completion method measured by the percentage of cost incurred to
date to total estimated costs for each contract. Contract costs include all
direct material and labor costs and those indirect costs related to contract
performance, such as indirect labor and depreciation costs.
Warranty Costs
The Company warrants labor for two years after installation of new
plumbing. The Company generally warrants labor for 30 days after repair of
existing plumbing. A reserve for warranty costs is recorded based upon the
historical level of warranty claims and management's estimate of future costs.
Income Taxes
The Company has elected Subchapter S status under the Internal Revenue
Code. Therefore, the tax effects of the Company's operations will be reflected
on the tax returns of the individual stockholders. The Company will terminate
its S Corporation status concurrently with the effective date of the merger
discussed in Note 13.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities,
disclosures of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Realization of Long-Lived Assets
The Company has adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
Accordingly, in the event that facts and circumstances indicate that property
and equipment or other assets may be impaired, an evaluation of recoverability
would be performed. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset are compared to the asset's
carrying amount to determine if an impairment of such property is necessary. The
effect of any impairment would be to expense the difference between the fair
value of such property and its carrying value.
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Contract receivables at December 31, 1997 and 1998, and March 31, 1999,
consist of the following (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Billed...................................................... $4,912 $4,016 $4,598
Unbilled.................................................... 117 293 280
Allowance for doubtful accounts............................. (102) (102) (102)
------ ------ ------
Balance at end of year............................ $4,927 $4,207 $4,776
====== ====== ======
</TABLE>
F-70
<PAGE> 201
KEITH RIGGS PLUMBING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Accounts payable and accrued expenses at December 31, 1997 and 1998, and
March 31, 1999, consist of the following (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Accounts payable, trade..................................... $2,354 $1,783 $1,689
Accrued compensation and benefits........................... 352 445 519
Other accrued expenses...................................... 329 254 398
------ ------ ------
Balance at end of year............................ $3,035 $2,482 $2,606
====== ====== ======
</TABLE>
4. PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 1997 and 1998, and March 31, 1999,
consist of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
IN YEARS 1997 1998 1999
------------ ------- ------- -------
<S> <C> <C> <C> <C>
Land.................................................. -- $ 20 $ -- $ --
Transportation equipment.............................. 5-7 2,551 2,735 2,633
Machinery and equipment............................... 5-10 244 249 311
Building and leasehold improvements................... 7-40 284 284 284
Furniture and fixtures................................ 3-10 207 221 221
------- ------- -------
3,306 3,489 3,449
Less -- accumulated depreciation and amortization..... (1,874) (2,262) (2,288)
------- ------- -------
Property and equipment, net................. $ 1,432 $ 1,227 $ 1,161
======= ======= =======
</TABLE>
5. LOAN AGREEMENT:
At December 31, 1998, and March 31, 1999, the Company had a Loan Agreement
(the Agreement) with a bank that provides for a revolving line of credit of
$550,000 and a term loan of $450,000. The proceeds of the revolving line of
credit are used to finance temporary increases in inventory and accounts
receivable and provide funds to take advantage of trade discounts. Proceeds of
the term loan are used to provide working capital.
The revolving line of credit requires payment of interest monthly at .5%
over the prime rate, which was 8.25% at December 31, 1998, and 7.75% at March
31, 1999, and matures on May 28, 1999. Borrowings on the line of credit at
December 31, 1997, totaled $450,000. There were no borrowings at December 31,
1998, and March 31, 1999. The line of credit was terminated subsequent to March
31, 1999.
The term loan is payable in monthly installments of $7,500 plus interest at
9% and matures in June 2002. At December 31, 1997 and 1998, and March 31, 1999,
$395,625, $298,125 and $283,125 respectively, was outstanding on the term loan.
Subsequent to March 31, 1999, and in connection with the merger (see Note 13),
the Company paid in full the amounts outstanding under the term loan.
The Agreement is collateralized by receivables, inventory and equipment. In
addition, the shareholders of the Company are guarantors of the term loan.
Under the terms of the Agreement, the Company is required to maintain
certain financial covenants on a monthly basis, the most restrictive of which
are the following: maintenance of a debt to tangible net worth ratio of not more
than 3.5 to 1.0; a debt service coverage ratio greater than 1.5 to 1.0; and a
current ratio of not less than 1.1 to 1.0. The Agreement also places
restrictions on the Company's ability to create liens or encumbrances to be
placed on the collateral, to transfer or sell the collateral, or to change
ownership of the Company.
F-71
<PAGE> 202
KEITH RIGGS PLUMBING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT:
Long-term debt at December 31, 1997 and 1998, and March 31, 1999, consists
of the following (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Term loan (Note 5).......................................... $ 396 $ 298 $ 283
Notes payable to a bank, payable in monthly installments of
principal and interest at 9%; maturing through July 2003;
secured by vehicles....................................... 195 205 169
Note payable to a bank, payable in monthly installments of
principal and interest at 4.6%, maturing September 2001;
secured by equipment...................................... 39 29 26
Notes payable to various credit corporations, payable in
monthly installments of principal and interest at rates
between 6.45% and 10.9%; maturing through October 2001;
secured by vehicles and equipment......................... 156 119 104
----- ----- -----
786 651 582
Less -- current maturities................................ (224) (214) (200)
----- ----- -----
Total long-term debt, net of current maturities... $ 562 $ 437 $ 382
===== ===== =====
</TABLE>
The maturities of long-term debt as of December 31, 1998, are as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C>
1999...................................................... $214
2000...................................................... 185
2001...................................................... 151
2002...................................................... 59
2003...................................................... 8
Thereafter................................................ 34
----
$651
====
</TABLE>
7. STOCKHOLDERS' EQUITY:
Common Stock Split
On February 1, 1998, the Company declared a 1.025 for 1.0 stock split of
the Company's common stock to stockholders of record on December 31, 1997. All
share amounts have been restated to reflect the split.
Buy-Sell Agreement
The Keith Riggs Plumbing, Inc. Stockholders' Buy-Sell Agreement (the
"Buy-Sell Agreement") restricts the sale, assignment, transfer, pledge or other
disposition of the Company's shares without the prior written consent of the
other stockholders. Additionally, under certain circumstances shares of stock
shall be repurchased by the Company. The redemption price is to be based on an
annual certificate of value or, in the absence of the former, on an appraisal
performed at the time of the transaction, and is to be paid according to the
terms stipulated in the Buy-Sell Agreement.
The Buy-Sell Agreement also provides for the issuance of 100 shares of the
Company's common stock to any lineal descendant of the founders based upon
attaining 10 years of continuous service and shall receive 100 shares for each
additional year of service thereafter until the 20th year of service, when an
additional 1,000 shares shall be issued for a maximum of 2,000 shares. The years
of service are
F-72
<PAGE> 203
KEITH RIGGS PLUMBING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
measured at December 31st and the shares are issued on February 1st of the
subsequent year. Such shares may be issued through the issuance of new shares or
existing shares. On February 1, 1998 and 1999, 100 shares of the Company's
common stock were issued in connection with the terms of this Agreement. The
Company's stockholders elected to issue the shares from their existing holdings.
Treasury Stock
Treasury stock consists of 2,050 shares redeemed from one stockholder in
1994 for an 11-year note payable collateralized by a life insurance policy. The
Company recorded the value of the treasury shares at the present value of the
note discounted at 8%. In 1997, upon the death of the stockholder and receipt of
the insurance proceeds, the Company repaid this debt in its entirety. The
$55,062 loss associated with this early extinguishment of debt with a related
party was recorded as an additional cost of treasury stock.
8. RELATED-PARTY TRANSACTIONS:
At December 31, 1998, the Company had a note payable due to one stockholder
amounting to $10,600. This note is noninterest bearing and is due on demand. At
December 31, 1998, and March 31, 1999, the Company had a note payable to RGS
Land LLC (RGS), a company wholly owned by the Company's stockholders, amounting
to $90,008 and $86,008, respectively. This note is payable in monthly
installments of $1,333 plus interest at prime plus 2% and matures in July 2004.
The proceeds received from the RGS note were used to construct the Glendale,
Arizona facility. Subsequent to March 31, 1999, these notes were paid in full.
The Company leases its main premises in Mesa, Arizona and in Glendale,
Arizona, from the principal stockholders. The Company's lease obligation is on a
month to month basis with no fixed term. Rent expense for these locations
totaled $61,330, $63,878 and $11,118 for the years ended December 31, 1997 and
1998, and the three months ended March 31, 1999, respectively. Management of the
Company believes that the approximate market rental value for these properties
is $180,000 per year.
9. EMPLOYEE BENEFIT PLAN:
Effective January 1, 1997, the Company established the Keith Riggs
Plumbing, Inc. 401(k) Plan. The Plan covers full time employees and provides for
employer contributions on a discretionary basis. The Company's expense for the
years ended December 31, 1997 and 1998, and the three months ended March 31,
1999, totaled $25,448, $32,383 and $0, respectively.
10. FINANCIAL INSTRUMENTS:
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, other current assets, the line of credit, accounts payable
and accrued expenses, notes payable and debt. The Company believes that the
carrying value of these instruments on the accompanying balance sheets
approximates their fair value.
11. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is involved in disputes or legal actions arising in the
ordinary course of business. Management does not believe the outcome of such
legal actions will have a material adverse effect on the Company's financial
position or results of operations.
F-73
<PAGE> 204
KEITH RIGGS PLUMBING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Insurance
The Company carries a broad range of insurance coverage, including business
auto liability, general liability, property and workers' compensation. The
Company has not incurred significant claims or losses on any of these insurance
policies. The workers' compensation policy provides for an annual refundable
deposit in addition to the premium payments. As of March 31, 1999, $200,000 has
been accrued for a 1996 and 1997 compensation refund.
Operating Leases
In addition to the related-party leases described in Note 8, the Company
leases certain equipment from unaffiliated third parties under noncancellable
operating leases. Rent expense related to these lease agreements totaled
$24,371, $31,818 and $19,945 for the years ended December 31, 1997 and 1998, and
the three months ended March 31, 1999, respectively. Future minimum lease
payments under these noncancellable leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C>
1999................................................... $ 83,451
2000................................................... 83,451
2001................................................... 30,548
--------
$197,450
========
</TABLE>
12. MAJOR CUSTOMERS AND RISK CONCENTRATION:
The Company had revenues greater than 10% of total revenues to the
following major customers for the periods ended December 31, 1997 and 1998, and
March 31, 1999:
<TABLE>
<CAPTION>
1997 1998 1999
--------------------------- --------------------------- ---------------------------
REVENUES PERCENT OF REVENUES PERCENT OF REVENUES PERCENT OF
(IN THOUSANDS) REVENUES (IN THOUSANDS) REVENUES (IN THOUSANDS) REVENUES
-------------- ---------- -------------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Customer A............. $3,773 12.7% $6,143 17.8% $1,384 15.5%
Customer B............. 5,370 18.1 5,771 16.7 1,153 12.9
Customer C............. 4,388 14.8 5,741 16.7 1,082 12.1
Customer D............. 3,580 12.1 3,574 10.3 -- --
</TABLE>
Financial instruments which potentially expose the Company to
concentrations of credit risk, as defined by SFAS No. 105, consist primarily of
contract accounts receivable. At December 31, 1998, and March 31, 1999,
approximately 39% and 47% of contract accounts receivable are due from three
customers.
In general, the Company performs its services under contract terms that
entitle it to progress payments and is, by law, granted a lien interest in the
work until paid. The Company is exposed to potential credit risk related to
changes in business and economic factors within the state of Arizona. However,
management believes that its contract acceptance, billing and collection
policies are adequate to minimize the potential credit risk.
The Company's customers are primarily in the construction industry.
Accordingly, the Company is exposed to risks of fluctuations in construction in
the areas which it operates.
The Company relies on several key vendors to supply its primary material
needs. However, the Company believes that other suppliers could provide for the
Company's needs on comparable terms.
F-74
<PAGE> 205
KEITH RIGGS PLUMBING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Abrupt changes in the supply flow could, however cause a delay and a possible
inability to meet its commitments on schedule or a possible loss of sales which
would offset operating results adversely.
13. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
On April 1, 1999, AMPAM acquired through merger all the stock of the
Company in exchange for cash and stock of AMPAM, after which the Company is a
wholly owned subsidiary of AMPAM.
In connection with the merger, the Company sold or distributed certain
non-operating assets and attendant liabilities, if any, to the stockholders.
Additionally, the Company made cash distributions prior to the merger which
represent the Company's estimated S corporation accumulated adjustment account.
As discussed in Note 2, in connection with the merger, the Company
converted from an S corporation to a C corporation. Upon conversion to C
corporation status, the Company recorded deferred taxes for which it will be
responsible. If the S corporation had been terminated as of December 31, 1998,
and March 31, 1999, the Company would have recorded a deferred tax asset of
approximately $140,000 and $192,000, respectively, due to various book reserves
and accruals and a deferred tax liability of approximately $246,000 and
$265,000, respectively, due to differences between book and tax depreciation and
due to an accrual for unbilled revenue.
Concurrently with the merger, the Company entered into agreements with the
stockholders to lease office space used in the Company's operations for a
negotiated amount and term.
F-75
<PAGE> 206
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
J.A. Croson Company and Franklin Fire Sprinkler Company:
We have audited the accompanying combined balance sheets of J.A. Croson
Company and Franklin Fire Sprinkler Company (combined, the Company) as of
September 30, 1997 and 1998, and March 31, 1999, and the related combined
statements of operations, cash flows and stockholders' equity for each of the
three years in the period ended September 30, 1998, and for the six months ended
March 31, 1999. These combined financial statements are the responsibility of
the Companies' management. Our responsibility is to express an opinion on these
combined 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of J.A. Croson
Company and Franklin Fire Sprinkler Company as of September 30, 1997 and 1998,
and March 31, 1999, and the combined results of their operations and their cash
flows for each of the three years in the period ended September 30, 1998, and
for the six months ended March 31, 1999, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
May 14, 1999
F-76
<PAGE> 207
J.A. CROSON COMPANY AND FRANKLIN FIRE SPRINKLER COMPANY
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------- MARCH 31,
1997 1998 1999
------ ------- ---------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 479 $ 692 $ 379
Accounts receivable --
Contract, net.......................................... 3,148 4,179 4,970
Contract -- related party.............................. 1,761 1,152 1,332
Other.................................................. 90 22 47
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 2,318 2,327 2,951
Inventories............................................... 292 215 247
Prepaid expenses and other current assets................. 15 -- 14
------ ------- -------
Total current assets.............................. 8,103 8,587 9,940
PROPERTY AND EQUIPMENT, net................................. 1,629 1,569 1,567
OTHER ASSETS................................................ 2 -- --
------ ------- -------
Total assets...................................... $9,734 $10,156 $11,507
====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 20 $ 13 $ --
Current portion of other long-term obligations............ 201 181 186
Notes payable short-term.................................. -- -- 800
Accounts payable and accrued expenses..................... 3,375 2,782 2,940
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 1,217 1,452 1,081
------ ------- -------
Total current liabilities......................... 4,813 4,428 5,007
LONG-TERM DEBT, net of current maturities................... 93 61 64
OTHER LONG-TERM OBLIGATIONS, net of current portion......... 636 570 493
------ ------- -------
Total liabilities................................. 5,542 5,059 5,564
------ ------- -------
STOCKHOLDERS' EQUITY:
Croson common stock, $20 stated value; 750 shares
authorized, issued and outstanding..................... 15 15 15
Franklin common stock, $5 stated value; 750 shares
authorized, 100 issued and outstanding................. 1 1 1
Retained earnings......................................... 4,176 5,081 5,927
------ ------- -------
Total stockholders' equity........................ 4,192 5,097 5,943
------ ------- -------
Total liabilities and stockholders' equity........ $9,734 $10,156 $11,507
====== ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-77
<PAGE> 208
J.A. CROSON COMPANY AND FRANKLIN FIRE SPRINKLER COMPANY
COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
--------------------------- ---------------------
1996 1997 1998 1998 1999
------- ------- ------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES................................... $26,185 $27,029 $25,234 $12,330 $17,194
COST OF REVENUES (including depreciation).. 22,305 22,970 20,438 10,500 14,407
------- ------- ------- ------- -------
Gross profit.......................... 3,880 4,059 4,796 1,830 2,787
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES................................. 2,263 2,217 2,032 894 1,232
------- ------- ------- ------- -------
Income from operations................ 1,617 1,842 2,764 936 1,555
------- ------- ------- ------- -------
OTHER INCOME (EXPENSE):
Interest income.......................... 66 49 42 21 20
Interest expense......................... (55) (55) (51) (28) (23)
Other.................................... 15 3 (7) (12) (1)
------- ------- ------- ------- -------
Other income (expense), net........... 26 (3) (16) (19) (4)
------- ------- ------- ------- -------
INCOME BEFORE PROVISION FOR INCOME TAXES... 1,643 1,839 2,748 917 1,551
PROVISION FOR INCOME TAXES................. 23 32 33 19 12
------- ------- ------- ------- -------
NET INCOME................................. $ 1,620 $ 1,807 $ 2,715 $ 898 $ 1,539
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-78
<PAGE> 209
J.A. CROSON COMPANY AND FRANKLIN FIRE SPRINKLER COMPANY
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30 MARCH 31
--------------------------- --------------------
1996 1997 1998 1998 1999
------- ------- ------- ----------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................... $ 1,620 $ 1,807 $ 2,715 $ 898 $1,539
Adjustments to reconcile net income to net cash
provided by (used in) operating activities --
Depreciation and amortization.................... 310 348 359 144 181
Gain on sale of property and equipment........... (10) (5) (4) (4) --
Changes in operating assets and liabilities --
(Increase) decrease in --
Accounts receivable......................... (509) 8 (354) 655 (996)
Costs and estimated earnings in excess of
billings on uncompleted contracts......... 685 (1,165) (9) 86 (624)
Inventories................................. (37) (69) 77 59 (32)
Prepaid expenses and other current assets... -- (15) 15 (43) (14)
Increase (decrease) in --
Accounts payable and accrued expenses....... 93 101 (593) (580) 158
Billings in excess of costs and estimated
earnings on uncompleted contracts......... (22) (194) 235 309 (371)
Other....................................... 240 -- -- --
------- ------- ------- ------- ------
Net cash provided by operating
activities.............................. 2,370 816 2,441 1,524 (159)
------- ------- ------- ------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment....... 11 13 18 18 --
Acquisitions of property and equipment............. (336) (289) (112) (112) (107)
Other investing activities......................... 13 -- -- -- 800
------- ------- ------- ------- ------
Net cash used in investing activities....... (312) (276) (94) (94) 693
------- ------- ------- ------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt......................... -- (125) (45) (18) (13)
Payments of other long-term obligations............ (142) (162) (279) (131) (141)
Distributions to stockholders...................... (1,323) (1,303) (1,810) (1,166) (693)
------- ------- ------- ------- ------
Net cash used in financing activities....... (1,465) (1,590) (2,134) (1,315) (847)
------- ------- ------- ------- ------
Net increase (decrease) in cash and cash
equivalents............................... 593 (1,050) 213 115 (313)
CASH AND CASH EQUIVALENTS, beginning of period....... 936 1,529 479 479 692
------- ------- ------- ------- ------
CASH AND CASH EQUIVALENTS, end of period............. $ 1,529 $ 479 $ 692 $ 594 $ 379
======= ======= ======= ======= ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for --
Interest......................................... $ 55 $ 55 $ 51 $ 28 $ 21
Income taxes..................................... $ 23 $ 23 $ 25 $ 10 $ 9
Capital lease additions............................ $ 169 $ 187 $ 172 $ 39 $ 52
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-79
<PAGE> 210
J.A. CROSON COMPANY AND FRANKLIN FIRE SPRINKLER COMPANY
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SHARES OF
COMMON COMMON RETAINED
STOCK STOCK EARNINGS TOTAL
--------- ------ -------- -------
<S> <C> <C> <C> <C>
BALANCE, September 30, 1995............................ 1,500 $16 $ 3,375 $ 3,391
Distributions to stockholders........................ -- -- (1,323) (1,323)
Net income........................................... -- -- 1,620 1,620
----- --- ------- -------
BALANCE, September 30, 1996............................ 1,500 16 3,672 3,688
Distributions to stockholders........................ -- -- (1,303) (1,303)
Net income........................................... -- -- 1,807 1,807
----- --- ------- -------
BALANCE AT SEPTEMBER 30, 1997.......................... 1,500 16 4,176 4,192
Distributions to stockholders........................ -- -- (1,810) (1,810)
Net income........................................... -- -- 2,715 2,715
----- --- ------- -------
BALANCE AT SEPTEMBER 30, 1998.......................... 1,500 16 5,081 5,097
Distributions to stockholders........................ -- -- (693) (693)
Net income........................................... -- -- 1,539 1,539
----- --- ------- -------
BALANCE AT MARCH 31, 1999.............................. 1,500 $16 $ 5,927 $ 5,943
===== === ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-80
<PAGE> 211
J.A. CROSON COMPANY AND FRANKLIN FIRE SPRINKLER COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
J.A. Croson Company (Croson), an Ohio corporation, provides plumbing and
mechanical contracting services for commercial and industrial entities primarily
in Ohio. Franklin Fire Sprinkler Company (Franklin) provides fire protection
contracting services for commercial and industrial entities throughout Ohio. The
lengths of construction contracts are typically less than one year. Croson and
Franklin are collectively referred to herein as the Company.
The Company and its stockholders intend to enter into a definitive
agreement with American Plumbing & Mechanical, Inc. (AMPAM), pursuant to which
all outstanding shares of the Company's common stock will be exchanged for cash
and shares of AMPAM common stock concurrently with the consummation of the
related financing.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Combination
The accompanying financial statements include the accounts of Croson and
Franklin which are affiliated through common ownership. Intercompany
transactions and balances have been eliminated in combination.
Interim Financial Information
The interim financial statements for the six months ended March 31, 1998,
are unaudited and have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of the Company's
management, the unaudited interim financial statements contain all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Accounts Receivable and Provision for Doubtful Accounts
The Company provides an allowance for doubtful accounts based upon an
estimate of uncollectable balances.
Inventories
Inventories consist of parts and supplies held for use in the ordinary
course of business and are stated at the lower of cost or market using the
first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the lease or the estimated useful life of the asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and
F-81
<PAGE> 212
J.A. CROSON COMPANY AND FRANKLIN FIRE SPRINKLER COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
depreciated. Upon retirement or disposition of property and equipment, the cost
and related accumulated depreciation are removed from the accounts and any
resulting gain or loss is recognized in the statement of operations.
Revenue Recognition
The Company recognizes revenue when services are performed except when work
is being performed under a construction contract. Revenues from construction
contracts are recognized on the percentage-of-completion method measured by the
percentage of cost incurred to date to total estimated costs for each contract.
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance, such as indirect labor and depreciation
costs. Provisions for the total estimated losses on uncompleted contracts are
made in the period in which such losses are determined. Changes in job
performance, job conditions, estimated profitability and final contract
settlements may result in revisions to costs and income and their effects are
recognized in the period in which the revisions are determined. An amount equal
to contract costs attributable to claims is included in revenues when
realization is probable and the amount can be reliably estimated.
The balances billed but not paid by customers pursuant to retainage
provisions in construction contracts will be due upon completion of the
contracts and acceptance by the customer. Based on the Company's experience with
similar contracts in recent years, the retention balance at each balance sheet
date will be collected within the subsequent fiscal year.
The current asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The current liability, "Billings in excess of costs and estimated
earnings on uncompleted contracts," represents billings in excess of revenues
recognized.
Income Taxes
The Company has elected S Corporation status as defined by the Internal
Revenue Code, whereby the Company itself is not subject to taxation for federal
purposes. Under S Corporation status, the stockholders report their share of the
Company's taxable earnings in their personal tax returns. Consequently, the
accompanying financial statements of the Company do not include a provision for
current or deferred income taxes. Certain municipalities do not recognize the S
Corporation status for purposes of local taxation. The provision for income
taxes in the accompanying statement of operations represents the local tax
provision related to such municipalities. The Company will terminate its S
Corporation status concurrently with the effective date of the merger (see Note
12).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities,
disclosures of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Realization of Long-Lived Assets
The Company has adopted the provision of Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of." Accordingly, in the event that
facts and circumstances indicate that property and equipment or other assets may
be impaired, an evaluation of recoverability would be performed. If an
evaluation is
F-82
<PAGE> 213
J.A. CROSON COMPANY AND FRANKLIN FIRE SPRINKLER COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
required, the estimated future undiscounted cash flows associated with the asset
are compared to the asset's carrying amount to determine if an impairment of
such property is necessary. The effect of any impairment would be to expense the
difference between the fair value of such property and its carrying value.
Adoption of this standard did not have a material effect on the financial
position or results of operations of the Company.
Reclassifications
Certain reclassifications have been made to the prior year financial
statements to conform with the current year presentation.
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Contract receivables consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30
--------------- MARCH 31,
1997 1998 1999
------ ------ ---------
<S> <C> <C> <C>
Trade..................................................... $2,408 $3,289 $3,693
Billed retentions....................................... 190 133 314
Unbilled retentions..................................... 684 891 1,097
------ ------ ------
3,282 4,313 5,104
Less -- Allowance for doubtful accounts................. (134) (134) (134)
------ ------ ------
Balance at end of year............................... $3,148 $4,179 $4,970
====== ====== ======
</TABLE>
Plumbing installation contracts in progress are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30
----------------- MARCH 31,
1997 1998 1999
------- ------- ---------
<S> <C> <C> <C>
Costs incurred on contracts in progress................. $33,510 $31,261 $41,005
Estimated earnings, net of losses....................... 3,338 3,666 5,461
------- ------- -------
36,848 34,927 46,466
Less -- Billings to date................................ 35,747 34,052 44,596
------- ------- -------
$ 1,101 $ 875 $ 1,870
======= ======= =======
Costs and estimated earnings in excess of billings on
uncompleted contracts................................. $ 2,318 $ 2,327 $ 2,951
Billings in excess of costs and estimated earnings on
uncompleted contracts................................. (1,217) (1,452) (1,081)
------- ------- -------
$ 1,101 $ 875 $ 1,870
======= ======= =======
</TABLE>
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30
--------------- MARCH 31,
1997 1998 1999
------ ------ ---------
<S> <C> <C> <C>
Accounts payable, trade................................... $1,800 $1,935 $2,176
Accrued compensation and benefits......................... 1,236 830 637
Payables to related parties............................... 339 17 1
Other..................................................... -- -- 126
------ ------ ------
Balance at end of year.......................... $3,375 $2,782 $2,940
====== ====== ======
</TABLE>
F-83
<PAGE> 214
J.A. CROSON COMPANY AND FRANKLIN FIRE SPRINKLER COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT:
Property and equipment, including capital lease assets, consists of the
following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
USEFUL SEPTEMBER 30
LIVES IN ----------------- MARCH 31,
YEARS 1997 1998 1999
--------- ------- ------- ---------
<S> <C> <C> <C> <C>
Transportation equipment...................... 5 $ 1,082 $ 1,142 $ 1,193
Machinery and equipment....................... 5 700 868 916
Building and leasehold improvements........... 10-30 1,255 1,143 1,143
Furniture and fixtures........................ 5 243 296 377
------- ------- -------
3,280 3,449 3,629
Less -- Accumulated depreciation and
amortization................................ (1,651) (1,880) (2,062)
------- ------- -------
Property and equipment, net......... $ 1,629 $ 1,569 $ 1,567
======= ======= =======
</TABLE>
5. LINE OF CREDIT AND LONG-TERM DEBT:
The Company has a $1,000,000 line of credit with a bank, bearing interest
at the prime rate (7.75% at March 31, 1999) less .5%. Interest on the
outstanding balance is due monthly. The Company had a $-0-, $-0- and $800,000
outstanding balance on its line of credit as of September 30, 1997 and 1998, and
March 31, 1999, respectively. The line of credit is secured by substantially all
of the Company's inventory, accounts receivable, property and equipment.
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30
------------ MARCH 31,
1997 1998 1999
---- ---- ---------
<S> <C> <C> <C>
Note payable, unsecured, 3-year, $60,000 noninterest
bearing agreement with principal payments due quarterly
in installments of $5,000................................ $ 45 $ -- $--
Note payable, 7-year, $185,000 noninterest bearing term
note (discounted at the Company's incremental borrowing
rate of 8.25% at the date of the note) with principal
payments due in four installments, $85,000 in 1997,
$12,500 in 1999, $12,500 in 2001 and $75,000 in 2003. The
note is secured by certain property...................... 68 74 64
---- ---- ---
Total debt....................................... 113 74 64
Current portion............................................ (20) (13) --
---- ---- ---
Long-term portion................................ $ 93 $ 61 $64
==== ==== ===
</TABLE>
The maturities of long-term debt as of September 30, 1998, are as follows
(in thousands):
<TABLE>
<S> <C>
1999........................................................ $ 13
2000........................................................ --
2001........................................................ 12
2002........................................................ --
2003........................................................ 75
----
$100
====
</TABLE>
F-84
<PAGE> 215
J.A. CROSON COMPANY AND FRANKLIN FIRE SPRINKLER COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. LEASES:
Upon the sale of property to its majority stockholder on March 1, 1995, the
Company agreed to lease back the property through February 28, 2005. The sale
leaseback was recorded as a financing transaction and the obligation is recorded
at the present value of future minimum payments of $99,600 per year, discounted
at an interest rate of 9%.
The Company has also entered into various leases for certain equipment for
lease terms through January 2002. Obligations under these capital leases have
been recorded in the accompanying financial statements at the present value of
future minimum lease payments, discounted at the applicable interest rate. The
capitalized cost of $582,831, $755,226 and $806,976, less accumulated
depreciation of $243,717, $373,012 and $443,541, is included in property and
equipment in the accompanying financial statements as of September 30, 1997 and
1998, and March 31, 1999, respectively. Depreciation expense for this equipment
for the years ended September 30, 1996, 1997 and 1998, was $63,608, $91,836 and
$129,295, respectively. Depreciation expense for this equipment for the six
month period ended March 31, 1999, was $70,529.
Future minimum lease payments under the capital leases and the net present
value of the future minimum lease payments as of September 30, 1998, and March
31, 1999, are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
----- -----
<S> <C> <C>
1998........................................................ $ 236 $ 174
2000........................................................ 196 175
2001........................................................ 128 123
2002........................................................ 102 100
2003........................................................ 100 100
Thereafter.................................................. 141 141
----- -----
Total future minimum lease payments............... 903 813
Amount representing interest................................ (152) (134)
----- -----
Present value of future minimum lease payments.... 751 679
Less -- Current portion..................................... (181) (186)
----- -----
Noncurrent........................................ $ 570 $ 493
===== =====
</TABLE>
7. RELATED-PARTY TRANSACTIONS:
Croson is a partner in a joint venture with Lincoln T. Mandeville Plumbing
(Mandeville). The joint venture subcontracts all work to Croson and Mandeville
in amounts such that the joint venture reports minimal net income (loss). The
Company periodically receives and advances funds from and to the joint venture.
At September 30, 1997 and 1998, and March 31, 1999, the Company owed the joint
venture $339,386, $17,000 and $1,600, respectively, which is included in
"accounts payables and accrued expenses" in the accompanying balance sheet. The
joint venture owed the Company $1,760,765, $1,152,000 and $1,027,530 at
September 30, 1997 and 1998, and March 31, 1999, for the Company's billings on
contracts performed by the joint venture. The joint venture has receivables from
customers, principally governmental organizations, totaling $909,571, $588,840
and $745,543 as of September 30, 1997 and 1998, and March 31, 1999,
respectively. The Company recorded revenues for work performed for the joint
venture of $1,401,723, $2,172,264 and $3,635,953 for the years ended September
30, 1996, 1997 and 1998, respectively. The Company recorded revenues for work
performed for the joint venture of $1,229,234 for the six month period ended
March 31, 1999. The Company recorded costs of revenues for work performed for
the joint venture totaling $901,021, $1,908,858 and $3,023,871 for the years
ended September 30, 1996,
F-85
<PAGE> 216
J.A. CROSON COMPANY AND FRANKLIN FIRE SPRINKLER COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
1997 and 1998, respectively. The Company recorded costs of revenues for work
performed for the joint venture totaling $1,027,870 for the six month period
ended March 31, 1999.
At March 31, 1999, the Company has a receivable balance of $303,973 from
David A. Croson related to an advance for a personal investment, which is
included in contract and other-related party on the accompanying combined
balance sheet. The noninterest bearing receivable is due upon demand.
On March 1, 1995, the Company sold certain property to its majority
stockholder approximately equal to the net book value of the property. The
Company then entered into a lease with the stockholder for the same property
(see Note 6). In 1996, 1997 and 1998, the Company made obligation payments to
its majority stockholder in the amount of $99,600. At September 30, 1997 and
1998, and March 31, 1999, the Company owed the majority stockholder $537,743,
$484,155 and $455,611, respectively, which is included in other long-term
obligations on the accompanying combined balance sheets.
8. EMPLOYEE BENEFIT PLAN:
The Company has a 401(k) and profit-sharing plan which covers full-time
employees who have met age and service requirements. The plan specifies
contributions at the discretion of the Company's management. Expense under the
plan amounted to approximately $208,000, $180,500 and $90,000 for the years
ended September 30, 1996, 1997 and 1998. Expense under the plan amounted to
approximately $26,590 for the six month period ended March 31, 1999. Amounts due
to this plan were approximately $177,000, $1,000 and $1,000 at September 30,
1997 and 1998, and March 31, 1999, respectively.
9. FINANCIAL INSTRUMENTS:
The Company's financial instruments consist of cash and cash equivalents
and debt. The Company's management believes that the carrying value of these
instruments on the accompanying combined balance sheets approximates their fair
value.
10. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is involved in disputes or legal actions arising in the
ordinary course of business. Management does not believe the outcome of such
legal actions will have a material adverse effect on the Company's financial
position or results of operations.
Insurance
The Company carries a broad range of insurance coverage, including business
auto liability, general liability and an umbrella policy. The Company has not
incurred significant claims or losses on any of these insurance policies.
11. MAJOR CUSTOMERS AND RISK CONCENTRATION:
The Company had revenues of approximately 26.8%, 32.2% and 31.2% of total
revenues to one major customer during the years ended September 30, 1996, 1997
and 1998, respectively. The Company had revenues of approximately 35.8% of total
revenues to one major customer during the six month period ended March 31, 1999.
In general, the Company performs its services under contract terms that
entitle it to progress payments and is, by law, granted a lien interest in the
work until paid. The Company is exposed to potential credit risk related to
changes in business and economic factors within the region. However,
F-86
<PAGE> 217
J.A. CROSON COMPANY AND FRANKLIN FIRE SPRINKLER COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
management believes that its contract acceptance, billing and collection
policies are adequate to minimize the potential credit risk.
12. SUBSEQUENT EVENT:
On April 1, 1999, AMPAM acquired through merger all the stock of the
Company in exchange for cash and stock of AMPAM, after which the Company is a
wholly owned subsidiary of AMPAM.
In connection with the merger, the Company sold or distributed certain
nonoperating assets and attendant liabilities, if any, to the stockholders.
Additionally, the Company made cash distributions which represent the Company's
estimated S Corporation accumulated adjustment account.
As discussed in Note 2, in connection with the merger, the Company
converted from an S Corporation to a C Corporation. Upon conversion to C
Corporation status, the Company recorded deferred taxes for which it will be
responsible. If the S Corporation had been terminated as of September 30, 1998,
the Company would have recorded a deferred tax asset of approximately $99,000
due to differences between book and tax depreciation. If the S Corporation had
been terminated as of March 31, 1999, the Company would have recorded a deferred
tax liability of approximately $133,000 due to differences between book and tax
depreciation.
Concurrently with the merger, the Company entered into agreements with the
stockholders to lease office space used in the Company's operations for a
negotiated amount and term.
F-87
<PAGE> 218
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
J. A. Croson Company of Florida:
We have audited the accompanying balance sheets of J. A. Croson Company of
Florida as of December 31, 1997 and 1998, and March 31, 1999, and the related
statements of operations, cash flows and stockholders' equity for each of the
three years in the period ended December 31, 1998, and for the three months
ended March 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with 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 J. A. Croson Company of
Florida, as of December 31, 1997 and 1998, and March 31, 1999, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1998, and for the three months ended March 31, 1999, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
May 26, 1999
F-88
<PAGE> 219
J. A. CROSON COMPANY OF FLORIDA
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31
1997 1998 1999
------ ------ --------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 19 $ 71 $ 57
Accounts receivable, net.................................. 3,401 4,688 4,994
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 657 1,233 1,140
Inventories............................................... 73 40 2
Prepaid expenses and other current assets................. 399 371 539
------ ------ ------
Total current assets.............................. 4,549 6,403 6,732
PROPERTY AND EQUIPMENT, net................................. 1,293 1,247 996
OTHER LONG-TERM ASSETS...................................... -- 378 --
------ ------ ------
Total assets...................................... $5,842 $8,028 $7,728
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 82 $ -- $ --
Line of credit............................................ 739 337 840
Bank overdraft............................................ 89 -- --
Accounts payable and accrued expenses..................... 994 1,692 1,100
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 1,640 1,724 593
------ ------ ------
Total current liabilities......................... 3,544 3,753 2,533
LONG-TERM DEBT, net of current maturities................... 23 -- --
NOTE PAYABLE TO STOCKHOLDER................................. 434 -- --
------ ------ ------
Total liabilities................................. 4,001 3,753 2,533
------ ------ ------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par value, 7,500 shares authorized, 980
shares issued and outstanding.......................... 1 1 1
Additional paid-in capital................................ 650 650 650
Retained earnings......................................... 1,190 3,624 4,544
------ ------ ------
Total stockholders' equity........................ 1,841 4,275 5,195
------ ------ ------
Total liabilities and stockholders' equity........ $5,842 $8,028 $7,728
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-89
<PAGE> 220
J. A. CROSON COMPANY OF FLORIDA
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
--------------------------- --------------------
1996 1997 1998 1998 1999
------- ------- ------- ----------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES.................................... $11,722 $18,095 $28,142 $6,148 $8,274
COST OF REVENUES (including depreciation)... 9,300 13,916 20,483 4,658 5,482
------- ------- ------- ------ ------
Gross profit........................... 2,422 4,179 7,659 1,490 2,792
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.................................. 1,050 2,213 2,960 718 869
------- ------- ------- ------ ------
Income from operations................. 1,372 1,966 4,699 772 1,923
------- ------- ------- ------ ------
OTHER INCOME (EXPENSE):
Interest income........................... 10 -- -- -- --
Interest expense.......................... (97) (87) (108) (24) (7)
Other..................................... -- (44) -- -- --
------- ------- ------- ------ ------
Other income (expense), net............ (87) (131) (108) (24) (7)
------- ------- ------- ------ ------
NET INCOME.................................. $ 1,285 $ 1,835 $ 4,591 $ 748 $1,916
======= ======= ======= ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-90
<PAGE> 221
J. A. CROSON COMPANY OF FLORIDA
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
--------------------------- ---------------------
1996 1997 1998 1998 1999
------- ------- ------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................... $ 1,285 $ 1,835 $ 4,591 $ 748 $ 1,916
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation.............................. 73 173 182 23 45
Loss on sale of property and equipment.... -- 44 40
Changes in operating assets and
liabilities:
(Increase) decrease in:
Accounts receivable.................. 416 (1,623) (1,287) (641) (306)
Costs and estimated earnings in
excess of billings on uncompleted
contracts.......................... 135 (448) (576) (675) 93
Inventories.......................... 2 (58) 33 71 38
Prepaid expenses and other assets.... (200) (183) (350) (327) 210
Increase (decrease) in:
Bank overdraft....................... -- 89 (89) 682 --
Accounts payable and accrued
expenses........................... 122 309 698 (67) (378)
Billings in excess of costs and
estimated earnings on uncompleted
contracts.......................... 105 951 84 367 (1,131)
------- ------- ------- ----- -------
Net cash provided by operating
activities...................... 1,938 1,089 3,326 181 487
------- ------- ------- ----- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment.......... (165) (992) (352) (108) (8)
Proceeds from the sale of property and
equipment................................. -- -- 176 -- --
------- ------- ------- ----- -------
Net cash used in investing
activities...................... (165) (992) (176) (108) (8)
------- ------- ------- ----- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt................. 250 -- -- -- --
Payments of long-term debt................... (302) (96) (105) (7) --
Net borrowings (payments) on line of
credit.................................... (146) 739 (402) (70) 503
Borrowings from (payments to) stockholder.... (273) -- (434)
Proceeds from issuance of common stock....... 197 325 --
Distribution to stockholders................. (1,065) (1,521) (2,157) -- (996)
------- ------- ------- ----- -------
Net cash used in financing
activities...................... (1,339) (553) (3,098) (77) (493)
------- ------- ------- ----- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................. 434 (456) 52 (4) (14)
CASH AND CASH EQUIVALENTS, beginning of
period....................................... 41 475 19 19 71
------- ------- ------- ----- -------
CASH AND CASH EQUIVALENTS, end of period....... $ 475 $ 19 $ 71 $ 15 $ 57
======= ======= ======= ===== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for:
Interest.................................. $ 116 $ 44 $ 108 $ 24 $ 7
======= ======= ======= ===== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-91
<PAGE> 222
J. A. CROSON COMPANY OF FLORIDA
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995................... 714 $1 $128 $ 656 $ 785
Issuance of Common Stock................... 119 -- 197 -- 197
Distributions to stockholders.............. -- -- -- (1,065) (1,065)
Net income................................. -- -- -- 1,285 1,285
--- -- ---- ------- -------
BALANCE, December 31, 1996................... 833 1 325 876 1,202
Issuance of Common Stock................... 147 -- 325 -- 325
Distributions to stockholders.............. -- -- -- (1,521) (1,521)
Net income................................. -- -- -- 1,835 1,835
--- -- ---- ------- -------
BALANCE, December 31, 1997................... 980 1 650 1,190 1,841
Distributions to stockholders.............. -- -- -- (2,157) (2,157)
Net income................................. -- -- -- 4,591 4,591
--- -- ---- ------- -------
BALANCE, December 31, 1998................... 980 1 650 3,624 4,275
Distributions to stockholders.............. -- -- -- (996) (996)
Net income................................. -- -- -- 1,916 1,916
--- -- ---- ------- -------
BALANCE, March 31, 1999...................... 980 $1 $650 $ 4,544 $ 5,195
=== == ==== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-92
<PAGE> 223
J. A. CROSON COMPANY OF FLORIDA
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
J. A. Croson Company of Florida (the Company), a Florida corporation,
focuses on providing plumbing contractor services primarily for multi-family
housing developers. The Company performs the majority of its contract work under
fixed-price contracts, with contract terms generally less than one year. The
Company performs the majority of its work in Central Florida.
The Company and its stockholders intend to enter into a definitive
agreement with American Plumbing & Mechanical, Inc. (AMPAM), pursuant to which
all outstanding shares of the Company's common stock will be exchanged for cash
and shares of AMPAM common stock concurrently with the consummation of the
related financing.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information
The interim financial statements for the three months ended March 31, 1998,
are unaudited and have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of the Company's
management, the unaudited interim financial statements contain all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Provision for Doubtful Accounts
The Company provides an allowance for doubtful accounts based upon an
estimate of uncollectable balances.
Inventories
Inventory purchases have historically been charged to jobs when purchased.
Inventories consist of parts and supplies held for use in the ordinary course of
business and are stated at the lower of cost or market using the first-in,
first-out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets,
net of any salvage values.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.
F-93
<PAGE> 224
J. A. CROSON COMPANY OF FLORIDA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
The Company recognizes revenue when services are performed except when work
is being performed under a construction contract. Revenues from construction
contracts are recognized on the percentage-of-completion method measured by the
percentage of cost incurred to date to total estimated costs for each contract.
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance, such as indirect labor and depreciation
costs. Provisions for the total estimated losses on uncompleted contracts are
made in the period in which such losses are determined. Changes in job
performance, job conditions, estimated profitability and final contract
settlements may result in revisions to costs and income and their effects are
recognized in the period in which the revisions are determined. An amount equal
to contract costs attributable to claims is included in revenues when
realization is probable and the amount can be reliably estimated.
The balances billed but not paid by customers pursuant to retainage
provisions in construction contracts will be due upon completion of the
contracts and acceptance by the customer. Based on the Company's experience with
similar contracts in recent years, the retention balance at each balance sheet
date will be collected within the subsequent fiscal year.
The current asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The current liability, "Billings in excess of costs and estimated
earnings on uncompleted contracts," represents billings in excess of revenues
recognized.
Warranty Costs
For most contracts, the Company warrants labor and materials for one year
after completion of the job.
Income Taxes
The Company has elected S corporation status, as defined by the Internal
Revenue Code, whereby the Company itself is not subject to taxation for federal
purposes. Under S corporation status, the stockholders report their shares of
the Company's taxable earnings or losses in their personal tax returns.
Consequently, the accompanying financial statements of the Company do not
include a provision for current or deferred federal taxes. The Company
terminated its S corporation status concurrently with the effective date (April
1, 1999) of the merger discussed in Note 13.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities,
disclosures of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Realization of Long-Lived Assets
The Company has adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
Accordingly, in the event that facts and circumstances indicate that property
and equipment or other assets may be impaired, an evaluation of recoverability
would be performed. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset are compared to the asset's
carrying amount to determine if an impairment of such property is necessary. The
effect of any impairment would be to expense the difference between
F-94
<PAGE> 225
J. A. CROSON COMPANY OF FLORIDA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the fair value of such property and its carrying value. Adoption of this
standard did not have a material effect on the financial position or results of
operations of the Company.
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Accounts receivables consist of the following at December 31, 1997 and 1998
and March 31, 1999 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31,
1997 1998 1999
------ ------ ---------
<S> <C> <C> <C>
Billed.................................................. $2,445 $3,422 $3,528
Retainage............................................... 956 1,266 1,507
Allowance for doubtful accounts......................... 0 0 (41)
------ ------ ------
Balance at end of period...................... $3,401 $4,688 $4,994
====== ====== ======
</TABLE>
Plumbing installation contracts in progress are as follows at December 31,
1997 and 1998 and March 31, 1999 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1997 1998 1999
------- ------- ---------
<S> <C> <C> <C>
Costs incurred on contracts in progress............... $ 6,620 $12,031 $11,968
Estimated earnings, net of losses..................... 1,965 3,934 4,234
------- ------- -------
8,585 15,965 16,202
Less: Billings to date................................ 9,568 16,456 15,655
------- ------- -------
$ (983) $ (491) $ 547
======= ======= =======
Costs and estimated earnings in excess of billings on
uncompleted contracts............................... $ 657 $ 1,233 $ 1,140
Billings in excess of costs and estimated earnings on
uncompleted contracts............................... (1,640) (1,724) (593)
------- ------- -------
$ (983) $ (491) $ 547
======= ======= =======
</TABLE>
Accounts payable and accrued expenses consist of the following at December
31, 1997 and 1998 and March 31, 1999 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- MARCH 31,
1997 1998 1999
---- ------ ---------
<S> <C> <C> <C>
Accounts payable, trade.................................. $596 $ 975 $ 848
Accrued compensation and benefits........................ 227 356 187
Other accrued expenses................................... 171 361 65
---- ------ ------
Balance at end of period....................... $994 $1,692 $1,100
==== ====== ======
</TABLE>
F-95
<PAGE> 226
J. A. CROSON COMPANY OF FLORIDA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1997 and
1998 and March 31, 1999 (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
USEFUL DECEMBER 31,
LIVES --------------- MARCH 31,
IN YEARS 1997 1998 1999
--------- ------ ------ ---------
<S> <C> <C> <C> <C>
Transportation equipment........................ 5 $ 913 $1,063 $1,066
Machinery and equipment......................... 7 125 150 154
Office and storage trailers..................... 5 96 103 103
Building and improvements....................... 39 390 231 --
Furniture and fixtures.......................... 5 103 175 175
------ ------ ------
1,627 1,722 1,498
Less: accumulated depreciation.................. (334) (475) (502)
------ ------ ------
Property and equipment, net..................... $1,293 $1,247 $ 996
====== ====== ======
</TABLE>
5. LINE OF CREDIT AND LONG-TERM DEBT
Line of Credit
The Company has a $1,500,000 line of credit agreement with a bank to be
drawn upon as needed, with variable interest payable monthly at the bank's prime
rate, as defined, plus 1.25% (9.0% at March 31, 1999). The line is secured by
accounts receivable, inventory, and a personal guarantee by a principal
shareholder of the Company. At December 31, 1997 and 1998 and March 31, 1999,
$739,000, $337,000 and $840,000 was outstanding under the line of credit, which
is due June 1999.
Long-Term Debt
Long-term debt at December 31, 1997 and 1998 and March 31, 1999, consists
of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- MARCH 31,
1997 1998 1999
----- ----- ---------
<S> <C> <C> <C>
Notes payable to a financial institution, due monthly,
payable in 19 payments of $3,943 including interest at a
rate of 8.66% paid off in 1998............................ $ 26 $ -- $ --
Notes payable to a financial institution, due monthly,
payable in 31 payments of $5,337 including interest at a
rate of 9.55%, paid off in 1998........................... 79 -- --
---- ---- ----
Total debt........................................ 105 -- --
Less: Current maturities of long-term debt................ (82) -- --
---- ---- ----
Total long-term debt.............................. $ 23 $ -- --
==== ==== ====
</TABLE>
6. LEASES
The Company leases certain property and office space from its stockholders
under noncancellable operating leases, expiring in September 2002 and December
2004. Rent expense under these related-party leases were approximately $32,000
for the years ended December 31, 1996 and 1997, $24,000 for the year ended
December 31, 1998 and $13,000 for the three months ended March 31, 1999.
F-96
<PAGE> 227
J. A. CROSON COMPANY OF FLORIDA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In May 1998, the Company entered into a noncancellable operating lease with
a third party for property to be utilized as a prefabrication work location,
expiring in May 2001. Rent expense under this lease was approximately $22,000
for the year ended December 31, 1998 and $7,000 for the three months ended March
31, 1999.
In 1997, the Company entered into a lease for a warehouse and office
facility with a third party under a noncancellable operating lease, expiring in
March 2002. Rent expense under this lease was approximately $33,000 and $57,000
for the years ended December 31, 1997, and 1998, respectively and $14,000 for
the these months ended March 31, 1999.
Future minimum lease payments under these noncancelable operating leases
are as follows (in thousands):
<TABLE>
<S> <C>
Year ending December 31:
1999...................................................... $109
2000...................................................... 111
2001...................................................... 91
2002...................................................... 31
----
$342
====
</TABLE>
7. STOCKHOLDERS' EQUITY
The Company is authorized to issue 7,500 shares of common stock. Of this
authorized amount, the Company has issued and outstanding 980 shares at December
31, 1997 and 1998 and March 31, 1999.
The Company has also entered into a Stock Redemption Agreement with a
principal shareholder, agreeing to repurchase all of his stock over a period of
years, with the first redemption date being no earlier than January 1, 1998. The
redemption date shall be determined by the mutual agreement of the stockholder
and the Company before December 31 of the preceding year. The agreement requires
the Company to purchase annually from the stockholder the number of shares equal
to 10% (on a fully diluted basis immediately following the redemption) of the
total number of issued and outstanding shares as of the redemption date. The
purchase price of these shares shall be payable in cash and shall be equal to
10% of the book value of the Company on the redemption date. As of May 26, 1999,
no repurchase has occurred.
8. RELATED-PARTY TRANSACTIONS
The Company leases CERTAIN property and office space from a stockholder
under a noncancelable operating lease (see Note 6). The rent approximates the
fair market value of the property.
The Company had a Subordinated Note Agreement with a stockholder, with a
balance of $434,000 at December 31, 1997. This note was repaid during 1998.
At December 31, 1997 and 1998 and March 31, 1999, the Company had $80,000,
$179,000 and $4,000, respectively, of advances to employees included in current
assets. The 1998 amount includes a balance of $125,000 due from a principal
shareholder of the Company.
During the years ended December 31, 1996 and 1997, the Company purchased
plumbing supplies of $81,000 and $48,000, respectively, from a company
affiliated through common ownership. No such purchases have been made since
January 1, 1998. No amounts were owed to the Company at December 31, 1997 and
1998, or March 31, 1999.
F-97
<PAGE> 228
J. A. CROSON COMPANY OF FLORIDA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution profit-sharing plan. The plan
provides for the Company to match 50% of the first $1,200 contributed by each
employee. Total contributions by the Company under the plan were approximately
$11,000, $23,000, and $26,000 for the years ending December 31, 1996, 1997 and
1998, respectively and $14,000 for the three months ended March 31, 1999.
10. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents, a
line of credit, notes payable and debt. The Company believes that the carrying
value of these instruments on the accompanying balance sheets approximates their
fair value.
11. COMMITMENTS AND CONTINGENCIES
Litigation
The Company is involved in disputes or legal actions arising in the
ordinary course of business. Management does not believe the outcome of SUCH
legal actions will have a material adverse effect on the Company's financial
position or results of operations.
Insurance
The Company carries a broad range of insurance coverage, including workers'
compensation, general liability, and an umbrella policy. The Company has not
incurred significant claims or losses on any of these insurance policies.
12. MAJOR CUSTOMERS AND RISK CONCENTRATION
The Company had revenues of approximately 29%, 27% and 24% of total
revenues to one major customer during the years ended December 31, 1996, 1997,
and 1998, respectively and 42% during the three months ended March 31, 1999.
In general, the Company performs its services under contract terms that
entitle it to progress payments and is, by law, granted a lien interest in the
work until paid. The Company is exposed to potential credit risk related to
changes in business and economic factors within the region. However, management
believes that its contract acceptance, billing and collection policies are
adequate to minimize the potential credit risk.
The Company's customers are primarily in the construction industry.
Accordingly, the Company is exposed to risks of fluctuations in construction in
the areas which it operates.
13. SUBSEQUENT EVENTS
On April 1, 1999, AMPAM acquired through merger all the stock of the
Company in exchange for cash and stock of AMPAM, after which the Company is a
wholly owned subsidiary of AMPAM.
In connection with the merger, the Company sold or distributed certain
non-operating assets and attendant liabilities, if any, to the stockholders.
Additionally, the Company made cash distributions which represent the Company's
estimated S corporation accumulated adjustments account.
As discussed in Note 2, in connection with the merger, the Company
converted from an S corporation to a C corporation. Upon conversion to C
corporation status, the Company recorded deferred taxes for which it will be
responsible. If the S corporation had been terminated as of December 31, 1998,
the Company would have recorded a deferred tax asset of approximately $30,000
due to differences between
F-98
<PAGE> 229
J. A. CROSON COMPANY OF FLORIDA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
book and tax depreciation. If the S corporation had been terminated as of March
31, 1999, the Company would have recorded a deferred tax asset of approximately
$15,600 due to bad debt allowance and a deferred tax liability of approximately
$7,500 due to the difference between book and tax depreciation.
Concurrently with the merger, the Company entered into agreements with the
stockholders to lease land and buildings used in the Company's operations for a
negotiated amount and term.
F-99
<PAGE> 230
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Power Plumbing, Inc.:
We have audited the accompanying consolidated balance sheets of Power
Plumbing, Inc., and subsidiaries as of December 31, 1997 and 1998, and March 31,
1999, and the related consolidated statements of operations, cash flows and
stockholders' equity for the years ended December 31, 1997 and 1998, and for the
three months ended March 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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 Power Plumbing, Inc., and
subsidiaries as of December 31, 1997 and 1998, and March 31, 1999, and the
results of their operations and their cash flows for the years ended December
31, 1997 and 1998, and for the three months ended March 31, 1999, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
May 21, 1999
F-100
<PAGE> 231
POWER PLUMBING, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
---------------- MARCH 31,
1997 1998 1999
------ ------ ---------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 696 $1,807 $3,083
Accounts receivable --
Contract, net.......................................... 2,918 3,961 3,748
Other.................................................. 219 266 264
Notes receivable -- stockholders.......................... -- -- 396
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 181 79 239
Prepaid expenses and other current assets................. 3 17 19
------ ------ ------
Total current assets.............................. 4,017 6,130 7,749
PROPERTY AND EQUIPMENT, net................................. 441 414 79
OTHER ASSETS................................................ 129 74 --
------ ------ ------
Total assets...................................... $4,587 $6,618 $7,828
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 5 $ 6 $ --
Accounts payable and accrued expenses..................... 910 963 1,829
Billings in excess of cost and estimated earnings on
uncompleted contracts.................................. 692 2,123 1,799
Deferred tax liability, current........................... 613 215 167
------ ------ ------
Total current liabilities......................... 2,220 3,307 3,795
LONG-TERM DEBT, net of current maturities................... 71 65 --
OTHER LONG-TERM LIABILITIES................................. 20 2 --
DEFERRED INCOME TAXES....................................... 7 4 6
------ ------ ------
Total liabilities................................. 2,318 3,378 3,801
------ ------ ------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; 1,200 shares authorized, 1,125
shares issued and outstanding.......................... 1 1 1
Retained earnings......................................... 2,268 3,239 4,026
------ ------ ------
Total stockholders' equity........................ 2,269 3,240 4,027
------ ------ ------
Total liabilities and stockholders' equity........ $4,587 $6,618 $7,828
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-101
<PAGE> 232
POWER PLUMBING, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31 MARCH 31
-------------------- --------------------
1997 1998 1998 1999
------- ------- ----------- ------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES........................................... $17,010 $17,109 $3,501 $5,620
COST OF REVENUES (Including depreciation).......... 14,680 14,371 3,174 4,022
------- ------- ------ ------
Gross profit.................................. 2,330 2,738 327 1,598
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES....... 1,128 1,268 217 346
------- ------- ------ ------
Income from operations........................ 1,202 1,470 110 1,252
------- ------- ------ ------
OTHER INCOME (EXPENSE):
Interest income.................................. 20 33 5 22
Interest expense................................. -- (3) (3) (3)
Other............................................ 84 83 13 4
------- ------- ------ ------
Other income (expense), net................... 104 113 15 23
------- ------- ------ ------
INCOME BEFORE PROVISION FOR INCOME TAXES........... 1,306 1,583 125 1,275
PROVISION FOR INCOME TAXES......................... 498 612 50 488
------- ------- ------ ------
NET INCOME......................................... $ 808 $ 971 $ 75 $ 787
======= ======= ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-102
<PAGE> 233
POWER PLUMBING, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31 MARCH 31
--------------- --------------------
1997 1998 1998 1999
----- ------- ----------- ------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $ 808 $ 971 $ 75 $ 787
Adjustments to reconcile net income to net cash
provided by (used in) operating activities --
Depreciation...................................... 35 37 6 7
Loss (gain) on sale of property and equipment..... 2 (3) -- --
Deferred income taxes............................. 266 (401) (247) (46)
Changes in operating assets and liabilities --
(Increase) decrease in --
Accounts receivable.......................... (734) (1,090) (342) 215
Costs and estimated earnings in excess of
billings on uncompleted contracts.......... (46) 102 68 (160)
Prepaid expenses and other current assets.... 8 (14) (22) (2)
Other noncurrent assets...................... -- 55 -- --
Increase (decrease) in --
Accounts payable and accrued expenses........ (159) 53 126 878
Billings in excess of costs and estimated
earnings on uncompleted contracts.......... (266) 1,431 183 (324)
Other liabilities............................ (18) (18) (5) (2)
----- ------- ----- ------
Net cash provided by (used in) operating
activities.............................. (104) 1,123 (158) 1,353
----- ------- ----- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment......... 7 3 -- 12
Additions of property and equipment.................. (24) (10) -- (36)
Investment transactions, net......................... 11 -- 54 (53)
----- ------- ----- ------
Net cash used in investing activities...... (6) (7) 54 (77)
----- ------- ----- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt........................... (89) (5) (1) --
----- ------- ----- ------
Net cash used in financing activities...... (89) (5) (1) --
----- ------- ----- ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS... (199) 1,111 (105) 1,276
CASH AND CASH EQUIVALENTS, beginning of period......... 895 696 696 1,807
----- ------- ----- ------
CASH AND CASH EQUIVALENTS, end of period............... $ 696 $ 1,807 $ 591 $3,083
===== ======= ===== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for --
Interest.......................................... $ -- $ 3 $ 3 $ 3
Income taxes...................................... 294 666 175 310
Non-cash transactions --
Note receivable received for sale of
partnership..................................... -- -- -- 396
Net book value of partnership sold................ -- -- -- (344)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-103
<PAGE> 234
POWER PLUMBING, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
--------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------ -------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996............................. 1,125 $1 $1,460 $1,461
Net income........................................... -- -- 808 808
----- -- ------ ------
BALANCE, December 31, 1997............................. 1,125 1 2,268 2,269
Net income........................................... -- -- 971 971
----- -- ------ ------
BALANCE, December 31, 1998............................. 1,125 1 3,239 3,240
----- -- ------ ------
Net income........................................... -- -- 787 787
----- -- ------ ------
BALANCE, March 31, 1999................................ 1,125 $1 $4,026 $4,027
===== == ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-104
<PAGE> 235
POWER PLUMBING, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Power Plumbing, Inc., a Delaware corporation, and its subsidiaries (the
Company) focus on providing plumbing construction services primarily for
multifamily residential buildings. The Company performs the majority of its
contract work under fixed-price contracts, with contract terms generally ranging
from six to 18 months. The Company performs the majority of its work in Texas.
On April 1, 1999, American Plumbing & Mechanical, Inc. (AMPAM) acquired
through merger all the stock of the Company in exchange for cash and stock of
AMPAM, after which the Company is a wholly owned subsidiary of AMPAM. In
connection with the merger, the Company sold or distributed certain nonoperating
assets and attendant liabilities, if any, to the stockholders.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The financial statements through December 31, 1998 include the accounts and
results of operations of the Company, its wholly owned subsidiary, Power
Plumbing Personnel, Inc., and an affiliated company, Bingle Partners, Ltd. (see
Note 8), which is under common control and management. Effective January 1,
1999, the Company sold its interest in Bingle Partners, Ltd. to the stockholders
of the Company; therefore the financial statements for periods presented
subsequent to December 31, 1998 include only the accounts and results of
operations of the Company and its wholly owned subsidiary, Power Plumbing
Personnel, Inc. All significant intercompany transactions and balances have been
eliminated in consolidation.
Interim Financial Information
The interim financial statements for the three months ended March 31, 1998,
are unaudited and have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of the Company's
management, the unaudited interim financial statements contain all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation. The results of operations for the interim period are not
necessarily indicative of the results for the entire fiscal year.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Accounts Receivable and Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts based upon an
estimate of uncollectable balances.
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
lease or the estimated useful life of the asset (see Note 4).
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated over the
remaining useful life. Upon retirement or disposition of property and equipment,
the
F-105
<PAGE> 236
POWER PLUMBING, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
cost and related accumulated depreciation are removed from the accounts and any
resulting gain or loss is recognized in accompanying consolidated statements of
operations.
Revenue Recognition
The Company recognizes revenue when services are performed except when work
is being performed under a construction contract. Revenues from construction
contracts are recognized on the percentage-of-completion method measured by the
percentage of cost incurred to date to total estimated costs for each contract.
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance, such as indirect labor and depreciation
costs. Provisions for the total estimated losses on uncompleted contracts are
made in the period in which such losses are determined. Changes in job
performance, job conditions, estimated profitability and final contract
settlements may result in revisions to costs and income and their effects are
recognized in the period in which the revisions are determined.
The balances billed but not paid by customers pursuant to retainage
provisions in construction contracts will be due upon completion of the
contracts and acceptance by the customer. Based on the Company's experience with
similar contracts in recent years, the Company anticipates that the retention
balance at each balance sheet date will be collected within the subsequent
fiscal year.
The current asset "Costs and estimated earnings in excess of billing on
uncompleted contracts" represents revenues recognized in excess of amounts
billed. The current liability "Billings in excess of costs and estimated
earnings on uncompleted contracts" represents billings in excess of revenues
recognized.
Warranty Costs
The Company warrants labor and materials for the first year after
completion of plumbing construction. A reserve for warranty costs is recorded
based upon the historical level of warranty claims and management's estimate of
future costs.
Income Taxes
The Company, which is a C Corporation, follows the liability method of
accounting for income taxes in accordance with Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." Under this method,
deferred assets and liabilities are recorded for future tax consequences of
temporary differences between the financial reporting and tax bases of assets
and liabilities and are measured using the enacted tax rules and laws that will
be in effect when the underlying assets or liabilities are recovered or settled.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities,
disclosures of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Realization of Long-Lived Assets
The Company has adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
Accordingly, in the event that facts and circumstances indicate that property
and equipment or other assets may be impaired, an evaluation of recoverability
would be performed. If an evaluation is required, the estimated future
undiscounted cash
F-106
<PAGE> 237
POWER PLUMBING, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
flows associated with the asset are compared to the asset's carrying amount to
determine if an impairment of such property is necessary. The effect of any
impairment would be to expense the difference between the fair value of such
property and its carrying value. The adoption of this standard did not have a
material effect on the financial position or results of operations of the
Company.
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Contract receivables consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
--------------- MARCH 31,
1997 1998 1999
------ ------ ---------
<S> <C> <C> <C>
Billed.................................................... $1,418 $2,031 $1,971
Retainage................................................. 1,525 1,967 1,880
Allowance for uncollectible accounts...................... (25) (37) (103)
------ ------ ------
Balance at end of year.......................... $2,918 $3,961 $3,748
====== ====== ======
</TABLE>
Plumbing installation contracts in progress are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
------------------- MARCH 31,
1997 1998 1999
-------- -------- ---------
<S> <C> <C> <C>
Costs incurred on contracts in progress.............. $ 10,472 $ 9,110 $ 11,347
Estimated earnings, net of losses.................... 1,766 1,974 3,050
-------- -------- --------
12,238 11,084 14,397
Less -- Billings to date............................. (12,749) (13,128) (15,957)
-------- -------- --------
$ (511) $ (2,044) $ (1,560)
======== ======== ========
Costs and estimated earnings in excess of billings on
uncompleted contracts.............................. $ 181 $ 79 $ 239
Billings in excess of costs and estimated earnings on
uncompleted contracts.............................. (692) (2,123) (1,799)
-------- -------- --------
$ (511) $ (2,044) $ (1,560)
======== ======== ========
</TABLE>
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31
----------- MARCH 31,
1997 1998 1999
---- ---- ---------
<S> <C> <C> <C>
Accounts payable, trade..................................... $669 $553 $1,089
Accrued compensation and benefits........................... 33 40 82
Retainage payable........................................... 49 58 76
Other accrued expenses...................................... 134 115 151
Income taxes payable........................................ 25 197 431
---- ---- ------
Balance at end of year............................ $910 $963 $1,829
==== ==== ======
</TABLE>
F-107
<PAGE> 238
POWER PLUMBING, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31
USEFUL LIVES ------------ MARCH 31,
IN YEARS 1997 1998 1999
------------ ---- ----- ---------
<S> <C> <C> <C> <C>
Transportation.................................. 5 $ 94 $ 76 $ 78
Machinery and equipment......................... 7 78 76 82
Land and building............................... 30 363 377 --
Furniture and fixtures.......................... 5-7 3 1 5
---- ----- ----
538 530 165
Less -- Accumulated depreciation................ (97) (116) (86)
---- ----- ----
Property and equipment, net........... $441 $ 414 $ 79
==== ===== ====
</TABLE>
5. LINE OF CREDIT AND LONG-TERM DEBT:
The Company has a $150,000 revolving line of credit with a bank which is
due on demand or, if no demand, expires May 1, 1999, and bears interest at 0.5
percent above the bank's base lending rate. At December 31, 1997 and 1998 and
March 31, 1999, no balance was outstanding under this line of credit. This line
of credit is collateralized by the Company's accounts receivable and equipment
as well as insurance on its president and a personal unlimited guarantee from
the president. The line of credit was cancelled subsequent to March 31, 1999.
Long-term debt at December 31, 1998, consisted of a note payable with a
balance of approximately $71,000 to a bank for the purchase of property by
Bingle Partners, Ltd. The note was included in the Company's sale of its
interest in Bingle Partners, Ltd. interest; therefore, the Company has no
long-term debt at March 31, 1999.
6. LEASES:
During 1998, the Company leased two vehicles for stockholders, which expire
in April 2001 and September 2001. Expense for the vehicle leases was $4,980,
$11,113 and $12,490 for the years ended December 31, 1997 and 1998 and the three
months ended March 31, 1999, respectively.
The Company has an agreement with Bingle Partners, Ltd., that as of January
1, 1999 was owned by stockholders of the Company, to lease office space at a
rate that, in management's opinion, approximated market. The lease expires
August 31, 2003. Expense for the lease was $7,950 for the three months ended
March 31, 1999. Future minimum lease payments under these noncancelable
operating leases are as follows (in thousands):
<TABLE>
<S> <C>
Year ending December 31 --
1999...................................................... $ 46
2000...................................................... 46
2001...................................................... 39
2002...................................................... 32
2003...................................................... 21
----
$184
====
</TABLE>
F-108
<PAGE> 239
POWER PLUMBING, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES:
Federal and state income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
------------ MARCH 31,
1997 1998 1999
---- ----- ---------
<S> <C> <C> <C>
Federal --
Current................................................... $242 $ 887 $470
Deferred.................................................. 197 (348) (40)
State --
Current................................................... 26 126 63
Deferred.................................................. 33 (53) (5)
---- ----- ----
$498 $ 612 $488
==== ===== ====
</TABLE>
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate rate of 35 percent to income
before provision for income taxes as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
----------- MARCH 31,
1997 1998 1999
---- ---- ---------
<S> <C> <C> <C>
Provision at the statutory rate............................. $457 $554 $446
Increase resulting from --
State income tax, net of benefit for federal deduction.... 38 47 38
Permanent differences, primarily meals and
entertainment.......................................... 3 11 4
---- ---- ----
$498 $612 $488
==== ==== ====
</TABLE>
Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and tax
purposes. The tax effects of these temporary differences, representing deferred
tax assets and liabilities result principally from the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
------------- MARCH 31,
1997 1998 1999
----- ----- ---------
<S> <C> <C> <C>
Deferred income tax assets --
Investment in partnership................................ $ 15 $ 15 $ 15
Minimum tax credit....................................... 49 -- --
----- ----- -----
Total deferred income tax asset.................. 64 15 15
----- ----- -----
Deferred income tax liabilities --
Property and equipment................................... (7) (11) (12)
Deferred contract revenue................................ (656) (252) (237)
Allowance for doubtful accounts.......................... (8) 15 41
Accrued expenses......................................... (13) 17 23
Other.................................................... -- (3) (3)
----- ----- -----
Total deferred income tax liability.............. (684) (234) (188)
----- ----- -----
Net deferred income tax liability................ $(620) $(219) $(173)
===== ===== =====
</TABLE>
F-109
<PAGE> 240
POWER PLUMBING, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net deferred tax assets and liabilities are comprised of the following
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------- MARCH 31,
1997 1998 1999
----- ----- ---------
<S> <C> <C> <C>
Deferred tax assets --
Current................................................ $ 64 $ 15 $ 15
Long-term.............................................. -- -- --
----- ----- -----
Total.......................................... 64 15 15
----- ----- -----
Deferred tax liabilities --
Current................................................ (677) (230) (182)
Long-term.............................................. (7) (4) (6)
----- ----- -----
Total.......................................... (684) (234) (188)
----- ----- -----
Net deferred income tax liability.............. $(620) $(219) $(173)
===== ===== =====
</TABLE>
8. RELATED-PARTY TRANSACTIONS:
In December 1996, the Company purchased a 97 percent limited partnership
interest in Bingle Partners, Ltd., from a former stockholder for $300,000. A
stockholder owns a majority interest in the company that is the 3 percent
general partner in Bingle Partners, Ltd. On January 1, 1999, the Company sold
its interest in Bingle Partners, Ltd., to the stockholders of the Company in
exchange for promissory notes from each stockholder. The notes receivable had a
balance of approximately $396,000 at March 31, 1999. Subsequent to March 31,
1999, the Company collected the full amount of the receivable. The Company
leases office space from Bingle Partners, Ltd. (see Note 6).
In June 1998, the Company entered into a financing arrangement with ICM,
Inc., whereby the Company began purchasing materials for and selling them to
ICM, Inc., at a nominal markup. One of the Company's stockholders (the ICM
Stockholder) has a majority ownership in ICM Notes, Ltd., a company that also
provides financing to ICM, Inc. ICM Notes, Ltd., and ICM, Inc., do not have
common ownership. The ICM Stockholder has an informal agreement with the other
stockholders of the Company which provides that any losses incurred as a result
of the financing arrangement between the Company and ICM, Inc., will be funded
by the ICM Stockholder. As a result of this arrangement, approximately $200,000
of accounts receivable was included as other accounts receivable in the
accompanying balance sheets at December 31, 1998 and March 31, 1999. At the end
of 1998, ICM, Inc., ceased operations, and, subsequent to March 31, 1999, the
Company collected such receivable from the ICM Stockholder.
In June 1998, the Company guaranteed certain long-term obligations of four
employees. The long-term obligations consist of four notes payable to Northwest
Bank, N.A., for the purchase of vehicles. The notes are secured by the vehicles.
9. EMPLOYEE BENEFIT PLAN:
The Company has a defined contribution profit-sharing plan. The plan
provides for discretionary contributions by the Company as determined by the
stockholders. Total contributions by the Company under the plan were
approximately $14,216 and $14,690 for the years ended December 31, 1997 and
1998, respectively. No contributions were made by the Company under the plan for
the three months ended March 31, 1999. Such contributions are included in
accounts payable and accrued expenses in the accompanying consolidated balance
sheets at December 31, 1997 and 1998.
F-110
<PAGE> 241
POWER PLUMBING, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. FINANCIAL INSTRUMENTS:
The Company's financial instruments consist of cash and cash equivalents, a
line of credit and debt. The Company believes that the carrying values of these
instruments on the accompanying consolidated balance sheets approximate their
fair value.
11. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is involved in disputes or legal actions arising in the
ordinary course of business. Management does not believe the outcome of such
legal actions will have a material adverse effect on the Company's financial
position or results of operations.
Insurance
The Company carries a broad range of insurance coverage, including business
auto liability, general liability and an umbrella policy. The Company has not
incurred significant claims or losses on any of these insurance policies.
12. MAJOR CUSTOMERS AND RISK CONCENTRATION:
During the years ended December 31, 1997 and 1998 and the three months
ended March 31, 1999, three customers accounted for more than 10 percent of
total revenues. Sales to these companies were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 THREE MONTHS
-------------------------------- ENDED MARCH 31,
1997 1998 1999
-------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Customer A....................... $2,552 15.0% $2,204 12.9% $804 14.3%
Customer B....................... 2,548 15.0 1,982 11.6 716 12.7
Customer C....................... 1,983 11.7 1,761 10.3 625 11.1
</TABLE>
During the year ended December 31, 1997, three vendors accounted for more
than 10 percent of the Company's total materials purchases, and for the year
ended December 31, 1998 and the three months ended March 31, 1999, two vendors
accounted for more than 10 percent. Materials purchases from these vendors were
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 THREE MONTHS
-------------------------------- ENDED MARCH 31,
1997 1998 1999
-------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Vendor A....................... $3,092 36.6% $3,180 39.3% $1,272 58.2%
Vendor B....................... 1,532 18.1 2,222 27.5 717 32.8
Vendor C....................... 1,411 16.7 -- -- -- --
</TABLE>
Management believes that the materials are readily available in the
marketplace at prices which approximate those paid to the above vendors.
In general, the Company performs its services under contract terms that
entitle it to progress payments and is, by law, granted a lien interest in the
work until paid. The Company is exposed to potential credit risk related to
changes in business and economic factors in Texas. However, management believes
that its contract acceptance, billing and collection policies are adequate to
minimize the potential credit risk.
The Company's customers are primarily in the construction industry.
Accordingly, the Company is exposed to risks of fluctuations in construction in
the areas which it operates.
F-111
<PAGE> 242
POWER PLUMBING, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. SUBSEQUENT EVENT
On April 1, 1999, AMPAM acquired through merger all the stock of the
Company in exchange for cash and stock of AMPAM, after which the Company is a
wholly owned subsidiary of AMPAM.
In connection with the merger, the Company sold or distributed certain
nonoperating assets and attendant liabilities, if any, to the stockholders.
Concurrently with the merger, the Company entered into agreements with the
stockholders to lease office space used in the Company's operations for a
negotiated amount and term.
F-112
<PAGE> 243
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Nelson Mechanical Contractors, Inc.:
We have audited the accompanying balance sheets of Nelson Mechanical
Contractors, Inc. as of April 30, 1998, and March 31, 1999, and the related
statements of operations, cash flows, and stockholders' equity for the years
ended April 30, 1997 and 1998, and for the eleven months ended March 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with 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 Nelson Mechanical
Contractors, Inc. as of April 30, 1998, and March 31, 1999, and the results of
its operations and its cash flows for the years ended April 30, 1997 and 1998,
and for the eleven months ended March 31, 1999, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
June 1, 1999
F-113
<PAGE> 244
NELSON MECHANICAL CONTRACTORS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
ASSETS
<TABLE>
<CAPTION>
APRIL 30, MARCH 31,
1998 1999
---------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 683 $ 601
Accounts receivable:
Contract............................................... 1,477 2,034
Other.................................................. 238 123
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 1,445 1,055
Inventories............................................... 581 400
Prepaid expenses and other current assets................. 155 613
Current portion of notes receivable....................... 25 --
Loans to stockholders..................................... 170 --
------ ------
Total current assets.............................. 4,774 4,826
LONG-TERM NOTES RECEIVABLE.................................. 85 --
PROPERTY AND EQUIPMENT, net................................. 1,630 1,018
OTHER ASSETS................................................ 530 --
------ ------
Total assets...................................... $7,019 $5,844
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable, accrued expenses, and other............. $1,349 $ 308
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 127 205
Loans from stockholders................................... 99 4,788
Income taxes payable...................................... -- --
------ ------
Total liabilities................................. 1,575 5,301
------ ------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $10 par value; 200 shares authorized, 50
shares issued and outstanding.......................... 1 1
Additional paid-in capital................................ 1,088 1,088
Retained earnings (deficit)............................... 4,355 (546)
------ ------
Total stockholders' equity........................ 5,444 543
------ ------
Total liabilities and stockholders' equity........ $7,019 $5,844
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-114
<PAGE> 245
NELSON MECHANICAL CONTRACTORS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30 ELEVEN MONTHS ENDED
------------------- MARCH 31,
1997 1998 1999
-------- -------- -------------------
<S> <C> <C> <C>
REVENUES............................................... $12,507 $14,240 $14,039
COST OF REVENUES (including depreciation).............. 9,110 9,641 9,349
------- ------- -------
Gross profit...................................... 3,397 4,599 4,690
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES.......... 2,408 2,458 1,914
------- ------- -------
Income from operations............................ 989 2,141 2,776
------- ------- -------
OTHER INCOME (EXPENSE):
Interest income...................................... 54 48 51
Interest expense..................................... (11) (20) (134)
Other................................................ 45 50 416
------- ------- -------
Other income (expense), net....................... 88 78 333
------- ------- -------
NET INCOME............................................. $ 1,077 $ 2,219 $ 3,109
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-115
<PAGE> 246
NELSON MECHANICAL CONTRACTORS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30 ELEVEN MONTHS ENDED
------------------- MARCH 31,
1997 1998 1999
------- ------- -------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................ $ 1,077 $ 2,219 $ 3,109
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization....................... 396 382 336
Gain on sale of property and equipment.............. (23) (5) (414)
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable............................ (26) 44 (425)
Costs and estimated earnings in excess of
billings on uncompleted contracts............ 14 (1,144) 390
Inventories.................................... (66) (66) 180
Prepaid expenses and other current assets...... (8) 3 81
Increase (decrease) in:
Accounts payable, accrued expenses, and
other........................................ (14) 179 (1,042)
Billings in excess of costs and estimated
earnings on uncompleted contracts............ 50 (32) 78
Other, net....................................... -- (57) --
------- ------- -------
Net cash provided by operating activities...... 1,400 1,523 2,293
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment.......... 48 24 1,052
Additions of property and equipment................... (427) (725) (361)
Collections on notes receivable....................... 4 7 85
Additions to notes receivable......................... -- (30) --
Collections on loans to stockholders.................. 159 212 262
Additions to loans to stockholders.................... (227) (172) (92)
------- ------- -------
Net cash provided by (used in) investing
activities................................... (443) (684) 946
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of short-term debt......................... 300 250 500
Payments of short-term debt........................... (300) (250) (500)
Proceeds from loans from stockholders................. 420 587 7,162
Payments on loans from stockholders................... (594) (505) (2,473)
Distributions to stockholders......................... (859) (1,046) (8,010)
------- ------- -------
Net cash used in financing activities.......... (1,033) (964) (3,321)
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.... (76) (125) (82)
CASH AND CASH EQUIVALENTS, beginning of period.......... 884 808 683
------- ------- -------
CASH AND CASH EQUIVALENTS, end of period................ $ 808 $ 683 $ 601
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest............................................ $ 11 $ 20 $ 134
======= ======= =======
Income taxes........................................ $ -- $ -- $ --
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-116
<PAGE> 247
NELSON MECHANICAL CONTRACTORS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, April 30, 1996...................... 50 $ 1 $1,088 $ 2,964 $ 4,053
Distributions to stockholders.............. -- -- -- (859) (859)
Net income................................. -- -- -- 1,077 1,077
--- ---- ------ ------- -------
BALANCE, April 30, 1997...................... 50 1 1,088 3,182 4,271
Distributions to stockholders.............. -- -- -- (1,046) (1,046)
Net income................................. -- -- -- 2,219 2,219
--- ---- ------ ------- -------
BALANCE, April 30, 1998...................... 50 1 1,088 4,355 5,444
Distributions to stockholders.............. -- -- -- (8,010) (8,010)
Net income................................. -- -- -- 3,109 3,109
--- ---- ------ ------- -------
BALANCE, March 31, 1999...................... 50 $ 1 $1,088 $ (546) $ 543
=== ==== ====== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-117
<PAGE> 248
NELSON MECHANICAL CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Nelson Mechanical Contractors, Inc., (the "Company"), a Florida
corporation, focuses on providing plumbing and utility services primarily for
general contractors, developers, local governmental agencies, and private
institutions. The Company performs the majority of its contract work under
fixed-price contracts, with contract terms generally ranging from two months to
two years. The Company performs the majority of its work in the southeast United
States.
The Company and its stockholders intend to enter into a definitive
agreement with American Plumbing & Mechanical, Inc. (AMPAM), pursuant to which
all outstanding shares of the Company's common stock will be exchanged for cash,
notes and shares of AMPAM common stock concurrently with the consummation of the
related financing.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company recognizes revenue when services are performed except when work
is being performed under a construction contract. Revenues from construction
contracts are recognized using the percentage-of-completion method, measured by
the percentage of cost incurred to date to total estimated costs for each
contract. Contract costs include all direct material and labor costs and those
indirect costs related to contract performance, such as indirect labor and
depreciation costs. Provisions for the total estimated losses on uncompleted
contracts are made in the period in which such losses are determined. Changes in
job performance, job conditions, estimated profitability, and final contract
settlements may result in revisions to costs and income, and their effects are
recognized in the period in which the revisions are determined. An amount equal
to contract costs attributable to claims is included in revenues when
realization is probable and the amount can be reliably estimated.
The balances billed but not paid by customers pursuant to retainage
provisions in construction contracts will be due upon completion of the
contracts and acceptance by the customer. Based on the Company's experience with
similar contracts in recent years, the retention balance at each balance sheet
date will be collected within the subsequent fiscal year. Customer retainage is
included in accounts receivable from construction contracts in the accompanying
balance sheets.
The current asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The current liability, "Billings in excess of costs and estimated
earnings on uncompleted contracts," represents billings in excess of revenues
recognized.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. As noted in
Note 5, cash and cash equivalents include $222,000 and $233,000 of restricted
cash at April 30, 1998, and March 31, 1999, respectively.
Accounts Receivable and Provision for Doubtful Accounts
The Company provides an allowance for doubtful accounts based on its
historical collection experience with its plumbing and utility services
customers. Management believes that an allowance for doubtful accounts is not
necessary, based on the status of contracts and their review of accounts.
F-118
<PAGE> 249
NELSON MECHANICAL CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Inventories
Inventories consist of parts and supplies held for use in the ordinary
course of business and are stated at the lower of cost or market using the
first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the lease or the estimated useful life of the asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.
Warranty Costs
For most contracts, the Company warrants labor and materials for one year
after completion of the job. A reserve for warranty costs is recorded based on
the historical level of warranty claims and management's estimate of future
costs.
Income Taxes
The Company has elected S corporation status, as defined by the Internal
Revenue Code, whereby the Company itself is not subject to taxation for federal
purposes. Under S corporation status, the stockholders report their shares of
the Company's taxable earnings or losses in their personal tax returns. The
Company will continue to be liable for income tax currently due to states that
do not recognize S corporation status. At April 30, 1998, and March 31, 1999,
there were no material income taxes due to such states.
An S corporation is permitted under the Revenue Act of 1987 to retain its
fiscal year, rather than adopting the calendar year, for tax purposes. However,
an annual payment approximating the income tax that would be paid on
short-period income if there had been a switch to a calendar year must be paid.
This tax deposit is reported as "other assets" in the accompanying financial
statements, is adjusted annually and amounts to $530,024 at April 30, 1998, and
March 31, 1999. The tax deposit is realized when the entity switches to a
calendar year, liquidates, terminates its S status or is considered not to have
any deferred taxable income. The Company terminated its S corporation status on
April 1, 1999, which is the effective date of the merger discussed in Note 11.
At April 30, 1998, and March 31, 1999, the Company had available for state
income tax purposes net operating loss carryforwards of approximately $550,000
which expire through 2011.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities,
disclosures of contingent liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-119
<PAGE> 250
NELSON MECHANICAL CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Realization of Long-Lived Assets
The Company has adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." Accordingly, in the event that
facts and circumstances indicate that property and equipment or other assets may
be impaired, an evaluation of recoverability would be performed. If an
evaluation is required, the estimated future undiscounted cash flows associated
with the asset are compared to the asset's carrying amount to determine whether
an impairment of such property is necessary. The effect of any impairment would
be to expense the difference between the fair value of such property and its
carrying value. Adoption of this standard did not have a material effect on the
financial position or results of operations of the Company.
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Contract receivables consist of the following at April 30, 1998, and March
31, 1999 (in thousands):
<TABLE>
<CAPTION>
1998 1999
------ ------
<S> <C> <C>
Billed...................................................... $1,083 $1,385
Retainage................................................... 394 649
------ ------
Balance at end of period.................................... $1,477 $2,034
====== ======
</TABLE>
Plumbing installation contracts in progress are as follows at April 30,
1998, and March 31, 1999 (in thousands):
<TABLE>
<CAPTION>
1998 1999
------ -------
<S> <C> <C>
Costs incurred on contracts in progress..................... $3,445 $ 5,711
Estimated earnings, net of losses........................... 5,279 8,051
------ -------
8,724 13,762
Less billings to date....................................... 7,406 12,912
------ -------
$1,318 $ 850
====== =======
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... $$1,445 $ 1,055
Billings in excess of costs and estimated earnings on
uncompleted contracts..................................... (127) (205)
------ -------
$1,318 $ 850
====== =======
</TABLE>
Accounts payable and accrued expenses consist of the following at April 30,
1998, and March 31, 1999 (in thousands):
<TABLE>
<CAPTION>
1998 1999
------ ------
<S> <C> <C>
Accounts payable, trade..................................... $ 726 $ 216
Accrued compensation and benefits........................... 154 --
Insurance payable........................................... 442 42
Other accrued expenses...................................... 27 50
------ ------
Balance at end of period.................................... $1,349 $ 308
====== ======
</TABLE>
F-120
<PAGE> 251
NELSON MECHANICAL CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at April 30, 1998, and
March 31, 1999 (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
IN YEARS 1998 1999
------------ ------- -------
<S> <C> <C> <C>
Land.................................................. $ 323 $ --
Transportation equipment.............................. 5.0 1,529 1,332
Machinery and equipment............................... 5.0 2,974 2,715
Computer and telephone equipment...................... 5.0 97 110
Building and leasehold improvements................... 31.5 114 --
Furniture and fixtures................................ 7.0 21 39
------- -------
5,058 4,196
Less accumulated depreciation and amortization........ (3,428) (3,178)
------- -------
Property and equipment, net........................... $ 1,630 $ 1,018
======= =======
</TABLE>
5. REVOLVING LINE OF CREDIT, LETTER OF CREDIT, AND DEBT
The Company has a $500,000 revolving line of credit with a financial
institution, secured by all owned equipment. The line of credit matures on
January 8, 2000, with the outstanding balance being due at this time. The line
of credit bears interest at the prime rate, which was 7.75% at March 31, 1999,
and is paid quarterly on the outstanding balance during the period. At April 30,
1998, and March 31, 1999, the Company did not have an outstanding balance on the
line of credit. The line of credit was terminated subsequent to March 31, 1999.
The Company has a $250,000 letter of credit with a financial institution,
secured by assignment of a certificate of deposit in the amount of $222,000 and
$233,000 at April 30, 1998, and March 31, 1999, respectively. The letter of
credit was reduced to $150,000 subsequent to March 31, 1999.
The Company occasionally borrows from its stockholders, as discussed in
Note 7. These notes are payable on demand and bear interest at 7%. At April 30,
1998, and March 31, 1999, the outstanding balance on loans from its stockholders
was $99,000 and $4,788,000, respectively.
The Company does not have any long-term debt instruments.
6. LEASES
The Company leases office space from a stockholder on a month-to-month
basis (Note 7). Rent expense for each of the years ended April 30, 1997 and
1998, and the eleven months ended March 31, 1999, was $45,000, $45,000 and
$41,000, respectively.
On occasion, the Company leases apartment space for extended jobs outside
of the southeast United States and certain office equipment under operating
leases from third parties. Rent expense under operating leases for the years
ended April 30, 1997 and 1998, and the eleven months ended March 31, 1999, was
$33,000, $42,000 and $51,000, respectively.
F-121
<PAGE> 252
NELSON MECHANICAL CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments under the noncancelable operating lease are
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
APRIL 30,
-----------
<S> <C>
1999........................................................ $ 7
2000........................................................ 54
2001........................................................ 46
2002........................................................ 48
2003........................................................ 49
Thereafter.................................................. 47
----
$251
====
</TABLE>
7. RELATED-PARTY TRANSACTIONS
The Company occasionally loans money to its stockholders, which is payable
on demand. The loans bear interest at the applicable federal rate (5.51% at
April 30, 1998). There were no such loans at March 31, 1999.
The Company occasionally borrows money from its stockholders, which is
payable on demand. The loans bear interest at 7%.
The Company rents certain real property from its majority stockholder on a
month-to-month basis (see Note 6). Management believes the rent paid
approximates the fair market value of the property.
The Company loaned $90,000 to a stockholder under an installment agreement
on April 1, 1996. The note bears interest at 7% and is payable in monthly
installations of $809, including interest through April 2011. Current maturities
of the loan at April 30, 1998, was $4,000. The loan was paid in full on
September 30, 1998.
8. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
notes receivable and notes payable. The Company believes that the carrying value
of these instruments on the accompanying balance sheets approximates their fair
value.
9. COMMITMENTS AND CONTINGENCIES
Litigation
The Company is involved in disputes or legal actions arising in the
ordinary course of business. Management does not believe that the outcome of
such legal actions will have a material adverse effect on the Company's
financial position or results of operations.
Insurance
The Company carries a broad range of insurance coverage, including business
auto liability, general liability, and an umbrella policy. The Company has not
incurred significant claims or losses on any of these insurance policies.
10. MAJOR CUSTOMERS AND RISK CONCENTRATION
The Company had sales of approximately 17.8 percent and 11.5 percent of
total sales to one major customer during the year ended April 30, 1997. The
Company had sales of approximately 23.0 percent and
F-122
<PAGE> 253
NELSON MECHANICAL CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
33.3 percent of total sales to another major customer during the year ended
April 30, 1998, and the eleven months ended March 31, 1999, respectively.
In general, the Company performs its services under contract terms that
entitle it to progress payments, and the Company is, by law, granted a lien
interest in the work until paid. The Company is exposed to potential credit risk
related to changes in business and economic factors within the market. However,
management believes that its contract acceptance, billing, and collection
policies are adequate to minimize the potential credit risk.
The Company's customers are primarily in the construction industry.
Accordingly, the Company is exposed to risks of fluctuations in construction in
the areas which it operates.
11. SUBSEQUENT EVENTS
On April 1, 1999, AMPAM acquired through merger all the stock of the
Company in exchange for cash, notes and stock of AMPAM, after which the Company
is a wholly owned subsidiary of AMPAM.
In connection with the merger, the Company sold or distributed certain
non-operating assets and attendant liabilities, if any, to the stockholders.
Additionally, the Company made cash distributions which represent the Company's
estimated S Corporation accumulated adjustment account.
As discussed in Note 2, in connection with the merger, the Company
converted from an S corporation to a C corporation. Upon conversion to C
corporation status, the Company recorded deferred taxes for which it will be
responsible. If the S corporation had been terminated as of April 30, 1998, the
Company would have recorded a deferred tax asset of approximately $4,500 due to
bad debt allowance and a deferred tax liability of approximately $47,000 due to
differences between book and tax depreciation.
Concurrently with the merger, the Company entered into agreements with the
stockholder(s) to lease land and buildings used in the Company's operations for
a negotiated amount and term.
F-123
<PAGE> 254
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Sherwood Mechanical, Inc.:
We have audited the accompanying balance sheets of Sherwood Mechanical,
Inc. (a California corporation), as of September 30, 1997 and 1998, and March
31, 1999, and the related statements of operations, cash flows and stockholder's
equity for the years ended September 30, 1997 and 1998, and for the six months
ended March 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with 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 Sherwood Mechanical, Inc. as
of September 30, 1997 and 1998, and March 31, 1999, and the results of its
operations and its cash flows for the years ended September 30, 1997 and 1998,
and for the six months ended March 31, 1999, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
June 22, 1999
F-124
<PAGE> 255
SHERWOOD MECHANICAL, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------- MARCH 31,
1997 1998 1999
------ ------ -----------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 49 $ 98 $ 11
Contracts receivable, net................................. 1,954 3,024 2,464
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 471 903 929
Inventories............................................... 143 272 266
Prepaid expenses and other current assets................. 8 21 4
Due from stockholder...................................... 63 83 455
Land held for sale........................................ -- 554 --
------ ------ ------
Total current assets.............................. 2,688 4,955 4,129
LAND UNDER DEVELOPMENT...................................... 528 -- --
PROPERTY AND EQUIPMENT, net................................. 364 387 442
DEFERRED INCOME TAXES....................................... 216 30 --
OTHER ASSETS................................................ 10 7 9
------ ------ ------
Total assets...................................... $3,806 $5,379 $4,580
====== ====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Lines of credit........................................... $ 645 $ 972 $ 750
Current maturities of long-term debt...................... 293 258 104
Accounts payable and accrued expenses..................... 763 2,137 1,629
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 389 78 229
Income taxes payable...................................... 19 156 18
Deferred income taxes..................................... 505 369 321
------ ------ ------
Total current liabilities......................... 2,614 3,970 3,051
LONG-TERM DEBT, net of current maturities................... 107 52 62
DEFERRED INCOME TAXES....................................... -- -- 5
------ ------ ------
Total liabilities................................. 2,721 4,022 3,118
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, no par value 1,000 shares authorized, issued
and outstanding........................................ 26 26 26
Capital contribution...................................... -- 258 258
Retained earnings......................................... 1,059 1,073 1,178
------ ------ ------
Total stockholder's equity........................ 1,085 1,357 1,462
------ ------ ------
Total liabilities and stockholder's equity........ $3,806 $5,379 $4,580
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-125
<PAGE> 256
SHERWOOD MECHANICAL, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, MARCH 31,
----------------- --------------------
1997 1998 1998 1999
------- ------- ----------- ------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES............................................. $11,482 $13,556 $6,607 $7,790
COST OF REVENUES (including depreciation)............ 9,867 11,066 5,372 6,530
------- ------- ------ ------
Gross profit.................................... 1,615 2,490 1,235 1,260
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES......... 1,505 2,189 850 1,150
------- ------- ------ ------
Income from operations.......................... 110 301 385 110
------- ------- ------ ------
OTHER INCOME (EXPENSE):
Interest expense................................... (53) (83) (40) (53)
Other.............................................. 18 3 -- (3)
------- ------- ------ ------
Other income (expense), net..................... (35) (80) (40) (56)
------- ------- ------ ------
INCOME BEFORE PROVISION FOR (BENEFIT FROM) INCOME
TAXES.............................................. 75 221 345 54
PROVISION FOR (BENEFIT FROM) INCOME TAXES............ 40 207 148 (51)
------- ------- ------ ------
NET INCOME........................................... $ 35 $ 14 $ 197 $ 105
======= ======= ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-126
<PAGE> 257
SHERWOOD MECHANICAL, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, MARCH 31,
--------------- -------------
1997 1998 1998 1999
----- ------- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 35 $ 14 $ 197 $ 105
Adjustments to reconcile net income to net cash provided
by (used in) operating activities --
Depreciation.......................................... 80 107 47 62
Deferred income taxes................................. 22 50 (4) (13)
Loss on disposal of assets............................ -- -- -- 3
Changes in operating assets and liabilities:
(Increase) decrease in --
Contracts receivable, net........................ 349 (1,070) (594) 560
Costs and estimated earnings in excess of
billings on uncompleted contracts.............. (25) (432) (297) (26)
Inventories...................................... (36) (129) (23) 6
Prepaid expenses and other assets................ 6 (10) (51) 15
Increase (decrease) in --
Accounts payable and accrued expenses............ (250) 1,632 886 (508)
Billings in excess of costs and estimated
earnings on uncompleted contracts.............. 178 (311) (61) 151
Income taxes payable............................. 19 137 (22) (138)
----- ------- ----- -----
Net cash provided by (used in) operating
activities..................................... 378 (12) 78 217
----- ------- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Development of land, capitalized costs................... (108) (26) (19) --
Additions of property and equipment...................... (146) (120) (74) (29)
----- ------- ----- -----
Net cash used in investing activities............ (254) (146) (93) (29)
----- ------- ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in bank overdraft............................... -- -- 153 --
Advances to shareholder.................................. (63) (29) -- (4)
Payments of borrowings from stockholder.................. (20) 9 -- --
Payments of long-term debt............................... (63) (100) (34) (49)
Proceeds on borrowings of long-term debt................. 19 -- -- --
Borrowings on lines of credit, net....................... (47) 327 (153) (222)
----- ------- ----- -----
Net cash (used in) provided by financing
activities..................................... (174) 207 (34) (275)
----- ------- ----- -----
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS....... (50) 49 (49) (87)
CASH AND CASH EQUIVALENTS, beginning of period............. 99 49 49 98
----- ------- ----- -----
CASH AND CASH EQUIVALENTS, end of period................... $ 49 $ 98 $ -- $ 11
===== ======= ===== =====
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for --
Interest.............................................. $ 55 $ 82 $ 12 $ 46
===== ======= ===== =====
Income taxes.......................................... $ -- $ 1 $ -- $ 100
===== ======= ===== =====
Non cash investing and financing activities --
Property and equipment acquired by incurring notes
payable............................................. $ 121 $ 10 $ -- $ 91
===== ======= ===== =====
Liabilities assumed by the sole shareholder of the
Company............................................. $ -- $ 258 $ -- $ --
===== ======= ===== =====
Promissory note received from the sole shareholder in
exchange for land held for sale and assumption of
related debt outstanding............................ $ -- $ -- $ -- $ 367
===== ======= ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-127
<PAGE> 258
SHERWOOD MECHANICAL, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK
--------------- CAPITAL RETAINED STOCKHOLDER'S
SHARES AMOUNT CONTRIBUTIONS EARNINGS EQUITY
------ ------ ------------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, September 30, 1996................ 1,000 $26 $ -- $1,024 $1,050
Net income............................... -- -- -- 35 35
----- --- ---- ------ ------
BALANCE, September 30, 1997................ 1,000 26 -- 1,059 1,085
Capital contribution..................... -- -- 258 -- 258
Net income............................... -- -- -- 14 14
----- --- ---- ------ ------
BALANCE, September 30, 1998................ 1,000 26 258 1,073 1,357
Net income............................... -- -- -- 105 105
----- --- ---- ------ ------
BALANCE, March 31, 1999.................... 1,000 $26 $258 $1,178 $1,462
===== === ==== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-128
<PAGE> 259
SHERWOOD MECHANICAL, INC.
NOTES TO FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION:
Sherwood Mechanical, Inc., a California corporation (the Company), focuses
on installation of plumbing, mechanical, and site utilities for commercial and
industrial construction projects. The Company performs the majority of its
contract work under fixed price contracts with contract terms generally ranging
from 12 to 24 months. The Company performs the majority of its work in
California, Arizona and Nevada.
The Company and its stockholder intend to enter into a definitive agreement
with American Plumbing & Mechanical, Inc. (AMPAM), pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash,
notes and shares of AMPAM common stock concurrently with the consummation of the
related financing.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information
The interim financial statements for the six months ended March 31, 1998,
are unaudited and have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of the Company's
management, the unaudited interim financial statements contain all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Contracts Receivable and Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts based upon an
estimate of uncollectable balances.
Inventories
Inventories consist of parts and supplies held for use in the ordinary
course of business and are stated at the lower of cost or market using the
first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the lease or the estimated useful life of the asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.
F-129
<PAGE> 260
SHERWOOD MECHANICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
The Company recognizes revenues when services are performed, except when
work is being performed under a construction contract. Revenues from
construction contracts are recognized on the percentage-of-completion method
measured by the percentage of cost incurred to date to total estimated costs for
each contract. Contract costs include all direct material and labor costs and
those indirect costs related to contract performance, such as indirect labor and
depreciation costs. Provisions for the total estimated losses on uncompleted
contracts are made in the period in which such losses are determined. Changes in
job performance, job conditions, estimated profitability and final contract
settlements may result in revisions to costs and income and their effects are
recognized in the period in which the revisions are determined. An amount equal
to contract costs attributable to claims is included in revenues when
realization is probable and the amount can be reliably estimated.
The balances billed but not paid by customers pursuant to retainage
provisions in construction contracts will be due upon completion of the
contracts and acceptance by the customer. Based on the Company's experience with
similar contracts in recent years, the retention balance at each balance sheet
date will be collected within the subsequent fiscal year.
The current asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The current liability, "Billings in excess of costs and estimated
earnings on uncompleted contracts," represents billings in excess of revenues
recognized under the percentage of completion.
Warranty Costs
The Company warrants labor for generally one year after construction is
complete. A reserve for warranty costs is recorded based upon the historical
level of warranty claims and management's estimate of future costs, which are
not expected to be material.
Income Taxes
The Company, which is a C Corporation, follows the liability method of
accounting for income taxes in accordance with Statement of Financial Accounting
Standards (SFAS) No. 109, Accounting for Income Taxes. Under this method,
deferred assets and liabilities are recorded for future tax consequences of
temporary differences between the financial reporting and tax bases of assets
and liabilities, and are measured using the enacted tax rates and laws that will
be in effect when the underlying assets or liabilities are recovered or settled.
Historically, the Company used the completed-contract method of reporting for
income tax purposes, under which all contract revenues and expenses are
recognized in the accounting period in which the contract is completed. The
Company changed to the percentage of completion method for income tax purposes
for the year beginning October 1, 1997.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities,
disclosures of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Realization of Long-Lived Assets
The Company has adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
Accordingly, in the event that facts and
F-130
<PAGE> 261
SHERWOOD MECHANICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
circumstances indicate that property and equipment or other assets may be
impaired, an evaluation of recoverability would be performed. If an evaluation
is required, the estimated future undiscounted cash flows associated with the
asset are compared to the asset's carrying amount to determine if an impairment
of such property is necessary. The effect of any impairment would be to expense
the difference between the fair value of such property and its carrying value.
Adoption of this standard did not have a material effect on the financial
position or results of operations of the Company.
(3) DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Contract receivables consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------- MARCH 31,
1997 1998 1999
------ ------ ---------
<S> <C> <C> <C>
Billed..................................................... $1,470 $2,487 $1,871
Claims..................................................... 118 118 --
Retainage.................................................. 391 444 618
Allowance for doubtful accounts............................ (25) (25) (25)
------ ------ ------
Balance at end of period......................... $1,954 $3,024 $2,464
====== ====== ======
</TABLE>
Contracts in progress are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------- MARCH 31,
1997 1998 1999
------- ------ ---------
<S> <C> <C> <C>
Costs incurred on contracts in progress................... $11,403 $8,500 $13,855
Estimated earnings, net of losses......................... 2,251 2,152 3,027
------- ------ -------
13,654 10,652 16,882
Less -- billings to date.................................. 13,572 9,827 16,182
------- ------ -------
$ 82 $ 825 $ 700
======= ====== =======
Costs and estimated earnings in excess of billings on
uncompleted contracts................................... $ 471 $ 903 $ 929
Billings in excess of costs and estimated earnings on
uncompleted contracts................................... (389) (78) (229)
------- ------ -------
$ 82 $ 825 $ 700
======= ====== =======
</TABLE>
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------- MARCH 31,
1997 1998 1999
---- ------ ---------
<S> <C> <C> <C>
Accounts payable, trade..................................... $498 $1,832 $1,254
Accrued compensation and benefits........................... 195 236 188
Other accrued expenses...................................... 70 69 187
---- ------ ------
Balance at end of period............................... $763 $2,137 $1,629
==== ====== ======
</TABLE>
F-131
<PAGE> 262
SHERWOOD MECHANICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(4) PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands, except year
information):
<TABLE>
<CAPTION>
ESTIMATED SEPTEMBER 30,
USEFUL LIVES --------------- MARCH 31,
IN YEARS 1997 1998 1999
------------ ------ ------ ---------
<S> <C> <C> <C> <C>
Transportation equipment...................... 3-5 $ 498 $ 515 $ 585
Machinery and equipment....................... 3-7 396 379 408
Leasehold improvements........................ 7-10 211 233 233
Office furniture and equipment................ 5-7 123 180 195
------ ------ ------
1,228 1,307 1,421
Less -- accumulated depreciation.............. 864 920 979
------ ------ ------
Property and equipment, net......... $ 364 $ 387 $ 442
====== ====== ======
</TABLE>
(5) LAND HELD FOR SALE AND LAND UNDER DEVELOPMENT:
The Company purchased land in April 1992 with plans to subdivide and resell
it at a future date. Included in the net book value is capitalized interest of
approximately $5,000 and $8,000 at September 30, 1997 and 1998, respectively.
The land is carried at the lower of cost or net realizable value.
In March 1999, the sole stockholder of the Company acquired the land for
carrying value and assumed the related outstanding debt.
(6) LINES OF CREDIT AND LONG-TERM DEBT:
The Company has two lines of credit with a bank with $750,000 and $250,000
of available credit. The lines of credit expire May 1999 and bear interest at
8.75%. The lines of credit are collateralized by the Company's assets and are
personally guaranteed by the sole stockholder. Aggregate borrowings outstanding
at September 30, 1997 and 1998, and March 31, 1999, were approximately $645,000,
$972,000 and $750,000, respectively.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------- MARCH 31,
1997 1998 1999
----- ----- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Note payable, due in monthly installments of $944 including
interest at 7.75% to 13.4% through March 2000,
collateralized by equipment and vehicles with a net book
value of $22,608, $15,215 and $11,519 at September 30,
1997 and 1998, and March 31, 1999, respectively........... $ 21 $ 11 $ 4
Notes payable, due in monthly installments of $385 including
interest at 4.9% through June 1999. Notes are
collateralized by vehicles with a net book value of
$21,710, $11,977 and $7,111 at September 30, 1997 and
1998, and March 31, 1999, respectively.................... 15 3 1
Notes payable, due in monthly installments of $2,774 at
interest rates ranging from 8.5% to 9.25%, maturity dates
ranging from December 1999 to March 2001. Notes are
collateralized by vehicles with a net book value of
$97,433, $76,347 and $65,804 at September 30, 1997 and
1998, and March 31, 1999, respectively.................... 84 58 41
Note payable, due in monthly installments of $1,268,
including interest at 9.2%, through October 1998,
collateralized by equipment with a net book value of
$23,882 and $15,922 at September 30, 1997 and 1998,
respectively.............................................. 16 1 --
</TABLE>
F-132
<PAGE> 263
SHERWOOD MECHANICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------- MARCH 31,
1997 1998 1999
----- ----- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Note payable, due in monthly installments of $1,561
including interest at 6.9%, through August 2000,
collateralized by equipment with a net book value of
$48,953, $38,825 and $33,761 at September 30, 1997 and
1998, and March 31, 1999, respectively.................... 49 34 25
Note payable, due in monthly installments of $331, including
interest at 9.77%, through February 2001, collateralized
by equipment with a net book value of $9,345 and $5,993 at
September 30, 1998 and March 31, 1999, respectively....... -- 8 7
Note payable, balance due in July 1999. Collateralized by
land with a book value of $528,000 and $554,000 at
September 30, 1997 and 1998, respectively. (Also see Note
5.)....................................................... 215 195 --
Note payable, due in monthly installments of $3,841,
including interest rates ranging from 4.9% to 8.2%,
maturity dates ranging from February 2001 to March 2002.
Notes are collateralized by equipment with a net book
value of $95,765 at March 31, 1999........................ -- -- 88
----- ----- -----
Total debt.................................................. 400 310 166
Less -- current maturities.................................. (293) (258) (104)
----- ----- -----
Total long-term debt........................................ $ 107 $ 52 $ 62
===== ===== =====
</TABLE>
The maturities of long-term debt are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
YEAR ENDING --------------------------
SEPTEMBER 30, SEPTEMBER 30, MARCH 31,
- ------------- ------------- ---------
<S> <C> <C> <C>
1999.......................................... $258 $ --
2000.......................................... 47 104
2001.......................................... 5 56
2002.......................................... -- 6
---- ----
$310 $166
==== ====
</TABLE>
(7) LEASES:
The Company leases a building under an operating lease agreement with the
sole stockholder. The rent paid under this related party lease was approximately
$78,000 and $97,000 for the year ended September 30, 1997 and 1998, respectively
and $63,000 for the six months ended March 31, 1999. The lease expires in May
2003.
Future minimum lease payments under noncancelable operating leases are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30,
- -------------
<S> <C> <C>
1999................................................................ $126
2000................................................................ 129
2001................................................................ 133
2002................................................................ 137
2003................................................................ 129
----
$654
====
</TABLE>
F-133
<PAGE> 264
SHERWOOD MECHANICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(8) INCOME TAXES:
Federal and state income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------- MARCH 31,
1997 1998 1999
---- ----- ---------
<S> <C> <C> <C>
Federal --
Current................................................. $ 13 $ 106 $ (25)
Deferred................................................ 18 43 (9)
State --
Current................................................. 6 51 (13)
Deferred................................................ 3 7 (4)
---- ----- -----
$ 40 $ 207 $ (51)
==== ===== =====
</TABLE>
At September 30, 1997 and 1998, and March 31, 1999, actual income tax
expense differs from income tax expense computed by applying the U.S. federal
statutory corporate rate of 35%, 34% and 34%, respectively, to income before
provision for income taxes as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------- MARCH 31,
1997 1998 1999
---- ----- ---------
<S> <C> <C> <C>
Provision at the statutory rate........................... $ 26 $ 75 $ 18
Increase resulting from --
Permanent differences................................ 9 7 (84)
Benefit of lower marginal tax rates.................. (1) -- --
State income tax, net of benefit for federal
deduction.......................................... 6 40 4
Non deductible expense............................... -- 85 --
Other, net........................................... -- -- 11
---- ----- -----
$ 40 $ 207 $ (51)
==== ===== =====
</TABLE>
The Company had federal and state alternative minimum tax credits of
$48,000 available to offset future regular tax at September 30, 1997, and no
credits available at September 30, 1998 and March 31, 1999.
Deferred income taxes result from temporary differences in the recognition
of income and expenses for financial reporting purposes and for tax purposes.
The tax effects of these temporary differences, representing deferred tax assets
and liabilities, result principally from the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------- MARCH 31,
1997 1998 1999
----- ----- ---------
<S> <C> <C> <C>
Deferred income tax assets --
Allowance for bad debts................................ $ 10 $ 10 $ 10
Reserves and accrued expenses.......................... 27 30 10
Property and equipment................................. 49 30 --
Alternative minimum tax credit......................... 48 -- --
Net operating loss..................................... 119 -- --
----- ----- -----
Total deferred income tax asset................ 253 70 20
----- ----- -----
Deferred income tax liabilities --
Deferred contract revenue.............................. (522) (409) (341)
Property and equipment................................. -- -- (5)
Accrued expenses....................................... (20) -- --
----- ----- -----
Total deferred income tax liability............ (542) (409) (346)
----- ----- -----
Net deferred income tax liability.............. $(289) $(339) $(326)
===== ===== =====
</TABLE>
F-134
<PAGE> 265
SHERWOOD MECHANICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The net deferred tax assets and liabilities are comprised of the following
(in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------- MARCH 31,
1997 1998 1999
----- ----- ---------
<S> <C> <C> <C>
Deferred tax assets --
Current................................................... $ 37 $ 40 $ 20
Long-term................................................. 216 30 --
----- ----- -----
Total............................................. 253 70 20
----- ----- -----
Deferred tax liabilities --
Current................................................... (542) (409) (341)
Long-term................................................. -- -- (5)
----- ----- -----
Total............................................. (542) (409) (346)
----- ----- -----
Net deferred income tax liability................. $(289) $(339) $ 326)
===== ===== =====
</TABLE>
(9) RELATED-PARTY TRANSACTIONS:
The Company entered into a construction contract with a partnership in
which the partners are executive officers and a stockholder of the Company. The
total contract receivable balance as of September 30, 1997 and 1998, and March
31, 1999 was approximately $302,000, $88,000 and $88,000, respectively. The
Company recorded construction revenue and gross margin for this contract of
approximately $457,000 and $23,000 for 1997, and approximately $475,000 and
$(112,000) for 1998, respectively.
(10) EMPLOYEE BENEFIT PLAN:
The Company has a defined contribution profit-sharing plan. The plan
provides for the Company to match an unspecified percent contributed by each
employee at the discretion of the Board of Director. Total cash contributions by
the Company under the plan were approximately $68,000, $100,000 and $13,000 for
the year ended September 30, 1997 and 1998, and the six months ended March 31,
1999, respectively. Vesting is 100% at date of contribution for employee
contributions and employer contributions generally vest over a period of one to
six years.
(11) FINANCIAL INSTRUMENTS:
The Company's financial instruments consist of cash and cash equivalents,
contracts receivable, accounts payable, lines of credit, notes payable and
long-term debt. The Company believes that the carrying value of these
instruments on the accompanying balance sheets approximates their fair value.
(12) COMMITMENTS AND CONTINGENCIES:
Litigation
The Company was named as a defendant in an action filed by the trustee of a
union apprenticeship committee in December 1997, alleging the Company violated
the State's prevailing wage law and is seeking damages totaling approximately
$269,000. Related to the same matter, the Division of Labor Standards
Enforcement has sued an unaffiliated third party (Ray Wilson Company) seeking
the wages stated above of $269,000 plus penalties of $293,000. Ray Wilson
Company is seeking indemnification from the Company. The two cases overlap and
the collective potential loss totals $562,000. The sole stockholder of the
Company personally guaranteed any liability to the Company related to this
matter. In April 1999, the sole stockholder of the Company settled this matter
for approximately $270,000, which was accrued as of September 30, 1998.
F-135
<PAGE> 266
SHERWOOD MECHANICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company is involved in disputes or legal actions arising in the
ordinary course of business. Management does not believe the outcome of such
legal actions will have a material adverse effect on the Company's financial
position or results of operations.
Insurance
The Company carries a broad range of insurance coverage, including business
auto liability, general liability and an umbrella policy. The Company has not
incurred significant claims or losses on any of these insurance policies.
(13) MAJOR CUSTOMERS AND RISK CONCENTRATION:
The Company had revenue greater than 10 percent of total revenues from
three major customers during the year ended September 30, 1997, one major
customer during the year ended September 30, 1998, and three different major
customers during the six months ended March 31, 1999, as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
-------------------- -------------------- --------------------
PERCENTAGE PERCENTAGE PERCENTAGE
OF OF OF
REVENUE REVENUE REVENUE REVENUE REVENUE REVENUE
------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Customer A.................. $1,870 16.3% $4,134 30.5% $ -- --%
Customer B.................. 1,857 16.2 -- -- -- --
Customer C.................. 1,546 13.5 -- -- 2,019 26.3
Customer D.................. -- -- -- -- 2,168 28.2
Customer E.................. -- -- -- -- 828 10.8
</TABLE>
For the year ended September 30, 1997, contracts receivable were
approximately $133,000, $131,000 and $77,000 for customers A, B and C,
respectively. Contracts receivable at September 30, 1998, from Customer A was
approximately $1,020,000. Contracts receivable at March 31, 1999 were $585,000,
$537,000 and $244,000 for customers C, D and E, respectively.
In general, the Company performs its services under contract terms that
entitle it to progress payments and is granted a lien interest in the work until
paid. The Company is exposed to potential credit risk related to changes in
business and economic factors within the market. However, management believes
that its contract acceptance, billing and collection policies are adequate to
minimize the potential credit risk.
The Company's customers are primarily in the construction industry.
Accordingly, the Company is exposed to risks of fluctuations in construction in
the areas which it operates.
(14) SUBSEQUENT EVENT:
On April 1, 1999, AMPAM acquired through merger all the stock of the
Company in exchange for cash, notes and stock of AMPAM, after which the Company
is a wholly owned subsidiary of AMPAM.
In connection with the merger, the Company distributed certain assets to
the shareholder, consisting of land, buildings and automobiles, at carrying
value.
Concurrently with the merger, the Company entered into agreements with the
stockholder to lease land and buildings used in the Company's operations for a
negotiated amount and term.
F-136
<PAGE> 267
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Miller Mechanical Contractors, Inc.:
We have audited the accompanying balance sheets of Miller Mechanical
Contractors, Inc., as of September 30, 1997 and 1998, and as of March 31, 1999,
and the related statements of operations, cash flows and stockholders' equity
for the years ended September 30, 1997 and 1998, and for the six months ended
March 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
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 Miller Mechanical
Contractors, Inc., as of September 30, 1997 and 1998, and as of March 31, 1999,
and the results of its operations and its cash flows for the years ended
September 30, 1997 and 1998, and for the six months ended March 31, 1999, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
May 26, 1999
F-137
<PAGE> 268
MILLER MECHANICAL CONTRACTORS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------- MARCH 31,
1997 1998 1999
------ ------ ---------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $1,040 $1,872 $1,985
Accounts receivable --
Contract............................................... 1,255 1,650 1,284
Other.................................................. 123 86 127
Due from affiliate........................................ 195 8 --
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 55 74 72
Inventories............................................... 481 344 532
Prepaid expenses and other current assets................. 21 11 22
Deferred income taxes..................................... 85 -- --
------ ------ ------
Total current assets.............................. 3,255 4,045 4,022
PROPERTY AND EQUIPMENT, net................................. 297 326 225
OTHER ASSETS................................................ 49 21 --
------ ------ ------
Total assets...................................... $3,601 $4,392 $4,247
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 61 $ 65 $ 26
Note payable -- officer................................... 41 -- --
Accounts payable and accrued expenses..................... 1,222 1,024 772
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 1,072 1,044 866
Income taxes payable...................................... -- 332 120
------ ------ ------
Total current liabilities......................... 2,396 2,465 1,784
LONG-TERM DEBT, net of current maturities................... 61 48 37
DEFERRED INCOME TAXES....................................... -- 10 12
------ ------ ------
Total liabilities................................. 2,457 2,523 1,833
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; 100,000 shares authorized,
73,781 shares issued and outstanding................... 74 74 74
Retained earnings......................................... 1,070 1,795 2,340
------ ------ ------
Total stockholders' equity........................ 1,144 1,869 2,414
------ ------ ------
Total liabilities and stockholders' equity........ $3,601 $4,392 $4,247
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-138
<PAGE> 269
MILLER MECHANICAL CONTRACTORS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30 MARCH 31
---------------- --------------------
1997 1998 1998 1999
------ ------- ----------- ------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES.................................................. $8,042 $11,346 $5,369 $5,158
COST OF REVENUES (Including depreciation)................. 5,806 7,675 3,713 3,346
------ ------- ------ ------
Gross profit......................................... 2,236 3,671 1,656 1,812
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.............. 2,023 2,531 1,224 892
------ ------- ------ ------
Income from operations............................... 213 1,140 432 920
------ ------- ------ ------
OTHER INCOME (EXPENSE):
Interest income......................................... 20 47 22 40
Interest expense........................................ (49) (12) (9) (2)
Other................................................... 9 13 12 25
------ ------- ------ ------
Other income, net.................................... (20) 48 25 63
------ ------- ------ ------
INCOME BEFORE PROVISION FOR INCOME TAXES.................. 193 1,188 457 983
PROVISION FOR INCOME TAXES................................ 56 463 183 438
------ ------- ------ ------
NET INCOME................................................ $ 137 $ 725 $ 274 $ 545
====== ======= ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-139
<PAGE> 270
MILLER MECHANICAL CONTRACTORS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30 MARCH 31
--------------- ---------------------
1997 1998 1998 1999
------ ------ ----------- ------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $ 137 $ 725 $ 274 $ 545
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation...................................... 108 116 18 81
Loss (gain) on sale of property and equipment..... 2 (12) (11) (25)
Deferred income taxes............................. 8 95 -- 2
Changes in operating assets and liabilities
(Increase) decrease in --
Accounts receivable.......................... (495) (172) 8 333
Costs and estimated earnings in excess of
billings on uncompleted contracts.......... 37 (18) (81) 2
Inventories.................................. 137 137 (22) (188)
Prepaid expenses and other assets............ (6) 10 (32) (11)
Increase (decrease) in --
Accounts payable and accrued expenses........ 127 (197) 170 (253)
Billings in excess of costs and estimated
earnings on uncompleted contracts.......... 642 (28) (245) (178)
Income taxes payable......................... -- 332 232 (212)
Other current liabilities.................... (53) -- -- --
------ ------ ------ ------
Net cash provided by operating
activities.............................. 644 988 311 96
------ ------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment......... 7 14 15 71
Additions to property and equipment.................. (87) (147) (35) (26)
(Increase) decrease in cash value of life
insurance......................................... (10) 28 -- 21
------ ------ ------ ------
Net cash provided by (used in) investing
activities.............................. (90) (105) (20) 66
------ ------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on long-term debt......................... -- 68 26 --
Payments of long-term debt........................... (489) (119) (94) (49)
------ ------ ------ ------
Net cash used in financing activities...... (489) (51) (68) (49)
------ ------ ------ ------
NET INCREASE IN CASH AND CASH EQUIVALENTS.............. 65 832 223 113
CASH AND CASH EQUIVALENTS, beginning of period......... 975 1,040 1,040 1,872
------ ------ ------ ------
CASH AND CASH EQUIVALENTS, end of period............... $1,040 $1,872 $1,263 $1,985
====== ====== ====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for --
Interest.......................................... $ 49 $ 12 $ 11 $ 4
Income taxes...................................... 60 28 13 234
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-140
<PAGE> 271
MILLER MECHANICAL CONTRACTORS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
--------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------ -------- -------------
<S> <C> <C> <C> <C>
BALANCE, September 30, 1996........................... 73,781 $74 $ 933 $1,007
Net income.......................................... -- -- 137 137
------ --- ------ ------
BALANCE, September 30, 1997........................... 73,781 74 1,070 1,144
Net income.......................................... -- -- 725 725
------ --- ------ ------
BALANCE, September 30, 1998........................... 73,781 74 1,795 1,869
Net income.......................................... -- -- 545 545
------ --- ------ ------
BALANCE, March 31, 1999............................... 73,781 $74 $2,340 $2,414
====== === ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-141
<PAGE> 272
MILLER MECHANICAL CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Miller Mechanical Contractors, Inc. (the Company), a Georgia corporation,
is a plumbing subcontractor primarily for extended-stay motels and large upscale
apartment complexes. The Company performs the majority of its contract work
under fixed-price contracts, with contract terms generally ranging from six to
18 months. The Company performs the majority of its work in Georgia, Florida,
North Carolina, South Carolina and Tennessee.
The Company and its stockholders intend to enter into a definitive
agreement with American Plumbing & Mechanical, Inc. (AMPAM), pursuant to which
all outstanding shares of the Company's common stock will be exchanged for cash,
notes and shares of AMPAM common stock concurrently with the consummation the
related financing.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information
The interim financial statements for the six months ended March 31, 1998,
are unaudited and have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of the Company's
management, the unaudited interim financial statements contain all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Accounts Receivable and Provisions for Doubtful Accounts
The Company provides an allowance for doubtful accounts based upon an
estimate of uncollectable balances. Management believes that an allowance for
doubtful accounts is not necessary, based on the status of contracts and review
of accounts.
Inventories
Inventories consist of parts and supplies held for use in the ordinary
course of business and are stated at the lower of cost or market using the
weighted-average method.
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the lease or the estimated useful life of the assets (see Note 4).
Expenditures for repairs and maintenance are charged to expense when incurred.
Expenditures for major renewals and betterments, which extend the useful lives
of existing equipment, are capitalized and depreciated. Upon retirement or
disposition of property and equipment, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized in the statement of operations.
F-142
<PAGE> 273
MILLER MECHANICAL CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
The Company recognizes revenue when services are performed, except when
work is being performed under a construction contract. Revenues from
construction contracts are recognized using the percentage-of-completion method
measured by the percentage of cost incurred to date to total estimated costs for
each contract. Contract costs include all direct material and labor costs and
those indirect costs related to contract performance, such as indirect labor and
depreciation costs. Provisions for the total estimated losses on uncompleted
contracts are made in the period in which such losses are determined. Changes in
job performance, job conditions, estimated profitability and final contract
settlements may result in revisions to costs and income, and their effects are
recognized in the period in which the revisions are determined. An amount equal
to contract costs attributable to claims is included in revenues when
realization is probable and the amount can be reliably estimated.
The balances billed but not paid by customers pursuant to retainage
provisions in construction contracts will be due upon completion of the
contracts and acceptance by the customer. Based on the Company's experience with
similar contracts in recent years, the retention balance at each balance sheet
date will be collected within the subsequent fiscal year.
The current asset "Costs and estimated earnings in excess of billings on
uncompleted contracts" represents revenues recognized in excess of amounts
billed. The current liability "Billings in excess of costs and estimated
earnings on uncompleted contracts" represents billings in excess of revenues
recognized.
Income Taxes
The Company, which is a C Corporation, follows the liability method of
accounting for income taxes in accordance with Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." Under this method,
deferred assets and liabilities are recorded for future tax consequences of
temporary differences between the financial reporting and tax bases of assets
and liabilities and are measured using the enacted tax rates and laws that will
be in effect when the underlying assets and liabilities are recovered or
settled.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities,
disclosures of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from the estimates.
Realization of Long-Lived Assets
The Company has adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
Accordingly, in the event that facts and circumstances indicate that property
and equipment or other assets may be impaired, an evaluation of recoverability
would be performed. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset are compared to the asset's
carrying amount to determine whether an impairment of such property is
necessary. The effect of any impairment would be to expense the difference
between the fair value of such property and its carrying value. Adoption of this
standard did not have a material effect on the financial position or results of
operations of the Company.
F-143
<PAGE> 274
MILLER MECHANICAL CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Contract receivables consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30
---------------- MARCH 31
1997 1998 1999
------ ------ ----------
<S> <C> <C> <C>
Completed contracts.................................... $ 544 $ 30 $ 24
Contracts in progress.................................. 560 1,260 985
Retainage.............................................. 151 360 275
------ ------ ------
Balance at end of period............................. $1,255 $1,650 $1,284
====== ====== ======
</TABLE>
Plumbing installation contracts in progress are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30
------------------ MARCH 31
1997 1998 1999
------- ------- ----------
<S> <C> <C> <C>
Cost incurred on contracts in progress............... $ 2,735 $ 8,352 $5,097
Estimated earnings, net of losses.................... 1,115 4,096 2,615
------- ------- ------
3,850 12,448 7,712
Less -- Billing to date.............................. 4,867 13,418 8,506
------- ------- ------
$(1,017) $ (970) $ (794)
======= ======= ======
Cost and estimated earnings in excess of billings on
uncompleted contracts.............................. $ 55 $ 74 $ 72
Billing in excess of costs and estimated earnings on
uncompleted contracts.............................. (1,072) (1,044) (866)
------- ------- ------
$(1,017) $ (970) $ (794)
======= ======= ======
</TABLE>
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30
---------------- MARCH 31
1997 1998 1999
------ ------ --------
<S> <C> <C> <C>
Accounts payable, trade................................. $ 570 $ 374 $475
Accrued compensation and benefits....................... 391 587 229
Other accrued expenses.................................. 261 63 68
------ ------ ----
Balance at end of period.............................. $1,222 $1,024 $772
====== ====== ====
</TABLE>
4. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED SEPTEMBER 30
USEFUL LIVES ------------- MARCH 31
IN YEARS 1997 1998 1999
------------ ----- ----- --------
<S> <C> <C> <C> <C>
Vehicles......................................... 5 $434 $472 $400
Machinery and equipment.......................... 5-7 139 218 282
Property under capital lease..................... 5 26 -- --
Leasehold improvements........................... 31.5-39 128 130 35
---- ---- ----
727 820 717
Less -- Accumulated depreciation and
amortization................................... 430 494 492
---- ---- ----
Property and equipment, net............ $297 $326 $225
==== ==== ====
</TABLE>
F-144
<PAGE> 275
MILLER MECHANICAL CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. LINE OF CREDIT AND LONG-TERM DEBT:
The Company has available a $300,000 line of credit with a bank.
Outstanding borrowings under the line of credit bear interest at the banks prime
rate plus 1 percent. The line of credit is secured by substantially all of the
assets of the Company and is personally guaranteed by the stockholders. At
September 30, 1997 and 1998, and March 31, 1999, no amount was outstanding on
the line of credit. The line of credit included an annual renewal option and was
not renewed during the six months ended March 31, 1999.
The Company has various notes payable with several financial institutions.
These notes have monthly payments ranging from $291 to $872, including interest,
and total $112,570 in the aggregate at September 30, 1998. Interest rates on the
notes vary from 1.9 percent to 10.4 percent and are due from February 1999
through June 2001. All of the notes payable are secured by the respective
vehicles and equipment.
The maturities of long-term debt as of September 30, 1998, are as follows
(in thousands):
<TABLE>
<S> <C>
Year ending September 30 --
1999...................................................... $ 65
2000...................................................... 33
2001...................................................... 15
----
$113
====
</TABLE>
6. LEASES:
The Company leases all of its operating facilities from the majority
stockholder under a lease agreement that expires on September 30, 2005. Monthly
lease payments aggregate $7,500 for the land and buildings through September 30,
2005. Under the agreement, the Company is responsible for all property taxes,
maintenance and insurance on the property. Future minimum lease payments under
the agreement are $90,000 per year through September 30, 2005. Rent expense was
$90,000 for the years ended September 30, 1997 and 1998 and $45,000 for the six
months ended March 31, 1999.
7. INCOME TAXES:
Federal and state income tax provisions are as follows (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS
SEPTEMBER 30 ENDED
------------ MARCH 31
1997 1998 1999
---- ----- ----------
<S> <C> <C> <C>
Federal --
Current.................................... $38 $310 $376
Deferred................................... 7 81 2
State --
Current.................................... 10 58 59
Deferred................................... 1 14 1
--- ---- ----
$56 $463 $438
=== ==== ====
</TABLE>
F-145
<PAGE> 276
MILLER MECHANICAL CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate rate of 35 percent to income
before provision for income taxes as follows (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS
SEPTEMBER 30 ENDED
------------- MARCH 31
1997 1998 1999
----- ----- ----------
<S> <C> <C> <C>
Provisions at the statutory rate............ $ 68 $415 $344
Increase (decrease) resulting from --
State income tax, net of benefit for
federal deduction...................... 7 47 39
Benefit of lower marginal rates........... (16) (4) --
Resolution of prior year uncertainties...... -- -- 53
Other, net................................ (3) 5 2
---- ---- ----
$ 56 $463 $438
==== ==== ====
</TABLE>
Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences, representing deferred
tax assets and liabilities, result principally from the following (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30
------------ MARCH 31
1997 1998 1999
---- ----- --------
<S> <C> <C> <C>
Deferred income tax assets --
Net operating loss carryforward........................... $74 -- --
Accrued related-party interest............................ 11 -- --
--- ---- ----
Total deferred income tax asset................... 85 -- --
--- ---- ----
Deferred income tax liabilities --
Property and equipment.................................... -- $(10) $(12)
--- ---- ----
Total deferred income tax liability............... -- $(10) $(12)
--- ---- ----
Net deferred income tax assets (liabilities)...... $85 $(10) $(12)
=== ==== ====
</TABLE>
8. RELATED-PARTY TRANSACTIONS:
The Company has purchased certain materials and supplies from an affiliate.
The Company also bills certain salaries, insurance and office supplies to the
affiliate. The Company and the affiliate have a common stockholder. For the
years ended September 30, 1997 and 1998 and the six months ended March 31, 1999,
the Company purchased approximately $1,940,000, $3,048,000 and $1,044,000,
respectively, of material and supplies from the affiliate. At September 30, 1997
and 1998 and March 31, 1999, the Company had receivables of $195,334, $8,241 and
$63, respectively due from the affiliate.
The Company leases all of its operating facilities from the majority
stockholder (see Note 6).
9. EMPLOYEE BENEFIT PLAN:
The Company has a defined contribution profit-sharing plan qualifying under
Section 401(a) of the Internal Revenue Code. The plan covers all eligible
employees. The Company can elect to contribute specified amounts to the plan, as
determined by the board of directors. Participants' vested interests in the
Company's contributions are based on years of service, as defined, with the
Company. The Company contributed $240,000, $130,000 and $65,000 to the plan for
the years ended September 30, 1997 and 1998,
F-146
<PAGE> 277
MILLER MECHANICAL CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
and for the six months ended March 31, 1999, respectively, which is included in
accounts payable and accrued expenses in the accompanying balance sheets.
10. FINANCIAL INSTRUMENTS:
The Company's financial instruments consist of cash and cash equivalents, a
line of credit and debt. The Company believes that the carrying value of these
instruments on the accompanying balance sheet approximates their values.
11. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is involved in disputes or legal actions arising in the
ordinary course of business. Management does not believe the outcome of such
legal actions will have a material adverse effect on the Company's financial
position or results of operations.
Insurance
The Company carries a broad range of insurance coverage, including business
auto liability, general liability and an umbrella policy. The Company has not
incurred significant claims or losses on any of these insurance policies.
12. MAJOR CUSTOMERS AND RISK CONCENTRATION:
The Company had sales of approximately 54 percent of total sales to one
major customer during the year ended September 30, 1997. The Company had sales
of approximately 63 percent and 13 percent, respectively to two major customers
during the year ended September 30, 1998 and sales of approximately 56 percent
and 11 percent to two major customers during the six months ended March 31,
1999.
In general, the Company performs its services under contract terms that
entitle it to progress payments and is, by law, granted a lien interest in the
work until paid. The Company is exposed to potential credit risk related to
changes in business and economic factors within the southeastern United States.
However, management believes that its contract acceptance, billing and
collection policies are adequate to minimize the potential credit risk.
The Company's customers are primarily in the construction industry.
Accordingly, the Company is exposed to risks of fluctuations in construction in
the areas which it operates.
13. SUBSEQUENT EVENT:
On April 1, 1999, AMPAM acquired through merger all the stock of the
Company in exchange for cash, notes and stock of AMPAM, after which the Company
is a wholly owned subsidiary of AMPAM.
In connection with the merger, the Company sold or distributed certain
nonoperating assets and attendant liabilities, if any, to the stockholders.
F-147
<PAGE> 278
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[American Plumbing & Mechanical, Inc. Logo]
AMERICAN PLUMBING & MECHANICAL, INC.
OFFER TO EXCHANGE 11 5/8% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B FOR ALL
EXISTING 11 5/8% SENIOR SUBORDINATED NOTES DUE 2008, SERIES A
--------------------
PROSPECTUS
--------------------
, 1999
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and, if given or made, the information or representations must not
be relied upon as having been authorized by American Plumbing & Mechanical, Inc.
This prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any securities other than the securities to which it relates or any
offer to sell or the solicitation of an offer to buy securities of that type in
any circumstances in which an offer or solicitation is unlawful. Neither the
delivery of this prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of American Plumbing & Mechanical, Inc. since the date hereof or that
the information contained in this prospectus is correct as of any time
subsequent to its date.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 279
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subsection (a) of section 145 of the General Corporation Law of the State
of Delaware empowers a corporation to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
made to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful on the merits or otherwise in the defense of any
action, suit or proceeding referred to in subsections (a) and (b) of Section 145
in the defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith; that indemnification provided for by Section 145
shall not be deemed exclusive of any other rights to which the indemnified party
may be entitled; that indemnification provided for by Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of such person's heirs, executors and administrators; and empowers the
corporation to purchase and maintain insurance on behalf of a director or
officer of the corporation against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such
whether or not the corporation would have the power to indemnify him against
such liabilities under Section 145.
Section 102(b)(7) of the General Corporation Law of the State of Delaware
provides that a certificate of incorporation may contain a provision eliminating
or limiting the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director
provided that such provision shall not eliminate or limit the liability of a
director (1) for any breach of the director's duty of loyalty to the corporation
or its stockholders, (2) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (3) under Section
174 of the Delaware General Corporation Law, or (4) for any transaction from
which the director derived an improper personal benefit.
II-1
<PAGE> 280
Section 7(d) of the Company's Amended and Restated Certificate of
Incorporation states that:
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL, or (iv) for any
transaction from which the director derived an improper personal benefit. If the
DGCL is amended to authorize corporate action further eliminating or limiting
the personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the DGCL, as so amended. Any repeal or modification of this Section 7(d) by the
stockholders of the Corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
Corporation existing at the time of such repeal or modification.
In addition, Article IX of the Company's Bylaws further provides that the
Company shall indemnify its officers, directors and employees to the fullest
extent permitted by law.
The Company has or will be entering into indemnification agreements with
each of its executive officers and directors.
These limitations on liability would apply to violations of the federal
securities laws. However, the registrant has been advised that in the opinion of
the SEC, indemnification for liabilities under the Securities Act of 1933 is
against public policy and therefore unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
Unless otherwise indicated, all exhibits listed below were previously
filed as part of this registration statement.
<TABLE>
<C> <S> <C>
3.1 -- Amended and Restated Certificate of Incorporation
3.2 -- Amended and Restated Bylaws
3.3 -- Certificate of Designations of 10% Cumulative Redeemable
Convertible Preferred Stock, Series A
4.1 -- Indenture, dated May 19, 1999, by and among American
Plumbing & Mechanical, Inc. and the subsidiaries named
therein and State Street Bank and Trust Company covering up
to $125,000,000 11 5/8% Senior Subordinated Notes due 2008
4.2 -- Registration Rights Agreement dated May 19, 1999 by and
among American Plumbing & Mechanical, Inc., Fleet
Securities, Inc., Merrill Lynch & Co., Banc One Capital
Markets, Inc. and Credit Lyonnais Securities (USA), Inc.
4.3 -- Form of American Plumbing & Mechanical, Inc. 11 5/8% Senior
Subordinated Note due 2008 (Included in Exhibit A to Exhibit
4.1)
*5.1 -- Opinion of Andrews & Kurth L.L.P.
*10.1 -- Form of Officer and Director Indemnification Agreement
10.2 -- American Plumbing & Mechanical, Inc. 1999 Stock Plan
*10.3 -- $95 Million Senior Secured Credit Agreement dated March 31,
1999 among American Plumbing & Mechanical, Inc., First
National Bank of Chicago and the other lenders party
thereto.
10.4 -- Transfer Restriction and Expense Reimbursement Agreement
10.5 -- Acquisition Agreement dated February 11, 1999 by and between
American Plumbing & Mechanical, Inc., Christianson
Enterprises, Inc, Christianson Service Company, G.G.R.
Leasing Corporation and their stockholders
10.6 -- Acquisition Agreement dated February 11, 1999 by and between
American Plumbing & Mechanical, Inc., J.A. Croson Company
and Franklin Fire Sprinkler Company and their stockholders
</TABLE>
II-2
<PAGE> 281
<TABLE>
<C> <S> <C>
10.7 -- Acquisition Agreement dated February 11, 1999 by and between American Plumbing &
Mechanical, Inc., J.A. Croson Company of Florida and its stockholders
10.8 -- Acquisition Agreement dated February 11, 1999 by and between American Plumbing &
Mechanical, Inc., Nelson Mechanical Contractors, Inc. and its stockholders
10.9 -- Acquisition Agreement dated February 11, 1999 by and between American Plumbing &
Mechanical, Inc., Miller Mechanical Contractors, Inc. and its stockholders
10.10 -- Acquisition Agreement dated February 11, 1999 by and between American Plumbing &
Mechanical, Inc., R.C.R. Plumbing, Inc. and its stockholders
10.11 -- Acquisition Agreement dated February 11, 1999 by and between American Plumbing &
Mechanical, Inc., Teepe's River City Mechanical, Inc. and its stockholders
10.12 -- Acquisition Agreement dated February 11, 1999 by and between American Plumbing &
Mechanical, Inc., Keith Riggs Plumbing, Inc. and its stockholders
10.13 -- Acquisition Agreement dated February 11, 1999 by and between American Plumbing &
Mechanical, Inc., Power Plumbing, Inc. and its stockholders
10.14 -- Acquisition Agreement dated February 11, 1999 by and between American Plumbing &
Mechanical, Inc., Sherwood Mechanical, Inc. and its stockholder
*10.15 -- Employment Agreement between the Company and Robert Christianson
+10.16 -- Employment Agreement between the Company and Robert Richey
*10.17 -- Employment Agreement between the Company and David Baggett
*10.18 -- Employment Agreement between the Company, Croson Ohio and David Croson
*10.19 -- Employment Agreement between the Company, Croson Florida and James Croson
*10.20 -- Employment Agreement between the Company, Miller and Joseph B. Miller
*10.21 -- Employment Agreement between the Company, Sherwood and Robert Sherwood
*10.22 -- Employment Agreement between the Company, Keith Riggs and Sam Sherwood
*10.23 -- Employment Agreement between the Company, Teepe's and Scott Teepe
12 -- Ratio of Earnings to Fixed Charges
*23.1 -- Consent of Andrews & Kurth L.L.P. (Included in Exhibit 5.1)
*23.2 -- Consent of Arthur Andersen, LLP
*25.1 -- Statement of Eligibility of State Street Bank and Trust Company, Trustee on Form T-1
99.1 -- Form of Letter of Transmittal
99.2 -- Form of Notice of Guaranteed Delivery
99.3 -- Form of Letter to Clients
99.4 -- Form of Letter to Nominees
99.5 -- Form of Instruction to Registered Holder from Beneficial Owner
</TABLE>
- ---------------
* Filed herewith
+ To be filed by amendment
ITEM 22. UNDERTAKINGS
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
II-3
<PAGE> 282
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question 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.
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:
(a) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(b) 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 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(c) 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;
and
(d) To supply 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.
(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.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to section 13(a) or section 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement 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.
(5) 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 main 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.
II-4
<PAGE> 283
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas, on August , 1999.
AMERICAN PLUMBING & MECHANICAL, INC.
By: *
-------------------------------------
Robert A. Christianson
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
has been signed by the following persons in the capacities indicated on August
, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
* Chairman of the Board of Directors
- -----------------------------------------------------
C. Byron Snyder
* President, Chief Executive Officer and
- ----------------------------------------------------- Director (Principal Executive Officer)
Robert A. Christianson
/s/ DAVID C. BAGGETT Senior Vice President, Chief Financial
- ----------------------------------------------------- Officer, Secretary and Director (Principal
David C. Baggett Financial Officer and Principal Accounting
Officer)
* Senior Vice President, Chief Operating Officer
- ----------------------------------------------------- and Director
Robert C. Richey
* Director
- -----------------------------------------------------
David A. Croson
</TABLE>
II-5
<PAGE> 284
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
* Director
- -----------------------------------------------------
James A. Croson
* Director
- -----------------------------------------------------
Joseph E. Miller
* Director
- -----------------------------------------------------
Albert W. Niemi, Jr.
* Director
- -----------------------------------------------------
Susan O. Rheney
* Director
- -----------------------------------------------------
Robert W. Sherwood
* Director
- -----------------------------------------------------
Sam B. Sherwood
* Director
- -----------------------------------------------------
Scott W. Teepe, Sr.
*By: /s/ DAVID C. BAGGETT
- -----------------------------------------------------
David C. Baggett
Pursuant to a power-of-attorney
filed with the Registration Statement
on June 21, 1999
</TABLE>
II-6
<PAGE> 285
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrants
set forth below have duly caused this Registration Statement to be signed on
their behalf by the undersigned, thereunto duly authorized, in the City of
Houston, State of Texas, on August , 1999.
CHRISTIANSON ENTERPRISES, INC.
CHRISTIANSON SERVICE COMPANY
G.G.R. LEASING CORPORATION
R.C.R. PLUMBING, INC.
J.A. CROSON COMPANY
FRANKLIN FIRE SPRINKLER COMPANY
J.A. CROSON COMPANY OF FLORIDA
TEEPE'S RIVER CITY MECHANICAL, INC.
KEITH RIGGS PLUMBING, INC.
POWER PLUMBING, INC.
NELSON MECHANICAL CONTRACTORS, INC.
SHERWOOD MECHANICAL, INC.
MILLER MECHANICAL CONTRACTORS, INC.
By: /s/ DAVID C. BAGGETT
----------------------------------------
David C. Baggett
Vice President, Secretary and Treasurer
of
each of the above listed companies
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on June 15, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
CHRISTIANSON ENTERPRISES, INC.
CHRISTIANSON SERVICE COMPANY
G.G.R. LEASING CORPORATION
* President and Director (Principal Executive
- ----------------------------------------------------- Officer)
Robert A. Christianson
/s/ DAVID C. BAGGETT Treasurer and Director (Principal Financial
- ----------------------------------------------------- and Accounting Officer)
David C. Baggett
* Director
- -----------------------------------------------------
Brian T. Christianson
R.C.R. PLUMBING, INC.
* Chief Executive Officer and Director
- ----------------------------------------------------- (Principal Executive Officer)
Robert C. Richey
/s/ DAVID C. BAGGETT Treasurer and Director (Principal Financial
- ----------------------------------------------------- and Accounting Officer)
David C. Baggett
* Director
- -----------------------------------------------------
Robert A. Christianson
</TABLE>
II-7
<PAGE> 286
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
J.A. CROSON COMPANY
* President and Director (Principal Executive
- ----------------------------------------------------- Officer)
David A. Croson
/s/ DAVID C. BAGGETT Treasurer and Director (Principal Financial
- ----------------------------------------------------- and Accounting Officer)
David C. Baggett
* Director
- -----------------------------------------------------
Robert A. Christianson
FRANKLIN FIRE SPRINKLER COMPANY
* President and Director (Principal Executive
- ----------------------------------------------------- Officer)
John L. Boyle
/s/ DAVID C. BAGGETT Treasurer and Director (Principal Financial
- ----------------------------------------------------- and Accounting Officer)
David C. Baggett
* Director
- -----------------------------------------------------
Robert A. Christianson
J.A. CROSON COMPANY OF FLORIDA
* Chief Executive Officer and Director
- ----------------------------------------------------- (Principal Executive Officer)
James A. Croson
/s/ DAVID C. BAGGETT Treasurer and Director (Principal Financial
- ----------------------------------------------------- and Accounting Officer)
David C. Baggett
* Director
- -----------------------------------------------------
Robert A. Christianson
TEEPE'S RIVER CITY MECHANICAL, INC.
* President and Director (Principal Executive
- ----------------------------------------------------- Officer)
Scott Teepe
/s/ DAVID C. BAGGETT Treasurer and Director (Principal Financial
- ----------------------------------------------------- and Accounting Officer)
David C. Baggett
* Director
- -----------------------------------------------------
Robert A. Christianson
KEITH RIGGS PLUMBING, INC.
* President and Director (Principal Executive
- ----------------------------------------------------- Officer)
Gerald Riggs
/s/ DAVID C. BAGGETT Treasurer and Director (Principal Financial
- ----------------------------------------------------- and Accounting Officer)
David C. Baggett
* Director
- -----------------------------------------------------
Robert A. Christianson
</TABLE>
II-8
<PAGE> 287
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
POWER PLUMBING, INC.
* President and Director (Principal Executive
- ----------------------------------------------------- Officer)
James N. Power
/s/ DAVID C. BAGGETT Treasurer and Director (Principal Financial
- ----------------------------------------------------- and Accounting Officer)
David C. Baggett
* Director
- -----------------------------------------------------
Robert A. Christianson
NELSON MECHANICAL CONTRACTORS, INC.
* President and Director (Principal Executive
- ----------------------------------------------------- Officer)
Gilbert Nelson
/s/ DAVID C. BAGGETT Treasurer and Director (Principal Financial
- ----------------------------------------------------- and Accounting Officer)
David C. Baggett
* Director
- -----------------------------------------------------
Robert A. Christianson
SHERWOOD MECHANICAL, INC.
* President and Director (Principal Executive
- ----------------------------------------------------- Officer)
Robert Sherwood
/s/ DAVID C. BAGGETT Treasurer and Director (Principal Financial
- ----------------------------------------------------- and Accounting Officer)
David C. Baggett
* Director
- -----------------------------------------------------
Robert A. Christianson
MILLER MECHANICAL CONTRACTORS, INC.
* President and Director (Principal Executive
- ----------------------------------------------------- Officer)
Joseph E. Miller
/s/ DAVID C. BAGGETT Treasurer and Director (Principal Financial
- ----------------------------------------------------- and Accounting Officer)
David C. Baggett
* Director
- -----------------------------------------------------
Robert A. Christianson
</TABLE>
<TABLE>
/s/ DAVIDBC. BAGGETT
- -----------------------------------------------------
David C. Baggett
Pursuant to a power-of-attorney
filed with the Registration Statement
on June 21, 1999
<C> <S>
</TABLE>
II-9
<PAGE> 288
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S> <C>
3.1 -- Amended and Restated Certificate of Incorporation
3.2 -- Amended and Restated Bylaws
3.3 -- Certificate of Designations of 10% Cumulative Redeemable
Convertible Preferred Stock, Series A
4.1 -- Indenture, dated May 19, 1999, by and among American
Plumbing & Mechanical, Inc. and the subsidiaries named
therein and State Street Bank and Trust Company covering up
to $125,000,000 11 5/8% Senior Subordinated Notes due 2008
4.2 -- Registration Rights Agreement dated May 19, 1999 by and
among American Plumbing & Mechanical, Inc., Fleet
Securities, Inc., Merrill Lynch & Co., Banc One Capital
Markets, Inc. and Credit Lyonnais Securities (USA), Inc.
4.3 -- Form of American Plumbing & Mechanical, Inc. 11 5/8% Senior
Subordinated Note due 2008 (Included in Exhibit A to Exhibit
4.1)
*5.1 -- Opinion of Andrews & Kurth L.L.P.
*10.1 -- Form of Officer and Director Indemnification Agreement
10.2 -- American Plumbing & Mechanical, Inc. 1999 Stock Plan
*10.3 -- $95 Million Senior Secured Credit Agreement dated March 31,
1999 among American Plumbing & Mechanical, Inc., First
National Bank of Chicago and the other lenders party
thereto.
10.4 -- Transfer Restriction and Expense Reimbursement Agreement
10.5 -- Acquisition Agreement dated February 11, 1999 by and between
American Plumbing & Mechanical, Inc., Christianson
Enterprises, Inc, Christianson Service Company, G.G.R.
Leasing Corporation and their stockholders
10.6 -- Acquisition Agreement dated February 11, 1999 by and between
American Plumbing & Mechanical, Inc., J.A. Crosan Company
and Franklin Fire Sprinkler Company and their stockholders
10.7 -- Acquisition Agreement dated February 11, 1999 by and between
American Plumbing & Mechanical, Inc., J.A. Croson Company of
Florida and its stockholders
10.8 -- Acquisition Agreement dated February 11, 1999 by and between
American Plumbing & Mechanical, Inc., Nelson Mechanical
Contractors, Inc. and its stockholders
10.9 -- Acquisition Agreement dated February 11, 1999 by and between
American Plumbing & Mechanical, Inc., Miller Mechanical
Contractors, Inc. and its stockholders
10.10 -- Acquisition Agreement dated February 11, 1999 by and between
American Plumbing & Mechanical, Inc., R.C.R. Plumbing, Inc.
and its stockholders
10.11 -- Acquisition Agreement dated February 11, 1999 by and between
American Plumbing & Mechanical, Inc., Teepe's River City
Mechanical, Inc. and its stockholders
10.12 -- Acquisition Agreement dated February 11, 1999 by and between
American Plumbing & Mechanical, Inc., Keith Riggs Plumbing,
Inc. and its stockholders
10.13 -- Acquisition Agreement dated February 11, 1999 by and between
American Plumbing & Mechanical, Inc., Power Plumbing, Inc.
and its stockholders
10.14 -- Acquisition Agreement dated February 11, 1999 by and between
American Plumbing & Mechanical, Inc., Sherwood Mechanical,
Inc. and its stockholder
*10.15 -- Employment Agreement between the Company and Robert
Christianson
</TABLE>
<PAGE> 289
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S> <C>
+10.16 -- Employment Agreement between the Company and Robert Richey
*10.17 -- Employment Agreement between the Company and David Baggett
*10.18 -- Employment Agreement between the Company, Croson Ohio and
David Croson
*10.19 -- Employment Agreement between the Company, Croson Florida and
James Croson
*10.20 -- Employment Agreement between the Company, Miller and Joseph
B. Miller
*10.21 -- Employment Agreement between the Company, Sherwood and
Robert Sherwood
*10.22 -- Employment Agreement between the Company, Keith Riggs and
Sam Sherwood
*10.23 -- Employment Agreement between the Company, Teepe's and Scott
Teepe
12 -- Ratio of Earnings to Fixed Charges
*23.1 -- Consent of Andrews & Kurth L.L.P. (Included in Exhibit 5.1)
*23.2 -- Consent of Arthur Andersen, LLP
*25.1 -- Statement of Eligibility of State Street Bank and Trust
Company, Trustee on Form T-1
99.1 -- Form of Letter of Transmittal
99.2 -- Form of Notice of Guaranteed Delivery
99.3 -- Form of Letter to Clients
99.4 -- Form of Letter to Nominees
99.5 -- Form of Instruction to Registered Holder from Beneficial
Owner
</TABLE>
- ---------------
* Filed herewith
+ To be filed by amendment
<PAGE> 1
EXHIBIT 5.1
, 1999
-----------
Board of Directors
American Plumbing and Mechanical, Inc.
1502 Augusta, Suite 425
Houston, Texas 77057
Ladies and Gentlemen:
We have acted as counsel to American Plumbing & Mechanical,
Inc., a Delaware corporation (the "Company"), and are delivering this opinion
in connection with the Company's Registration Statement on Form S-4 (the
"Registration Statement") relating to the registration under the Securities Act
of 1933, as amended (the "Securities Act"), of the offer by the Company to
exchange up to $125,000,000 aggregate principal amount of its 115/8% Senior
Subordinated Notes Due 2008, Series B (the "Exchange Notes") for its existing
115/8% Senior Subordinated Notes Due 2008, Series A (the "Existing Notes"). The
Exchange Notes are proposed to be issued in accordance with the provisions of
the indenture (the "Indenture"), dated as of May 19, 1999, between the Company,
the guarantors named therein (the "Guarantors") and State Street Bank and Trust
Company, as Trustee.
In arriving at the opinions expressed below, we have examined
the Registration Statement, the Prospectus contained therein, the Indenture
which is filed as an exhibit to the Registration Statement, and the originals
or copies certified or otherwise identified to our satisfaction of such other
instruments and other certificates of public officials and officers and
representatives of the Company. In all such examinations and for purposes of
our opinions set forth below, we have, with your approval and without
independent investigation, assumed the genuineness of all signatures, the legal
capacity of all natural persons, the authenticity and completeness of all
documents submitted to us as originals, the conformity to the authentic
original documents of all documents submitted to us as copies and that all
documents in respect of which forms were filed with the Securities and Exchange
Commission as exhibits to the Registration Statement will conform in all
material respects to the forms thereof that we have examined. In addition, as
the basis for the opinion hereinafter expressed, we have examined such
statutes, regulations, corporate records and documents, certificates of
corporate and public officials and other instruments as we have deemed
necessary or advisable for the purposes of this opinion.
Based on the foregoing, and having due regard for such legal
considerations as we deem relevant, and subject to the qualifications and
limitations set forth below, we are of the opinion that the Exchange Notes and
the guarantee of each of the Guarantors (the "Guarantees"), (a) when
<PAGE> 2
Board of Directors
American Plumbing and Mechanical, Inc.
, 1999
- -------------
Page 2
the Notes have been exchanged in the manner described in the Registration
Statement, (b) when the Exchange Notes have been duly executed, authenticated,
issued and delivered in accordance with the terms of the Indenture, (c) when
the Indenture has been duly qualified under the Trust Indenture Act of 1939, as
amended, and (d) when applicable provisions of "blue sky" laws have been
complied with, will constitute valid and binding obligations of the Company and
the Guarantors, as applicable, enforceable against the Company and the
Guarantors, as applicable, in accordance with their terms, under the laws of
the State of New York which are expressed to govern the same, except as the
enforcement thereof may be limited by (a) bankruptcy, insolvency,
reorganization, moratorium (including, without limitation, all laws relating to
fraudulent transfers), (b) other similar laws relating to or affecting
enforcement of creditors' rights generally, (c) general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or
at law) and (d) limitations on the waiver of rights under usury laws, and will
be entitled to the benefits of the Indenture.
This opinion is limited in all respects to the laws of the
State of Texas, the State of New York and Delaware corporate law. We express
no opinion as to, and for the purposes of the opinions set forth herein, we have
conducted no investigation of, and do not purport to be experts on, any other
laws. We hereby consent to the use of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
<PAGE> 1
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
This Agreement ("Agreement") is made and entered into effective as of
the day of , 1999, by and between American Plumbing & Mechanical, Inc., a
Delaware corporation (the "Corporation"), and ________________________
("Indemnitee").
RECITALS
A. Highly competent persons are becoming more reluctant to serve
corporations as directors, executive officers or in other capacities unless they
are provided with adequate protection through insurance or adequate
indemnification against inordinate risks of claims and actions against them
arising out of their service to and activities on behalf of the corporation.
B. The Board of Directors of the Corporation (the "Board") has
determined that the inability to attract and retain such persons would be
detrimental to the best interests of the Corporation and its shareholders and
that the Corporation should act to assure such persons that there will be
increased certainty of such protection in the future.
C. The Board has also determined that it is reasonable, prudent and
necessary for the Corporation, in addition to purchasing and maintaining
directors' and officers' liability insurance, contractually to obligate itself
to indemnify such persons to the fullest extent permitted by applicable law and
to provide an arrangement of self-insurance so that they will serve or continue
to serve the Corporation free from undue concern that they will not be so
indemnified.
D. Indemnitee is willing to serve or continue to serve on the condition
that he be so indemnified.
In consideration of the mutual covenants herein contained, the parties
agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
As used herein, the following words and terms shall have the following
respective meanings (whether singular or plural):
"Change in Control" means a change in control of the Corporation
occurring after the date of this Agreement of a nature that would be required to
be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in
response to any similar item on any similar schedule or form) promulgated under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or
not the Corporation is then subject to such reporting requirement.
"Claim" means an actual or threatened claim or request for relief.
-1-
<PAGE> 2
"Corporate Status" means the status of a person who is or was a
director, officer, partner, employee, agent or fiduciary of the Corporation or
of any other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which such person is or was serving at the request of
the Corporation.
"DGCL" means the Delaware General Corporation Law and any successor
statute thereto as either of them may from time to time be amended.
"Disinterested Director" means a director of the Corporation who is not
a named defendant or respondent to the Proceeding or subject to a Claim in
respect of which indemnification is sought by Indemnitee.
"Expenses" means all attorneys' fees, retainers, court costs,
transcript costs, fees of experts, witness fees, travel expenses, duplicating
costs, printing and binding costs, telephone charges, postage, delivery service
fees and all other disbursements or expenses of the types customarily incurred
in connection with prosecuting, defending, preparing to prosecute or defend,
investigating or being or preparing to be a witness in a Proceeding.
"Independent Counsel" means a law firm, or a member of a law firm, that
is experienced in matters of corporation law and neither contemporaneously is,
nor in the five years theretofore has been, retained to represent: (a) the
Corporation or Indemnitee in any matter material to either such party, (b) any
other party to the Proceeding giving rise to a claim for indemnification
hereunder or (c) the beneficial owner, directly or indirectly, of securities of
the Corporation representing 25% or more of the combined voting power of the
Corporation's then outstanding voting securities. Notwithstanding the foregoing,
the term "Independent Counsel" shall not include any person who, under the
applicable standards of professional conduct then prevailing, would have a
conflict of interest in representing either the Corporation or Indemnitee in an
action to determine Indemnitee's rights under this Agreement.
"Person" shall have the meaning ascribed to such term in Sections 13(d)
and 14(d) of the Exchange Act.
"Proceeding" means any threatened, pending or completed action, suit,
arbitration, investigation, administrative hearing or any other proceeding
whether civil, criminal, administrative or investigative (except one initiated
by Indemnitee pursuant to Article VI of this Agreement to enforce his rights
under this Agreement), and any appeal in or related to any such action, suit,
arbitration, investigation, hearing or proceeding and any inquiry or
investigation that could lead to such an action, suit, proceeding or
arbitration.
-2-
<PAGE> 3
ARTICLE II
SERVICES BY INDEMNITEE
Indemnitee agrees to serve or continue to serve as a director or
officer of the Corporation. Indemnitee may from time to time also agree to
serve, as the Corporation may request from time to time, as a director, officer,
partner, employee, agent or fiduciary of either the Corporation or any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise in which the Corporation has an interest. Indemnitee and the
Corporation each acknowledge that they have entered into this Agreement as a
means of inducing Indemnitee to serve or continue to serve the Corporation in
such capacities. Indemnitee may at any time and for any reason resign from such
position or positions (subject to any other contractual obligation or any
obligation imposed by operation of law). The Corporation shall have no
obligation under this Agreement to continue Indemnitee in any such position or
positions.
ARTICLE III
INDEMNIFICATION
Section 3.1 General. The Corporation shall indemnify, and advance
Expenses, to Indemnitee to the fullest extent permitted by applicable law in
effect on the date hereof and (without the necessity of any action to the
Corporation or Indemnitee) to such greater extent as applicable law may
hereafter from time to time permit. The rights of Indemnitee provided under the
preceding sentence shall include, but shall not be limited to, the right to be
indemnified and to have Expenses advanced in all Proceedings to the fullest
extent permitted by Section 145 of the DGCL as it currently exists or as it may
more fully permit in the future. The provisions set forth in this Agreement are
provided in addition to and as a means of furtherance and implementation of, and
not in limitation of, the obligations expressed in this Article III. No
requirement, condition to or limitation of any right to indemnification under
this Article III, or to advancement of Expenses under Articles III and IV shall
in any way limit the rights of Indemnitee under Section 7.2.
Section 3.2 Additional Indemnity of the Corporation. Indemnitee shall
be entitled to indemnification pursuant to this Section 3.2 if, by reason of his
Corporate Status, he is, or is threatened to be made, a party to any Proceeding
(except to the extent limited by Section 3.3). Pursuant to this Section 3.2,
Indemnitee shall be indemnified against Expenses, judgments, penalties
(including excise or similar taxes), fines and amounts paid in settlement
actually and reasonably incurred by him or on his behalf in connection with such
Proceeding or any Claim therein, including but not limited to special, indirect,
incidental, consequential, treble, additional, punitive or exemplary damages if
(1) he conducted himself in good faith; (2) he reasonably believed: (a) in the
case of conduct in his official capacity, that his conduct was in the
Corporation's best interest; and (b) in all other cases, that his conduct was at
least not opposed to the Corporation's best interests and, (3) in the case of
any criminal Proceeding, had no reasonable cause to believe his conduct was
unlawful. Nothing in this Section 3.2 shall limit the benefits of Section 3.1 or
any other Section hereunder.
-3-
<PAGE> 4
Section 3.3 Limitation on Indemnity. The Indemnification otherwise
available to an Indemnitee under Section 3.2 shall be limited to the extent set
forth in this Section 3.3. In the event that an Indemnitee is found liable to
the Corporation or is found liable on the basis that personal benefit was
improperly received by the Indemnitee whether or not the benefit resulted from
an action taken in Indemnitee's official capacity the Indemnitee shall, with
respect to the Claim in the Proceeding in which such finding is made, be
indemnified only against reasonable expenses actually incurred by him in
connection with that Claim. Notwithstanding the foregoing, no indemnification
against such Expenses shall be made in respect of any Claim in such Proceeding
as to which Indemnitee shall have been adjudged to be liable for willful or
intentional misconduct in the performance of his duty to the Corporation
provided, however, that, if applicable law so permits, indemnification against
such Expenses shall nevertheless be made by the Corporation in such event if and
only to the extent that the court in which such Proceeding shall have been
brought or is pending, shall determine. In addition, no indemnification against
such Expenses shall be made on account of any suit in which final judgment is
rendered against Indemnitee for an accounting of profits made from sale or
purchase by Indemnitee of securities of the Corporation pursuant to the
provisions of Section 16(b) of the Exchange Act. In respect of remuneration paid
to Indemnitee, no indemnity shall be paid by the Corporation if it shall be
determined by a final judgment or other final adjudication that payment of such
remuneration was in violation of applicable law.
Section 3.4 Notification and Defense of Claims. (a) Promptly after the
receipt by Indemnitee of notice of the commencement of any Proceeding,
Indemnitee will, if indemnification in respect thereof is to be requested the
Corporation under this Agreement, notify the Corporation of the commencement of
such Proceeding; provided, however, that the omission to so notify the
Corporation will not relieve the Corporation (i) from any liability which it may
have to Indemnitee under this Agreement unless, and then only to the extent
that, such omission results in insufficient time being available to permit the
Corporation or its counsel to effectively defend against or make timely response
to any Claim Expense, loss, damage, or liability resulting from such Proceeding
or otherwise has a material adverse effect on the Corporation's ability to
promptly deal with such Claim Expense, loss, claim, damage liability or (ii)
from any liability which it may have to Indemnitee otherwise than under this
Agreement.
(b) The following provisions shall apply with respect to any
such Proceeding as to which Indemnitee notifies the Corporation of the
commencement thereof:
(i) The Corporation shall be entitled to participate therein
at its own expense.
(ii) Except as otherwise provided below, to the extent it may
elect to do so, the Corporation (jointly with any other indemnifying
party similarly notified) will be entitled to assume the defense
thereof, with counsel of its own selection reasonably satisfactory to
Indemnitee. After notice from the Corporation to Indemnitee of its
election to so assume the defense thereof, the Corporation will not be
liable to Indemnitee under this Agreement for any Expenses subsequently
incurred by Indemnitee in connection with the defense of such
Proceeding other than reasonable costs of investigation or as otherwise
provided below.
-4-
<PAGE> 5
Indemnitee shall have the right to employ separate counsel in such
Proceeding but the fees and expenses of such counsel incurred after
notice from the Corporation of its assumption of the defense thereof
shall be at the expense of Indemnitee unless (1) the employment of
separate counsel by Indemnitee has been authorized by the Corporation;
(2) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Corporation and Indemnitee in the
conduct of the defense of such Proceeding; or (3) the Corporation shall
not in fact have employed counsel to assume the defense of such
Proceeding, in each of which cases the reasonable fees and expenses of
Indemnitee's counsel shall be borne by the Corporation. The Corporation
shall not be entitled to assume the defense of any Proceeding brought
by or on behalf of the Corporation or as to which Indemnitee shall have
made the conclusion provided for in (2) above. Nothing in this
paragraph (ii) shall affect the obligation of the Corporation to
indemnify Indemnitee against Expenses and liabilities paid in
settlement for which it is otherwise obligated hereunder.
(iii) The Corporation shall not be liable to indemnify
Indemnitee under this Agreement for any amounts paid in settlement of
any Proceedings or Claims effected without its prior written consent.
The Corporation shall not settle any Proceeding or claim in any manner
which would impose any penalty or limitation on Indemnitee without
Indemnitee's prior written consent. Neither the Corporation nor
Indemnitee will unreasonably withhold or delay its consent to any
proposed settlement.
(c) The Corporation agrees to promptly notify Indemnitee in
writing, as to the pendency of any Proceeding or Claim which may involve a claim
against the Indemnitee for which Indemnitee may be entitled to indemnification
or advancement of Expenses hereunder.
ARTICLE IV
EXPENSES
Section 4.1 Expenses of a Party Who Is Wholly or Partly Successful.
Notwithstanding any other provision of this Agreement, Indemnitee shall be
indemnified against all Expenses actually and reasonably incurred by him in
connection with any Proceeding to which Indemnitee is a party by reason of his
Corporate Status and in which Indemnitee is successful, on the merits or
otherwise. In the event that Indemnitee is not wholly successful, on the merits
or otherwise, in a Proceeding but is successful, on the merits or otherwise, as
to any Claim in such Proceeding, the Corporation shall indemnify Indemnitee
against all Expenses actually and reasonably incurred by him or on his behalf
relating to each Claim. For purposes of this Section 4.1 and without limitation,
the termination of a Claim in a Proceeding by dismissal, with or without
prejudice, shall be deemed to be a successful result as to such Claim.
Section 4.2 Expenses of a Witness. Notwithstanding any other provision
of this Agreement, to the extent that Indemnitee is, by reason of his Corporate
Status, a witness or otherwise participates in any Proceeding at a time when he
is not named a defendant or respondent in the
-5-
<PAGE> 6
Proceeding, he shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection therewith.
Section 4.3 Advancement of Expenses. The Corporation shall pay all
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding or Claim, whether brought by the Corporation or otherwise, in
advance of any determination respecting entitlement to indemnification pursuant
to Article V hereof within 10 days after the receipt by the Corporation of a
written request from Indemnitee requesting such payment or payments from time to
time, whether prior to or after final disposition of such Proceeding or Claim.
Such statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee. Indemnitee hereby undertakes and agrees that he will reimburse and
repay the Corporation for any Expenses so advanced to the extent that it shall
ultimately be expressly determined by a court in a final adjudication from which
there is no further right of appeal, that Indemnitee is not entitled to be
indemnified against such Expenses.
ARTICLE V
PROCEDURE FOR DETERMINATION OF ENTITLEMENT
TO INDEMNIFICATION
Section 5.1 Request by Indemnitee. To obtain indemnification under this
Agreement, Indemnitee shall submit to the Corporation a written request,
including therein or therewith such documentation and information as is
reasonably available to Indemnitee and is reasonably necessary to determine
whether and to what extent Indemnitee is entitled to indemnification. The
Secretary or an Assistant Secretary of the Corporation shall, promptly upon
receipt of such a request for indemnification, advise the Board in writing that
Indemnitee has requested indemnification.
Section 5.2 Determination of Request. Upon written request by
Indemnitee for indemnification pursuant to the first sentence of Section 5.1
hereof, a determination, if required by applicable law, with respect to
Indemnitee's entitlement thereto, subject however to the provisions of Section
5.3, shall be made in the specific case in accordance with Section 145 of the
DGCL. If it is so determined that Indemnitee is entitled to indemnification
hereunder, payment to Indemnitee shall be made within 10 days after such
determination. Indemnitee shall cooperate with the Person making such
determination with respect to Indemnitee's entitlement to indemnification,
including providing to such Person upon reasonable advance request any
documentation or information that is not privileged or otherwise protected from
disclosure and that is reasonably available to Indemnitee and reasonably
necessary to such determination. Any costs or expenses (including attorneys'
fees and disbursements) incurred by Indemnitee in so cooperating with the Person
making such determination shall be borne by the Corporation (irrespective of the
determination as to Indemnitee's entitlement to indemnification) and the
Corporation hereby agrees to indemnify and hold harmless Indemnitee therefrom
and pay such costs and expenses within 10 days of receipt of written request for
such payment.
-6-
<PAGE> 7
Section 5.3 Independent Counsel. At Indemnitee's option, Indemnitee may
elect that the determination as to indemnification is to be made by Independent
Counsel, in which event the Independent Counsel shall be selected by Indemnitee,
and Indemnitee shall give written notice to the Corporation within 10 days
advising it of the identity of the Independent Counsel so selected (unless
Indemnitee shall request that such selection be made by the Board, in which
event the Corporation shall give written notice to Indemnitee within 10 days
after receipt of Indemnitee's request for indemnification advising him of the
identity of the Independent Counsel so selected). In either event, Indemnitee or
the Corporation, as the case may be, may, within seven days after such written
notice of selection shall have been given, deliver to the Corporation or to
Indemnitee, as the case may be, a written objection to such selection. Any
objection to selection of independent Counsel pursuant to this Section 5.3 may
be asserted only on the ground that the Independent Counsel so selected does not
meet the requirements of the definition of "Independent Counsel" in Article I
hereof, and the objection shall set forth with particularity the factual basis
of such assertion. If such written objection is timely made, the Independent
Counsel so selected may not serve as Independent Counsel unless and until a
court has determined that such objection is without merit. In the event of a
timely written objection to a choice of Independent Counsel, the party
originally selecting the Independent Counsel shall have seven days to make an
alternate selection of Independent Counsel and to give written notice of such
selection to the other party, after which time such other party shall have seven
days to make a written objection to such alternate selection. If, within 45 days
after submission by Indemnitee of a written request for indemnification pursuant
to Section 5.1 hereof, no Independent Counsel shall have been selected and not
objected to, either the Corporation or Indemnitee may petition a court of
competent Jurisdiction (the "Court") for resolution of any objection that shall
have been made by the Corporation or Indemnitee to the other's selection of
Independent Counsel and/or for the appointment as Independent Counsel of a
Person selected by the Court or by such other Person as the Court shall
designate, and the Person with respect to whom an objection is so resolved or
the Person so appointed shall act as Independent Counsel under Section 5.2
hereof. The Corporation shall pay any and all reasonable fees and expenses of
Independent Counsel incurred by such Independent Counsel in connection with
acting pursuant to hereto and provide such Person with appropriate
indemnification, and the Corporation shall pay all reasonable fees and expenses
incident to the procedures of this Section 5.3, regardless of the manner in
which such Independent Counsel was selected or appointed. Upon the due
commencement of any judicial proceeding or arbitration pursuant to Section
6.1(c) of this Agreement, Independent Counsel shall be discharged and relieved
of any further responsibility in such capacity (subject to the applicable
standards of professional conduct then prevailing).
Section 5.4 Presumptions and Effect of Certain Proceedings.
(a) The Indemnitee shall be presumed (except as otherwise expressly
provided in this Agreement) to be entitled to indemnification under this
Agreement upon submission of a request for indemnification under Section 5.1,
and thereafter the Corporation shall have the burden of proof in overcoming that
presumption in reaching a determination contrary to that presumption. The
presumption shall be used by Independent Counsel (or other Person or Persons
determining entitlement to indemnification) as a basis for a determination of
entitlement to indemnification
-7-
<PAGE> 8
unless the Corporation provides information sufficient to overcome such
presumption by clear and convincing evidence.
(b) If the Person or Persons empowered or selected under Article V of
this Agreement to determine whether Indemnitee is entitled to indemnification
shall not have made a determination within 60 days after receipt by the
Corporation of the request by Indemnitee therefor (or, if the determination of
entitlement to indemnification is to be made by Independent Counsel pursuant to
Section 5.3 of this Agreement, and such determination shall not have been made
and delivered in written opinion within 90 days after (i) such Independent
Counsel's being appointed, (ii) the overriding by the Court of objections to
such Counsel's selection or (iii) expiration of all periods for the Corporation
or Indemnitee to object to such Counsel's selection), the requisite
determination of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be entitled to such indemnification, absent a
prohibition of such indemnification under applicable law; provided, however,
that such 60-day period may be extended for a reasonable time, not to exceed an
additional 30 days, if the Person making the determination with respect to
entitlement to indemnification, in good faith requires such additional time for
the obtaining or evaluating of documentation and/or information relating to such
determination; and provided, further, that the 60-day limitation set forth in
this Section 5.4(b) shall not apply and such period shall be extended as
necessary if Independent Counsel is not to make the determination pursuant to
Section 5.3 of this Agreement and if within 30 days after receipt by the
Corporation of the request for indemnification under Section 5.1 the Board has
resolved to submit such determination to the shareholders for their
consideration at an annual meeting thereof to be held within 90 days after such
receipt and such determination is made thereat, or a special meeting of
shareholders is called within 30 days after such receipt for the purpose of
making such determination, such meeting is held for such purpose within 60 days
after having been so called and such determination is made thereat.
(c) The termination of any Proceeding or of any Claim by judgment,
order, settlement or conviction, or upon a plea of nolo contendere or its
equivalent, shall not (except as otherwise expressly provided in this Agreement)
by itself adversely affect the right of Indemnitee to indemnification or create
a presumption that Indemnitee did not conduct himself in good faith and in a
manner that he reasonably believed in the case of conduct in his official
capacity, that was in the best interests of the Corporation or, in all other
cases, that was not opposed to the best interests of the Corporation or, with
respect to any criminal Proceeding, that Indemnitee had reasonable cause to
believe that his conduct was unlawful. Indemnitee shall be deemed to have been
found liable in respect of any Claim only after he shall have been so adjudged
by a court in competent jurisdiction after exhaustion of all appeals therefrom.
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<PAGE> 9
ARTICLE VI
CERTAIN REMEDIES OF INDEMNITEE
Section 6.1 Indemnitee Entitled to Adjudication in an Appropriate
Court. In the event (a) a determination is made pursuant to Article V that
Indemnitee is not entitled to indemnification under this Agreement or (b) there
has been any failure by the Corporation to make timely payment or advancement of
any amounts due hereunder, Indemnitee shall be entitled to commence an action
seeking an adjudication in an appropriate court of the State of Texas, or in any
other court of competent jurisdiction, of his entitlement to such
indemnification or advancement of Expenses. Alternatively, Indemnitee, at his
option, may seek an award in arbitration to be conducted by a single arbitrator
pursuant to the rules of the American Arbitration Association. Indemnitee shall
commence such action seeking an adjudication or an award in arbitration within
180 days following the date on which Indemnitee first has the right to commence
such action pursuant to this Section 6.1, or such right shall expire. The
Corporation agrees not to oppose Indemnitee's right to seek any such
adjudication or award in arbitration.
Section 6.2 Adverse Determination Not to Affect any Judicial
Proceeding. In the event that a determination shall have been made pursuant to
Article V that Indemnitee is not entitled to indemnification, any judicial
proceeding or arbitration commenced pursuant to this Article VI shall be
conducted in all respects as a de novo trial or arbitration on the merits, and
Indemnitee shall not be prejudiced by reason of such determination. In any
judicial proceeding or arbitration commenced pursuant to this Article VI, the
Corporation shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
Section 6.3 Corporation Bound by Determination Favorable to Indemnitee
in any Judicial Proceeding or Arbitration. If a determination shall have been
made or deemed to have been made pursuant to Article V that Indemnitee is
entitled to indemnification, the Corporation shall be bound by such
determination in any judicial proceeding or arbitration commenced pursuant to
this Article VI.
Section 6.4 Corporation Bound by the Agreement. The Corporation shall
be precluded from asserting in any judicial proceeding or arbitration commenced
pursuant to this Article VI that the procedures and presumptions of this
Agreement are not valid, binding and enforceable and shall stipulate in any such
court or before any such arbitrator that the Corporation is bound by all the
provisions of this Agreement.
Section 6.5 Indemnitee Entitled to Expenses of Judicial Proceeding. In
the event that Indemnitee seeks a judicial adjudication of or an award in
arbitration to enforce his rights under, or to recover damages for breach of,
this Agreement, Indemnitee shall be entitled to recover from the Corporation,
and shall be indemnified by the Corporation against, any and all expenses (of
the types described in the definition of Expenses in Article I) actually and
reasonably incurred by him in such
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<PAGE> 10
judicial adjudication or arbitration but only if he prevails therein. If it
shall be determined in said judicial adjudication or arbitration that Indemnitee
is entitled to receive part but not all of the indemnification or advancement of
expenses or other benefit sought, the expenses incurred by Indemnitee in
connection with such judicial adjudication or arbitration shall be reasonably
prorated in good faith by counsel for Indemnitee. Notwithstanding the foregoing,
if a Change in Control shall have occurred, Indemnitee shall be entitled to
indemnification under this Section 6.5 regardless of whether Indemnitee
ultimately prevails in such judicial adjudication or arbitration.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Non-Exclusivity. The rights of Indemnitee to receive
indemnification and advancement of Expenses under this Agreement shall not be
deemed exclusive of any other rights to which Indemnitee may at any time be
entitled under applicable law, the Articles of Incorporation or Bylaws of the
Corporation, any other agreement, vote of shareholders or a resolution of
directors, or otherwise. No amendment or alteration of the Articles of
Incorporation or Bylaws of the Corporation or any provision thereof shall
adversely affect Indemnitee's rights hereunder and such rights shall be in
addition to any rights Indemnitee may have under the Corporation's Articles of
Incorporation, Bylaws and the DGCL or otherwise. To the extent that there is a
change in the DGCL (whether by statute or judicial decision) which allows
greater indemnification (including but not limited to any stronger procedural
protection) than would be afforded currently under the Corporation's Articles of
Incorporation or Bylaws and this Agreement, it is the intent of the parties
hereto that the Indemnitee shall enjoy by virtue of this Agreement the greater
benefit so afforded by such change without additional action on the part of
Indemnitee or the Corporation.
Section 7.2 Insurance and Subrogation.
(a) To the extent that the Corporation maintains an insurance policy or
policies providing liability insurance for directors, officers, employees,
agents or fiduciaries of the Corporation or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
that such Person serves at the request of the Corporation, Indemnitee shall be
covered by such policy or policies in accordance with its or their terms to the
maximum extent of the coverage available for any such director, officer,
employee, agent or fiduciary under such policy or policies.
(b) In the event of any payment by the Corporation under this
Agreement, the Corporation shall be subrogated to the extent of such payment to
all of the rights of recovery of Indemnitee, who shall execute all papers
required and take all action necessary to secure such rights, including
execution of such documents as are necessary to enable the Corporation to bring
suit to enforce such rights.
(c) The Corporation shall not be liable under this Agreement to make
any payment of amounts otherwise indemnifiable hereunder if and to the extent
that Indemnitee has otherwise
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<PAGE> 11
actually received such payment under the Corporation's Articles of
Incorporation, or any Bylaw, insurance policy, contract, agreement or otherwise.
Section 7.3 Self Insurance of the Corporation. The parties hereto
recognize that the Corporation may, but is not required to, procure or maintain
insurance or other similar arrangements, at its expense, to protect itself and
any Person, including the Indemnitee, who is or was a director, officer,
employee, agent or fiduciary of the Corporation or who is or was serving at the
request of the Corporation as a director, officer, partner, venturer,
proprietor, trustee, employee, agent or similar functionary of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise against any expense, liability or loss asserted against or incurred
by such Person, in such a capacity or arising out of his status as such a
Person, whether or not the Corporation would have the power to indemnify such
Person against such expense or liability.
In considering the cost and availability of such insurance, the
Corporation, (through the exercise of the business of its directors and
officers), may from time to time, purchase insurance which provides for any and
all of (i) deductibles, (ii) limits on payments required to be made by the
insurer, or (iii) coverage exclusions and/or coverage which may not be as
comprehensive as that which might otherwise be available to the Corporation but
which otherwise available insurance the officers or directors of the Corporation
determine is inadvisable for the Corporation to purchase given the cost
involved. The purchase of insurance with deductibles, limits on payments and
coverage exclusions will be deemed to be in the best interest of the Corporation
but may not be in the best interest of the Indemnitee. As to the Corporation,
purchasing insurance with deductibles, limits on payments and coverage
exclusions is similar to the Corporation's self-insuring itself. In order to
protect Indemnitee who would otherwise be more fully or entirely covered under
such policies, the Corporation shall indemnify and hold Indemnitee harmless to
the extent (i) of such deductibles, (ii) of amounts exceeding payments required
to be made by an insurer or (iii) of coverage under policies of officer's and
director's liability insurance that are available, were available or which
became available to the Corporation or which are generally available to
companies comparable to the Corporation but which the officers or directors of
the Corporation determine is inadvisable for the Corporation to purchase, given
the cost involved. The obligation of the Corporation in the preceding sentence
shall be without regard to whether the Corporation would otherwise be entitled
to indemnify such officer or director under the other provisions of this
Agreement, or under any law, agreement, vote of shareholders or directors or
other arrangement. Notwithstanding the foregoing provisions of this Section 7.3,
the Indemnitee shall not be entitled to indemnification for the results of his
conduct that is intentionally adverse to the interests of the Corporation.
Without limiting the generality of any provision of this Agreement, the
procedures in Article V hereof shall, to the extent applicable, be used for
determining entitlement to indemnification under this Section 7.3. This
Agreement is authorized by Section 2.02-1(R) of the DGCL as in effect on January
19, 1999, and further is intended to establish an arrangement of self-insurance
pursuant to that section.
Section 7.4 Exculpation of Directors. If Indemnitee is or was a
director of the Corporation, he shall not in that capacity be liable to the
Corporation or its shareholders for monetary
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<PAGE> 12
damages for an act or omission in Indemnitee's capacity as a director, except
that Indemnitee's liability shall not be eliminated or limited for: (a) a breach
of Indemnitee's duty of loyalty to the Corporation or its shareholders; (b) an
act or omission not in good faith that constitutes a breach of duty of the
director to the Corporation or an act or omission that involves intentional
misconduct or a knowing violation of the law; (c) a transaction from which
Indemnitee received an improper benefit, whether or not the benefit resulted
from an action taken within the scope of Indemnitee's office; or (d) an act or
omission for which the liability of Indemnitee is expressly provided for by
statute. If applicable law should in the future further limit the instances in
which Indemnitee may be so liable, this Section 7.4 shall automatically (without
the necessity of action by the Corporation or Indemnitee) be so limited.
Section 7.5 Duration of Agreement. This Agreement shall continue for so
long as Indemnitee has Corporate Status and thereafter shall survive until
Indemnitee has ceased to have Corporate Status or for so long as Indemnitee
shall be subject to any possible Proceeding. This Agreement shall be binding
upon the Corporation and its successors and assigns and shall inure to the
benefit of Indemnitee and his heirs, executors, legal representatives and
administrators.
Section 7.6 Amendment. This Agreement may not be modified or amended
except by a written instrument executed by or on behalf of each of the parties
hereto.
Section 7.7 Waivers. The observance of any term of this Agreement may
be waived (either generally or in a particular instance and either retroactively
or prospectively) by the party entitled to enforce such term only by a writing
signed by the party against which such waiver is to be asserted. Unless
otherwise expressly provided herein, no delay on the part of any party hereto in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of any party hereto of any right,
power or privilege hereunder operate as a waiver of any other right, power or
privilege hereunder nor shall any single or partial exercise of any right, power
or privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder.
Section 7.8 Entire Agreement. This Agreement and the documents
expressly referred to herein constitute the entire agreement between the parties
hereto with respect to the matters covered hereby, and any other prior or
contemporaneous oral or written understandings or agreements with respect to the
matters covered hereby are expressly superseded by this Agreement.
Section 7.9 Severability. If any provision of this Agreement (including
any provision within a single section, paragraph or sentence) or the application
of such provision to any Person or circumstance, shall be judicially declared to
be invalid, unenforceable or void, such decision will not have the effect of
invalidating or voiding the remainder of this Agreement or affect the
application of such provision to other Persons or circumstances, and the parties
hereto agree that the part or parts of this Agreement so held to be invalid,
unenforceable or void will be deemed to have been stricken herefrom and the
remainder of this Agreement will have the same force and effectiveness as if
such part or parts had never been included herein; provided, however, that the
parties shall negotiate in
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<PAGE> 13
good faith with respect to an equitable modification of the provision or
application thereof declared to be invalid, unenforceable or void. Any such
finding of invalidity or unenforceability shall not prevent the enforcement of
such provision in any other jurisdiction to the maximum extent permitted by
applicable law.
Section 7.10 Notices. Unless otherwise expressly provided herein, all
notices, requests, demands, consents, waivers, instructions, approvals and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered to or mailed, certified mail return receipt
requested, first-class postage paid, addressed as follows:
If to the Corporation, to it at:
American Plumbing & Mechanical, Inc.
1502 Augusta, Suite 425
Houston, Texas 77057
Attn: Chief Financial Officer
If to Indemnitee, to him at:
------------------------------
------------------------------
------------------------------
or to such other address or to such other individuals as any party shall have
last designated by notice to the other parties. All notices and other
communications given to any party in accordance with the provisions of this
Agreement shall be deemed to have been given when delivered or sent to the
intended recipient thereof in accordance with the provisions of this Section
7.10.
Section 7.11 Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Texas without regard to
the principles of conflict of laws.
Section 7.12 Headings. The Article and Section headings in this
Agreement are for convenience of reference only, and shall not be deemed to
alter or affect the meaning or interpretation of any provisions hereof.
Section 7.13 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original and all of
which together shall be deemed to be one and the same instrument.
Section 7.14 Certain Persons Not Entitled to Indemnification.
Notwithstanding any other provision of this Agreement, Indemnitee shall not be
entitled to indemnification or advancement of expenses hereunder with respect to
any Proceeding or any Claim therein, brought or made by such Person against the
Corporation, except as specifically provided in Article V or Article VI hereof.
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Section 7.15 Approval by the Directors. This Agreement has been
approved by the Board of Directors of the Corporation.
Section 7.16 Gender, Number and Person. As used herein, any reference
to (i) the masculine, feminine or neuter gender includes the other two genders,
(ii) the singular or plural number includes the other number, and (iii) a person
or third party includes both natural persons and entities.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
to be effective as of the date first above written.
AMERICAN PLUMBING & MECHANICAL, INC.
By:
--------------------------------
Name: David C. Baggett
Title: Senior Vice President,
Chief Financial Officer
and Secretary
INDEMNITEE:
By:
--------------------------------
[----------------------------]
<PAGE> 1
EXHIBIT 10.3
================================================================================
CREDIT AGREEMENT
Dated as of March 31, 1999
$95,000,000 Senior Secured Credit Facility
-------------------------------
AMERICAN PLUMBING & MECHANICAL, INC.
as Borrower
THE FIRST NATIONAL BANK OF CHICAGO
Individually, as LC Issuer and as Agent
CREDIT LYONNAIS, NEW YORK BRANCH
as Documentation Agent
AND
THE LENDERS NAMED HEREIN
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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ARTICLE I
DEFINITIONS
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1.01 Certain Defined Terms...........................................................................1
ARTICLE II
THE CREDITS
2.01. Commitment.....................................................................................17
2.02. Required Payments..............................................................................18
2.03. Ratable Loans..................................................................................18
2.04. Types of Advances..............................................................................18
2.05. Commitment Fee; Reductions in Aggregate Commitment.............................................19
2.06. Minimum Amount of Each Advance.................................................................19
2.07. Swing Loans....................................................................................19
2.08. Optional Principal Payments....................................................................20
2.09. Method of Selecting Types and Interest Periods for New Advances................................20
2.10. Conversion and Continuation of Outstanding Advances............................................21
2.11. Changes in Interest Rate, etc..................................................................21
2.12. Rates Applicable After Default.................................................................22
2.13. Method of Payment..............................................................................22
2.14. Noteless Agreement; Evidence of Indebtedness...................................................22
2.15. Telephonic Notices.............................................................................23
2.16. Interest Payment Dates; Interest and Fee Basis.................................................23
2.17. Notification of Advances, Interest Rates, Prepayments and Commitment Reductions................24
2.18. Lending Installations..........................................................................24
2.19. Non-Receipt of Funds by the Agent..............................................................24
2.20. Facility LCs...................................................................................25
2.21. Replacement of Lender..........................................................................29
ARTICLE III
CHANGE IN CIRCUMSTANCES
3.01. Yield Protection...............................................................................29
3.02. Changes in Capital Adequacy Regulations........................................................30
3.03. Availability of Types of Advances..............................................................31
3.04. Funding Indemnification........................................................................31
3.05. Taxes..........................................................................................31
3.06. Lender Statements; Survival of Indemnity.......................................................33
ARTICLE IV
CONDITIONS PRECEDENT
4.01. Initial Credit Extension.......................................................................34
4.02. Each Credit Extension..........................................................................36
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.01. Existence and Standing.........................................................................36
5.02. Authorization and Validity.....................................................................37
5.03. No Conflict; Government Consent................................................................37
5.04. Financial Statements...........................................................................37
5.05. Material Adverse Change........................................................................37
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<TABLE>
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5.06. Taxes..........................................................................................37
5.07. Litigation and Contingent Obligations..........................................................38
5.08. Subsidiaries...................................................................................38
5.09. ERISA..........................................................................................38
5.10. Accuracy of Information........................................................................38
5.11. Regulation U...................................................................................38
5.12. Material Agreements............................................................................38
5.13. Compliance With Laws...........................................................................39
5.14. Ownership of Properties........................................................................39
5.15. Plan Assets; Prohibited Transactions...........................................................39
5.16. Environmental Matters..........................................................................39
5.17. Investment Company Act.........................................................................39
5.18. Public Utility Holding Company Act.............................................................39
5.19. Year 2000......................................................................................40
5.20. Subordinated Debt..............................................................................40
5.22. Insurance......................................................................................40
5.23. Solvency.......................................................................................40
5.24. General Purpose of Facility....................................................................40
ARTICLE VI
COVENANTS
6.01. Financial and Other Reporting..................................................................41
6.02. Use of Proceeds................................................................................42
6.03. Notice of Default..............................................................................42
6.04. Conduct of Business............................................................................42
6.05. Taxes..........................................................................................42
6.06. Insurance......................................................................................43
6.07. Compliance with Laws...........................................................................43
6.08. Maintenance of Properties......................................................................43
6.09. Inspection.....................................................................................43
6.10. Dividends......................................................................................43
6.11. Indebtedness...................................................................................43
6.12. Merger.........................................................................................44
6.13. Sale of Assets.................................................................................44
6.14. Investments and Acquisitions...................................................................45
6.15. Liens..........................................................................................45
6.16. Year 2000......................................................................................46
6.17. Sale of Accounts...............................................................................46
6.18. Affiliates.....................................................................................46
6.19. New Subsidiaries...............................................................................46
6.20. Amendments to Material Agreements..............................................................46
6.21. Subordinated Debt..............................................................................46
6.22. Sale and Leaseback Transactions and other Off-Balance Sheet Liabilities........................47
6.23. Contingent Obligations.........................................................................47
6.24. Letters of Credit..............................................................................47
6.25. No Lien Restriction............................................................................47
6.26. Financial Contracts............................................................................47
6.27. Financial Covenants............................................................................47
ARTICLE VII
DEFAULTS
7.01. Misrepresentation..............................................................................48
7.02. Nonpayment of Obligations......................................................................48
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<TABLE>
<S> <C> <C>
7.03. Certain Covenants..............................................................................48
7.04. Other Breach...................................................................................48
7.05. Other Indebtedness.............................................................................48
7.06. Bankruptcy, Reorganization, etc................................................................48
7.07. Appointment of Receiver........................................................................49
7.08. Seizure of Property............................................................................49
7.09. Judgment.......................................................................................49
7.10. Excessive Unfunded ERISA Liabilities...........................................................49
7.11. Withdrawal Liability...........................................................................49
7.12. Reorganization of Multiemployer Plan...........................................................49
7.13. Environmental Release or Violation.............................................................50
7.14. Change of Control..............................................................................50
7.15. Unremedied Default.............................................................................50
7.16. Guaranty.......................................................................................50
7.17. Lack of Acceptable Security Interest...........................................................50
7.18. ERISA Misrepresentation........................................................................50
7.19. Breach of Rate Hedging Obligation..............................................................50
ARTICLE VIII
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
8.01. Acceleration; Facility LC Collateral Account...................................................50
8.02. Other Remedies.................................................................................51
8.03. Amendments.....................................................................................51
8.04. Preservation of Rights.........................................................................52
ARTICLE IX
GENERAL PROVISIONS
9.01. Survival of Representations....................................................................52
9.02. Governmental Regulation........................................................................52
9.03. Headings.......................................................................................53
9.04. Entire Agreement...............................................................................53
9.05. Several Obligations; Benefits of this Agreement................................................53
9.06. Expenses; Indemnification......................................................................53
9.07. Numbers of Documents...........................................................................53
9.08. Accounting.....................................................................................54
9.09. Credit Agreement Controls......................................................................54
9.10. Severability of Provisions.....................................................................54
9.11. Nonliability of Lenders........................................................................54
9.12. Confidentiality................................................................................54
9.13. Nonreliance....................................................................................54
ARTICLE X
THE AGENT
10.01. Appointment; Nature of Relationship............................................................54
10.02. Powers.........................................................................................55
10.03. General Immunity...............................................................................55
10.04. No Responsibility for Loans, Recitals, etc.....................................................55
10.05. Action on Instructions of Lenders..............................................................55
10.06. Employment of Agents and Counsel...............................................................56
10.07. Reliance on Documents; Counsel.................................................................56
10.08. Agent's Reimbursement and Indemnification......................................................56
10.09. Notice of Default..............................................................................56
10.10. Rights as a Lender.............................................................................56
</TABLE>
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<TABLE>
<S> <C> <C>
10.11. Lender Credit Decision.........................................................................57
10.12. Successor Agent................................................................................57
10.13. Agent's Fee....................................................................................57
10.14. Delegation to Affiliates.......................................................................57
10.15. Execution of Collateral Documents..............................................................58
10.16. Collateral Releases............................................................................58
10.17. Documentary Agent..............................................................................58
10.18. Highest Lawful Rate............................................................................58
10.19. Chapter 346 Inapplicable.......................................................................59
ARTICLE XI
SETOFF; RATABLE PAYMENTS
11.01. Setoff.........................................................................................59
11.02. Ratable Payments...............................................................................59
ARTICLE XII
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
12.01. Successors and Assigns.........................................................................59
12.02. Participations.................................................................................60
12.03. Assignments....................................................................................60
12.04. Dissemination of Information...................................................................61
12.05. Tax Treatment..................................................................................61
ARTICLE XIII
NOTICES
13.01. Notices........................................................................................62
13.02. Change of Address..............................................................................62
ARTICLE XIV
COUNTERPARTS..........................................62
ARTICLE XV
CHOICE OF LAW; CONSENTS; WAIVER OF JURY TRIAL
15.01. Choice of Law..................................................................................62
15.02. Consent to Jurisdiction........................................................................62
15.03. Waiver of Jury Trial...........................................................................63
</TABLE>
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<PAGE> 6
SCHEDULES AND EXHIBITS
Schedule I Pricing Schedule
Schedule II Lending Installation Schedule
Schedule III Listing of Subsidiaries and Ownership
Schedule IV Schedule of Material Agreements
Schedule V Existing Exceptions to Unencumbered Title
Exhibit A Form of Note
Exhibit B Form of Borrowing Notice
Exhibit C Form of Conversion/Continuation Notice
Exhibit D Form of Compliance Certificate
Exhibit E Form of Money Transfer Instruction
Exhibit F Form of Guaranty
Exhibit G Form of Security Agreement
Exhibit H Form of Stock Pledge Agreement
Exhibit I Form of Note Pledge Agreement
Exhibit J Form of Assignment Agreement
Exhibit K Form of Opinion of Borrower's Legal Counsel
Exhibit L Approved Subordination Terms
(v)
<PAGE> 7
CREDIT AGREEMENT
This Agreement, dated as of March 31, 1999, is among American Plumbing
& Mechanical, Inc., a Delaware corporation, the Lenders, Credit Lyonnais, New
York Branch, as Documentation Agent , and The First National Bank of Chicago, as
LC Issuer and as Agent. The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.01 Certain Defined Terms: As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
"Acceptable Security Interest" means, in any Property, a Lien granted
pursuant to a Collateral Document (i) which exists in favor of the Agent for the
benefit of itself, the LC Issuer, the Lenders and, with respect to each Related
Rate Hedging Agreement is registered with the Agent, the Rate Hedge Lender
thereon, (ii) which is valid and first priority, (iii) which secures the
Obligations, and (iv) which is (or, upon appropriate filing of the financing
statements already delivered to the Agent) perfected and is enforceable by the
Agent, for the benefit of itself, the LC Issuer, the Lenders and the Rate Hedge
Lenders, if any, against the grantor thereof.
"Acquisition" means any transaction, or any series of related
transactions, consummated on or after the date hereof, by which the Borrower or
any of its Subsidiaries (i) acquires any going business or all or substantially
all of the assets of any firm, corporation or limited liability company, or
division thereof, whether through purchase of assets, merger or otherwise or
(ii) directly or indirectly acquires (in one transaction or as the most recent
transaction in a series of transactions) at least a majority (in number of
votes) of the securities of a corporation which have ordinary voting power for
the election of directors (other than securities having such power only by
reason of the happening of a contingency) or a majority (by percentage or voting
power) of the outstanding ownership interests of a partnership or limited
liability company.
"Advance" means a borrowing hereunder, (i) made by the Lenders on the
same Borrowing Date, or (ii) converted or continued by the Lenders on the same
date of conversion or continuation, consisting, in either case, of the aggregate
amount of the several Loans of the same Type and, in the case of Eurodollar
Loans, for the same Interest Period.
"Affiliate" of any Person means any other Person directly or indirectly
controlling, controlled by or under common control with such Person. A Person
shall be deemed to control another Person if the controlling Person owns ten
percent (10%) or more of any class of voting securities (or other ownership
interests) of the controlled Person or possesses, directly or indirectly, the
power to direct or cause the direction of the management or policies of the
controlled Person, whether through ownership of stock, by contract or otherwise.
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<PAGE> 8
"Agent" means The First National Bank of Chicago in its capacity as
contractual representative of the Lenders pursuant to Article X, and not in its
individual capacity as a Lender, and any successor Agent appointed pursuant to
Article X.
"Aggregate Commitment" means the aggregate of the Commitments of all
the Lenders, as reduced from time to time pursuant to the terms hereof.
"Aggregate Outstanding Credit Exposure" means, at any time, the
aggregate of the Outstanding Credit Exposure of all the Lenders.
"Agreement" means this credit agreement, as it may be amended or
modified and in effect from time to time.
"Alternate Base Rate" means, for any day, a rate of interest per annum
equal to the higher of (i) the Corporate Base Rate for such day and (ii) the sum
of the Federal Funds Effective Rate for such day plus one-half percent (1/2%)
per annum.
"Applicable Fee Rate" means, at any time, the percentage rate per annum
at which Commitment Fees are accruing on the unused portion of the Aggregate
Commitment at such time as set forth in the Pricing Schedule.
"Applicable Margin" means, with respect to Advances of any Type at any
time, the percentage rate per annum which is applicable at such time with
respect to Advances of such Type as set forth in the Pricing Schedule.
"Arranger" means First Chicago Capital Markets, Inc., a Delaware
corporation, and its successors.
"Article" means an article of this Agreement unless another document is
specifically referenced.
"Assignment Agreement" is defined in Section 12.03.01.
"Authorized Officer" means any of the President, Chief Financial
Officer, Chief Operating Officer, Treasurer, or any Vice President of the
Borrower, acting singly.
"Available Aggregate Commitment" means, at any time, the Aggregate
Commitment then in effect minus the Aggregate Outstanding Credit Exposure at
such time.
"Borrower" means American Plumbing & Mechanical, Inc., a Delaware
corporation, and its successors and assigns.
"Borrower Preferred Stock" means Preferred Stock of the Borrower issued
to certain former shareholders of Christianson on the Founding Company
Acquisition Date on the terms and
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<PAGE> 9
conditions stated in the Certificate of Designation and on such other terms and
conditions acceptable to the Agent and the Required Lenders.
"Borrowing Date" means a date on which an Advance is made hereunder.
"Borrowing Notice" is defined in Section 2.09.
"Business Day" means (i) with respect to any borrowing, payment or rate
selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on
which banks generally are open in Chicago and New York for the conduct of
substantially all of their commercial lending activities and on which dealings
in United States dollars are carried on in the London interbank market and (ii)
for all other purposes, a day (other than a Saturday or Sunday) on which banks
generally are open in Chicago for the conduct of substantially all of their
commercial lending activities.
"Capital Expenditures" means, without duplication, any expenditures for
any purchase or other acquisition of any asset which, in accordance with GAAP,
are classified as a fixed or capital asset on a consolidated balance sheet of
the Borrower and its Subsidiaries.
"Capital Stock" means all capital stock and all other shares,
partnership interests, equity interests, ownership interests, participations,
rights or other equivalents (however designated) of capital stock issued by any
entity (whether a corporation, a partnership or another entity).
"Capitalized Lease" of a Person means any lease of Property by such
Person as lessee which, in accordance with GAAP, are capitalized on a balance
sheet of such Person.
"Capitalized Lease Obligations" of a Person means the amount of the
obligations of such Person under Capitalized Leases which, in accordance with
GAAP, are shown as a liability on a balance sheet of such Person.
"Case 2.4" means the historical and pro forma financial statements for
the Borrower and the Founding Companies included in the Borrower's Management
Case Roll-Up Analysis 2.4 dated March 8, 1999 8:37 a.m. and presented by the
Borrower to the Agent and the Lenders.
"Cash Equivalent Investments" means (i) short-term obligations of, or
fully guaranteed by, the United States of America, (ii) commercial paper rated
A-1 or better by S&P or P-1 or better by Moody's, (iii) demand deposit accounts
maintained in the ordinary course of business, and (iv) certificates of deposit
issued by and time deposits with commercial banks (whether domestic or foreign)
having capital and surplus in excess of $100,000,000; provided in each case that
the same provides for payment of both principal and interest (and not principal
alone or interest alone) and is not subject to any contingency regarding the
payment of principal or interest.
"Certificate of Designation" means the Certificate of Designations of
Ten Percent Cumulative Redeemable Convertible Preferred Stock, Series A (Par
Value $0.01 per Share) of Borrower.
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<PAGE> 10
"Change in Control" means (i) the acquisition by any Person, or two or
more Persons acting in concert, of beneficial ownership (within the meaning of
Rule 13d-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934) of thirty percent (30%) or more of the outstanding shares
of voting stock of the Borrower; or (ii) or individuals who, as of the date
hereof, constitute the Board of Directors of Borrower cease for any reason to
constitute at least a majority of the Board of Directors of the Borrower;
provided that any individual becoming a director of the Borrower subsequent to
the date hereof whose election, or nomination for election by the Borrower's
shareholders, as the case may be, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board but excluding, for
this purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange
Act of 1934) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board of Directors of the Borrower;
or the consummation of any transaction the result of which is that any Person or
group beneficially owns more of the voting of the Borrower than is beneficially
owned, in the aggregate, by the holders on the date hereof.
"Chapter 1D" is defined in the definition of "Highest Lawful Rate".
"Christianson" is defined within the definition of Founding Company.
"Code" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time.
"Collateral Documents" means, collectively, the Security Agreements,
the Stock Pledge Agreements, the Note Pledge Agreements, assignments, financing
statements, lien consents and waivers and all other similar documents executed
by Borrower or any Pledgor granting to the Agent and the Lenders an Acceptable
Security Interest in substantially all of the personal property of the Borrower
and its Subsidiaries (including the securities and other ownership interests in
all of the Borrower's subsidiaries) as security for the Obligations.
"Commitment" means, for each Lender, the obligation of such Lender to
make Loans to, and participate in Facility LCs issued upon the application of,
the Borrower in an aggregate amount not exceeding the amount set forth opposite
its signature below or as set forth in any Assignment Agreement relating to any
assignment that has become effective pursuant to Section 12.03.02, as such
amount may be reduced from time to time by such Lender's Pro Rata Share of each
principal payment made on the Loans pursuant to clause (i) of Section 2.02, as
such amount may be further modified from time to time pursuant to the terms
hereof.
"Consolidated Capital Expenditures" means, with reference to any
period, the Capital Expenditures of the Borrower and its Subsidiaries calculated
on a consolidated basis for such period; provided that for purposes of
calculating the amount of Consolidated Capital Expenditures for the four quarter
period (a) ending on June 30, 1999, such amount shall be the actual Capital
Expenditures for the fiscal quarter then most recently ended plus the product of
$2,000,000 times 3.0; (b) ending on September 30, 1999, such amount shall be the
Capital Expenditures for the two (2)
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<PAGE> 11
fiscal quarters then most recently ended plus the product of $2,000,000 times
2.0; (c) ending on December 31, 1999, such amount shall be the actual Capital
Expenditures for the three (3) fiscal quarter then most recently ended ending
plus the product of $2,000,000 times 1.0.
"Consolidated Cash Interest Expense" means, with reference to any
period, the cash interest expense of the Borrower and its Subsidiaries
calculated on a consolidated basis for such period; provided that for purposes
of calculating the amount of Consolidated Cash Interest Expense for the four
quarter period (a) ending on June 30, 1999, such amount shall be the actual cash
interest expense for the fiscal quarter then most recently ended plus the
product of $2,500,000 times 3.0; (b) ending on September 30, 1999, such amount
shall be the actual cash interest expense for the two (2) fiscal quarters then
most recently ended plus the product of $2,500,000 times 2.0; (c) ending on
December 31, 1999, such amount shall be the actual cash interest expense for the
three (3) fiscal quarter then most recently ended ending plus the product of
$2,500,000 times 1.0.
"Consolidated Cash Taxes" means, with reference to any period, the
aggregate pro forma amount of income Taxes of the Borrower and its Subsidiaries
calculated on a consolidated basis for such period at an assumed tax rate of
twenty five percent (25%) of Consolidated EBITDA for each such period.
"Consolidated EBITDA" means, with reference to any period, on a
trailing four fiscal quarter basis (using the historical financial results of
the Founding Companies for any period prior to the Founding Company Acquisition
Date and the historical financial results of any other business acquired in an
Acquisition, to the extent applicable, without duplication, all on a pro forma
basis, consistent with SEC regulations), the sum of Consolidated Net Income
plus, to the extent deducted in determining Consolidated Net Income, (i)
Consolidated Interest Expense, (ii) provisions for taxes based on income or
revenues, (iii) depreciation, (iv) amortization, (v) other non-cash expenses,
and (vi) any extraordinary or non-recurring gains or losses all calculated on a
consolidated basis for the Borrower and its subsidiaries and as determined in
accordance with GAAP.
"Consolidated Funded Total Debt" means at any time the aggregate dollar
amount of Consolidated Indebtedness which has actually been funded and is
outstanding at such time, whether or not such amount is due or payable at such
time.
"Consolidated Indebtedness" means at any time the Indebtedness of the
Borrower and its Subsidiaries calculated on a consolidated basis as of such
time.
"Consolidated Interest Expense" means, with reference to any period,
the interest expense of the Borrower and its Subsidiaries calculated on a
consolidated basis for such period.
"Consolidated Net Income" means, with reference to any period, the net
income (or loss) of the Borrower and its Subsidiaries calculated on a
consolidated basis for such period.
"Consolidated Net Worth" means at any time the consolidated
stockholders' equity of the Borrower and its Subsidiaries calculated on a
consolidated basis as of such time and shall include the value of Borrower
Preferred Stock acquired by the Borrower pursuant to the mandatory
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<PAGE> 12
redemption provisions of such Borrower Preferred Stock and shall not be reduced
by virtue of any put rights on Borrower's common stock.
"Consolidated Senior Total Debt" means at any time the difference of
Consolidated Indebtedness minus the aggregate dollar amount of Subordinated Debt
which has actually been funded and is outstanding at such time.
"Contingent Obligation" of a Person means any agreement, undertaking or
arrangement by which such Person assumes, guarantees, endorses, contingently
agrees to purchase or provide funds for the payment of, or otherwise becomes or
is contingently liable upon, the obligation or liability of any other Person, or
agrees to maintain the net worth or working capital or other financial condition
of any other Person, or otherwise assures any creditor of such other Person
against loss, including, without limitation, any comfort letter, take-or-pay
contract or the obligations of any such Person as general partner of a
partnership with respect to the liabilities of the partnership.
"Conversion/Continuation Notice" is defined in Section 2.10.
"Controlled Group" means all members of a controlled group of
corporations or other business entities and all trades or businesses (whether or
not incorporated) under common control which, together with the Borrower or any
of its Subsidiaries, are treated as a single employer under Section 414 of the
Code.
"Corporate Base Rate" means a rate per annum equal to the corporate
base rate of interest announced by First Chicago from time to time, changing
when and as said corporate base rate changes.
"Credit Extension" means the making of any Advance, the conversion of
any Advance into, or continuation of any Advance as, a Eurodollar Advance, or
the issuance or Modification of any Facility LC.
"Credit Extension Date" means the Borrowing Date for an Advance or the
issuance date for a Facility LC.
"Default" means an event described in Article VII.
"Distribution" means any direct or indirect dividend, distribution or
other payment of any kind or character (whether in cash, securities or other
Property) (i) in respect of any Subordinated Debt, any Capital Stock, any class
of preferred stock or any other ownership interest or to the holders, as such,
of any Subordinated Debt, any class of Capital Stock, any class of preferred
stock or any other ownership interest (including without limitation, pursuant to
a merger or consolidation) or (ii) in consideration for or otherwise in
connection with any retirement, purchase, redemption or other acquisition of any
Subordinated Debt, any Capital Stock, any preferred stock or any other ownership
interest or any options, warrants or rights to purchase or acquire any
Subordinated Debt, any Capital Stock, any preferred stock or any other ownership
interest.
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<PAGE> 13
"EBIT" means, with reference to any period and for any Person, the Net
Income of such Person during such period plus, to the extent deducted from
revenues in determining Net Income, (i) Interest Expense of such Person during
such period, (ii) expense for taxes paid or accrued by such Person during such
period, and (iii) extraordinary losses of such Person during such period, minus,
to the extent included in Net Income, extraordinary gains of such Person during
such period.
"Eligible Institution" means (i) any Lender, (b) a commercial bank or
other financial institution organized under the laws of the United States, or
any state thereof, and having total assets in excess of $1,000,000,000, (iii) a
commercial bank organized under the laws of any other country which is a member
of the Organization for Economic Cooperation and Development or any successor
organization, or a political subdivision of any such country, and having total
assets in excess of $1,000,000,000, (iv) the central bank of any country which
is a member of the Organization for Economic Cooperation and Development or any
successor organization and (v) any other bank or financial institutions approved
by the Agent and the Required Lenders (such approval not to be unreasonably
withheld).
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, plans, injunctions, permits, concessions, grants,
franchises, licenses, agreements and other governmental restrictions relating to
(i) the protection of the environment, (ii) the effect of the environment on
human health, (iii) emissions, discharges or releases of pollutants,
contaminants, hazardous substances or wastes into surface water, ground water or
land, or (iv) the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of pollutants, contaminants, hazardous
substances or wastes or the clean-up or other remediation thereof.
"Equity Offering" of any Person means an offering of any Capital Stock
of such Person issued or to be issued by such Person as consideration to one or
more other Persons.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any rule or regulation issued thereunder.
"Eurodollar Advance" means an Advance which, except as otherwise
provided in Section 2.12, bears interest at the applicable Eurodollar Rate.
"Eurodollar Base Rate" means, with respect to a Eurodollar Advance for
the relevant Interest Period, the rate determined by the Agent to be the rate at
which First Chicago offers to place deposits in U.S. dollars with first-class
banks in the London interbank market at approximately 11:00 a.m. (London time)
two Business Days prior to the first day of such Interest Period, in the
approximate amount of First Chicago's relevant Eurodollar Loan and having a
maturity equal to such Interest Period.
"Eurodollar Loan" means a Loan which, except as otherwise provided in
Section 2.12, bears interest at the applicable Eurodollar Rate.
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<PAGE> 14
"Eurodollar Rate" means, with respect to a Eurodollar Advance for the
relevant Interest Period, the sum of (i) the quotient of (a) the Eurodollar Base
Rate applicable to such Interest Period, divided by (b) one minus the Reserve
Requirement (expressed as a decimal) applicable to such Interest Period, plus
the Applicable Margin. The Eurodollar Rate shall be rounded to the next higher
multiple of 1/16 of 1% if the rate is not such a multiple.
"Excluded Taxes" means, in the case of each Lender or applicable
Lending Installation and the Agent, taxes imposed on its overall net income, and
franchise taxes imposed on it, by (i) the jurisdiction under the laws of which
such Lender or the Agent is incorporated or organized or (ii) the jurisdiction
in which the Agent's or such Lender's principal executive office or such
Lender's applicable Lending Installation is located.
"Exhibit" refers to an exhibit to this Agreement, unless another
document is specifically referenced.
"Facility LC" is defined in Section 2.20.01.
"Facility LC Application" is defined in Section 2.20.03.
"Facility LC Collateral Account" is defined in Section 2.20.11.
"Facility Termination Date" means March 31, 2002 or any earlier date on
which the Aggregate Commitment is reduced to zero or otherwise terminated
pursuant to Section 2.05 or 8.01.
"Federal Funds Effective Rate" means, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 10:00 a.m. (Chicago
time) on such day on such transactions received by the Agent from three Federal
funds brokers of recognized standing selected by the Agent in its sole
discretion.
"Financial Contract" of a Person means (i) any exchange-traded or
over-the-counter futures, forward, swap or option contract or other financial
instrument with similar characteristics, or (ii) any agreements, devices or
arrangements providing for payments related to fluctuations of interest rates,
exchange rates, forward rates or commodity prices, including, but not limited
to, interest rate swap or exchange agreements, forward currency exchange
agreements, interest rate cap or collar protection agreements, forward rate
currency or interest rate options.
"First Chicago" means The First National Bank of Chicago in its
individual capacity, and its successors.
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<PAGE> 15
"Floating Rate" means, for any day, a rate per annum equal to (i) the
Alternate Base Rate for such day plus (ii) the Applicable Margin, in each case
changing when and as the Alternate Base Rate changes.
"Floating Rate Advance" means an Advance which, except as otherwise
provided in Section 2.12, bears interest at the Floating Rate.
"Floating Rate Loan" means a Loan which, except as otherwise provided
in Section 2.12, bears interest at the Floating Rate.
"Founding Company" means each of Christianson Enterprises, Inc., a
Texas corporation, G.G.R. Leasing Corporation, a Texas corporation, Christianson
Service Company, a Texas corporation (the foregoing, collectively,
"Christianson"), R.C.R. Plumbing, Inc., a California corporation, Teepe's River
City Mechanical, Inc., an Ohio corporation, Keith Riggs Plumbing, Inc., an
Arizona corporation, J.A. Croson Company, an Ohio corporation, Franklin Fire
Sprinkler Company, a Ohio corporation, J.A. Croson Company of Florida, a Florida
corporation, Power Plumbing Inc., a Delaware corporation, Nelson Mechanical
Contractors, Inc., a Florida corporation, Sherwood Mechanical, Inc., a
California corporation, and Miller Mechanical Contractors, Inc., a Georgia
corporation.
"Founding Company Acquisition Date" means March 31, 1999.
"GAAP" means U.S. generally accepted accounting principles and policies
as in effect from time to time, applied in a manner consistent with that used in
preparing the financial statements referred to in Section 5.04.
"Guarantor" means each Founding Company and each presently existing or
hereafter formed or acquired, directly or indirectly owned, Subsidiary of
Borrower, other than any such Subsidiary that is deemed to not be "material" by
the Required Lenders.
"Guaranty" means each guaranty executed by a Guarantor in favor of the
Agent, for the ratable benefit of the Lenders, guaranteeing or purporting to
guarantee all or any portion of the Obligations, substantially in the form of
Exhibit F, as it may be amended or otherwise modified from time to time.
"Highest Lawful Rate" means, on any day, the maximum nonusurious rate
of interest permitted for that day by whichever of applicable federal or Texas
law permits the higher interest rate, stated as a rate per annum. On each day,
if any, that applicable Texas law establishes the Highest Lawful Rate, the
Highest Lawful Rate shall be the "weekly ceiling" (as defined in Section 303 of
the Texas Finance Code -- the "Texas Finance Code" -- and Chapter 1D of Title
79, Texas Rev. Civ. Stats. 1925 -- "Chapter 1D", as amended, respectively) for
that day. The Lender may from time to time, as to current and future balances,
implement any other ceiling under the Texas Finance Code or Chapter 1D by notice
to the Company if and to the extent permitted by the Texas Finance Code or
Chapter 1D.
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<PAGE> 16
"Indebtedness" of a Person means such Person's (i) obligations for
borrowed money or arising out of any extension of credit to or for the account
of such Person, including without limitation, extensions of credit in the form
of reimbursement or payment obligations of such Person relating to any
acceptance, letter of credit or similar facility issued for the account of such
Person or accepted by banks and other institutions , (ii) obligations
representing the deferred purchase price of Property or services (other than
accounts payable arising in the ordinary course of such Person's business
payable on terms customary in the trade), (iii) obligations, whether or not such
Person has assumed or become liable for the payment thereof, secured by (of for
which the holder of such obligations has any existing right, contingent or
otherwise, to be secured by) any Lien on or payable out of the proceeds or
production from any Property (equal to the fair market value of such Property if
the holder of such obligations is owed no duty, contingent or otherwise, from
and has no recourse to such Person except for the grant of such Lien) now or
hereafter owned or acquired by such Person, (iv) obligations of such Person
which are evidenced by notes, bonds, debentures, acceptances, or other
instruments, but excluding obligations arising as a result of such Person's
endorsement in the ordinary course of business of negotiable instruments in the
course of collection, (v) Capitalized Lease Obligations of such Person, and (vi)
any other obligation for borrowed money or other financial accommodation which
in accordance with GAAP would be shown as a liability on the consolidated
balance sheet of such Person.
"Interest Period" means, with respect to a Eurodollar Advance, a period
of one, two, three or six months commencing on a Business Day selected by the
Borrower pursuant to this Agreement. Such Interest Period shall end on the day
which corresponds numerically to such date one, two, three or six months
thereafter, provided, however, that if there is no such numerically
corresponding day in such next, second, third or sixth succeeding month, such
Interest Period shall end on the last Business Day of such next, second, third
or sixth succeeding month. If an Interest Period would otherwise end on a day
which is not a Business Day, such Interest Period shall end on the next
succeeding Business Day, provided, however, that if said next succeeding
Business Day falls in a new calendar month, such Interest Period shall end on
the immediately preceding Business Day.
"Investment" of a Person means any loan, advance (other than
commission, travel and similar advances to officers and employees made in the
ordinary course of business), extension of credit (other than accounts
receivable arising in the ordinary course of business on terms customary in the
trade) or contribution of capital by such Person; stocks, bonds, mutual funds,
partnership interests, notes, debentures or other securities owned by such
Person; any deposit accounts and certificate of deposit owned by such Person;
and structured notes, derivative financial instruments and other similar
instruments or contracts owned by such Person.
"IPO" of a Person means an Equity Offering through an initial public
offering by such Person of its Capital Stock which is registered under the
Securities Act of 1933, amended.
"LC Fee" is defined in Section 2.20.04.
"LC Issuer" means First Chicago (or any subsidiary or affiliate of
First Chicago designated by First Chicago) in its capacity as issuer of Facility
LCs hereunder.
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"LC Obligations" means, at any time, the sum, without duplication, of
(i) the aggregate undrawn stated amount under all Facility LCs outstanding at
such time plus (ii) the aggregate unpaid amount at such time of all
Reimbursement Obligations.
"LC Payment Date" is defined in Section 2.20.05.
"Lenders" means the lending institutions listed on the signature pages
of this Agreement and their respective successors and assigns.
"Lending Installation" means, with respect to a Lender or the Agent,
the office, branch, subsidiary or affiliate of such Lender or the Agent listed
on the Lending Installation Schedule or otherwise selected by such Lender or the
Agent pursuant to Section 2.18.
"Lending Installation Schedule" means the schedule of Lending
Installations attached as Schedule II.
"Letter of Credit" of a Person means a letter of credit or similar
instrument which is issued upon the application of such Person or upon which
such Person is an account party or for which such Person is in any way liable.
"Lien" means any lien (statutory or other), mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance or preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, the interest of a vendor or
lessor under any conditional sale, Capitalized Lease or other title retention
agreement), whether or not filed, recorded or otherwise perfected under
applicable law.
"Loan" means, with respect to a Lender, such Lender's loan made
pursuant to Article II (or any conversion or continuation thereof).
"Loan Documents" means this Agreement, the Facility LC Applications,
all Notes issued pursuant to Section 2.14 (if any), the Collateral Documents,
the Guaranties and all other agreements, instruments or documents to which the
Borrower, any Guarantor or any Pledgor is a party and which are executed and
delivered from time to time in connection with this Agreement, and all
amendments, modifications, renewals, restatement, replacements or extensions
thereof in accordance with their respective terms..
"Material Adverse Effect" means a material adverse effect on (i) the
business, Property, operations, performances, condition (financial or
otherwise), or results of operations of the Borrower and its Subsidiaries taken
as a whole, (ii) the ability of the Borrower or any Obligor to perform any of
its obligations under the Loan Documents to which it is a party, or (iii) the
validity or enforceability of any of the Loan Documents or, except as may be
caused solely by an action or omission of such Person constituting gross
negligence, the rights or remedies of the Agent, the LC Issuer or the Lenders
thereunder.
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"Material Agreements" means those agreements and contracts listed on
Schedule IV and all other agreements, instruments and other documents relating
to any Acquisition or any Subordinated Debt.
"Material Indebtedness" is defined in Section 7.05.
"Modify" and "Modification" are defined in Section 2.20.01.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a Plan maintained pursuant to a collective
bargaining agreement or any other arrangement to which the Borrower or any
member of the Controlled Group is a party to which more than one employer is
obligated to make contributions.
"Non-Hostile Acquisition" means an Acquisition by the Borrower,
directly or indirectly through one or more of its Subsidiaries, (i) if such
Acquisition is of the voting securities of a Target, then the Target is in the
same or a similar line of business as the Borrower, and such Acquisition does
not involve an actual or threatened election contest (as such terms are used in
Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange Act of
1934) or other actual or threatened solicitation of proxies or consents by or on
behalf of Borrower, any Affiliate of Borrower and all Persons acting with
Borrower or such Affiliate as a group (as defined in Section 13(d) of the
Securities Exchange Act of 1934) to acquire beneficial ownership (within the
meaning of Rule 13d-3 of the Securities and Exchange Commission under the
Securities Exchange Act of 1934) of at least twenty percent (20%) of voting
securities of the Target, and (ii) in connection with such Acquisition (1) no
Default or Unmatured Default exists, or would result (on a pro forma basis) from
such Acquisition, (2) the sum of cash consideration plus Indebtedness assumed by
the Borrower or any Affiliate of Borrower or otherwise secured by a Lien on
Property involved in such Acquisition plus the aggregate amount of cash deferred
compensation related to such Acquisition (such sum being the "Consideration")
does not exceed the lesser of (a) $10,000,000 for any single Acquisition, or (b)
together with the Consideration of all other Acquisitions (other than the
Acquisitions of the Founding Companies) made since the beginning of the then
most-recently ended four fiscal quarters, $40,000,000, and (3) the total
consideration for such Acquisition does not exceed 6.50x such Target's adjusted
EBIT for the most recent four fiscal quarters of such Target.
"Non-U.S. Lender" is defined in Section 3.05(iv).
"Note" means any promissory note issued at the request of a Lender
pursuant to Section 2.14 in the form of Exhibit A.
"Note Pledge Agreement" means each note pledge agreement executed by a
Pledgor securing, or purporting to secure, all or any portion of the
Obligations, substantially in the form of Exhibit I, as may be amended or
otherwise modified from time to time.
"Obligations" means all unpaid principal of and accrued and unpaid
interest on the Loans, all Reimbursement Obligations, all accrued and unpaid
fees and all expenses, reimbursements,
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indemnities and other obligations of the Borrower to the Lenders or to any
Lender, the Agent, the LC Issuer or any indemnified party arising under the Loan
Documents.
"Obligor" means, without duplication, the Borrower, each Guarantor,
each Pledgor and any other Affiliate of Borrower that enters into a Loan
Document from time to time for the benefit of the Agent and the Lenders.
"Off-Balance Sheet Liability" of a Person means (i) any repurchase
obligation or liability of such Person with respect to accounts or notes
receivable sold by such Person, (ii) any liability under any Sale and Leaseback
Transaction which is not a Capitalized Lease, (iii) any liability under any
so-called "synthetic lease" transaction entered into by such Person, or (iv) any
obligation arising with respect to any other transaction which is the functional
equivalent of or takes the place of borrowing but which does not constitute a
liability on the balance sheets of such Person, but excluding from this clause
(iv) Operating Leases.
"Operating Lease" of a Person means any lease of Property (other than a
Capitalized Lease) by such Person as lessee which has an original term
(including any required renewals and any renewals effective at the option of the
lessor) of one year or more.
"Other Taxes" is defined in Section 3.05(ii).
"Outstanding Credit Exposure" means, as to any Lender at any time, the
sum of (i) the aggregate principal amount of its Loans outstanding at such time,
plus (ii) an amount equal to its Pro Rata Share of the LC Obligations at such
time.
"Participants" is defined in Section 12.02.1.
"Payment Date" means the last day of each March, June, September and
December.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
"Permitted Acquisition" means the Acquisition of each Founding Company
on the Founding Company Acquisition Date, each Non-Hostile Acquisition, and any
other Acquisition to which the Required Lenders have given their written
consent.
"Permitted Senior Subordinated Debt" means high-yield subordinated debt
issued after the Founding Company Acquisition Date, if any, in an aggregate
principal amount of at least $100,000,000, but in no event exceeding
$175,000,000, and on such other terms and conditions as may be reasonably
acceptable to the Agent and the Required Lenders.
"Person" means any natural person, corporation, firm, joint venture,
partnership, limited liability company, association, enterprise, trust or other
entity or organization, or any government or political subdivision or any
agency, department or instrumentality thereof.
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"Plan" means an employee pension benefit plan which is covered by Title
IV of ERISA or subject to the minimum funding standards under Section 412 of the
Code as to which the Borrower or any member of the Controlled Group may have any
liability.
"Pledgor" means each Founding Company and each presently existing or
hereafter formed or acquired, directly or indirectly owned, other than any such
Subsidiary that the Required Lenders agree to not require the grant of a lien to
secure all or any part of the Obligations.
"Preferred Stock" means, as applied to any corporation, shares of such
corporation which shall be entitled to preference or priority over any other
shares of such corporation in respect of either the payment of dividends or the
distribution of assets upon liquidation.
"Pricing Schedule" means Schedule I attached hereto, identified as
such.
"Private Placement Memorandum" means the Confidential Private Placement
Memorandum dated February 11, 1999 relating to the proposed issuance of common
stock, par value $.01 per share of Borrower, 10% notes issued by Borrower and,
if applicable, 10% cumulative redeemable convertible preferred stock of the
Borrower, as supplemented by the Supplement dated March 16, 1999 to Confidential
Private Placement Memorandum dated February 11, 1999.
"Pro Rata Share" means, with respect to a Lender, a portion equal to a
fraction the numerator of which is such Lender's Commitment and the denominator
of which is the Aggregate Commitment.
"Property" of a Person means any and all property, whether real,
personal, tangible, intangible, or mixed, of such Person, or other assets owned,
leased or operated by such Person.
"Purchasers" is defined in Section 12.03.01.
"Rate Hedge Lender" means a Lender or Affiliate thereof party to one or
more Related Rate Hedging Agreements, who has registered with the Agent each
such Related Rate Hedging Agreement intended (i) to be pari passu with the
guaranty of the Obligations by the Guarantors, and (ii) to be secured by the
Lien of the Agent and the Lenders pursuant to the Collateral Documents.
"Rate Hedging Agreement" means an agreement, device or arrangement
providing for payments which are related to fluctuations of interest rates,
exchange rates or forward rates, including, but not limited to,
dollar-denominated or cross-currency interest rate exchange agreements, forward
currency exchange agreements, interest rate cap or collar protection agreements,
forward rate currency or interest rate options, puts and warrants.
"Rate Hedging Obligations" of a Person means any and all obligations of
such Person, whether absolute or contingent and howsoever and whensoever
created, arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefor), under (i) any and all Rate
Hedging Agreements, and (ii) any and all cancellations, buy backs, reversals,
terminations or assignments of any Rate Hedging Agreement.
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"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor thereto
or other regulation or official interpretation of said Board of Governors
relating to reserve requirements applicable to member banks of the Federal
Reserve System.
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by banks for the purpose of purchasing or carrying margin
stocks applicable to member banks of the Federal Reserve System.
"Related Rate Hedging Agreement" means a Rate Hedging Agreement between
the Borrower and a Lender or Affiliate thereof and related to the Loans
hereunder providing for a fixed rate of interest on a notional amount, for all
such Rate Hedging Agreements, not in excess of the Aggregate Commitment.
"Rentals" of a Person means the aggregate fixed amounts payable by such
Person under any Operating Lease.
"Reportable Event" means a reportable event as defined in Section 4043
of ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC has by regulation waived
the requirement of Section 4043(a) of ERISA that it be notified within 30 days
of the occurrence of such event, provided, however, that a failure to meet the
minimum funding standard of Section 412 of the Code and of Section 302 of ERISA
shall be a Reportable Event regardless of the issuance of any such waiver of the
notice requirement in accordance with either Section 4043(a) of ERISA or Section
412(d) of the Code.
"Reports" is defined in Section 9.06.
"Required Lenders" means Lenders in the aggregate having at least sixty
percent (60%) of the Aggregate Commitment or, if the Aggregate Commitment has
been terminated, Lenders in the aggregate holding at least sixty percent (60%)
of the Aggregate Outstanding Credit Exposure.
"Reserve Requirement" means, with respect to an Interest Period, the
maximum aggregate reserve requirement (including all basic, supplemental,
marginal and other reserves) which is imposed under Regulation D on Eurocurrency
liabilities.
"Reimbursement Obligations" means, at any time, the aggregate of all
obligations of the Borrower then outstanding under Section 2.20 to reimburse the
LC Issuer for amounts paid by the LC Issuer in respect of any one or more
drawings under Facility LCs.
"S&P" means Standard and Poor's Ratings Services, a division of The
McGraw Hill Companies, Inc.
"Sale and Leaseback Transaction" means any sale or other transfer of
Property by any Person with the intent to lease such Property as lessee.
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"Schedule" refers to a specific schedule to this Agreement, unless
another document is specifically referenced.
"Scheduled Preferred Dividend Payments" means at any time the aggregate
dollar amount of payments that would be payable by the Borrower and its
Subsidiaries to Persons (other than the Borrower or any Wholly-Owned Subsidiary
of the Borrower) over the four fiscal quarters following the most recently ended
fiscal quarter of the Borrower if the most recent preferred dividend rate(s)
were to continue uninterrupted.
"Section" means a numbered section of this Agreement, unless another
document is specifically referenced.
"Security Agreement" means each security agreement executed by a
Pledgor securing, or purporting to secure, all or any portion of the
Obligations, substantially in the form of Exhibit G, as may be amended or
otherwise modified from time to time.
"Single Employer Plan" means a Plan maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower or any member of
the Controlled Group.
"Stock Pledge Agreement" means each stock pledge agreement executed by
a Pledgor securing, or purporting to secure, all or any portion of the
Obligations, substantially in the form of Exhibit H, as may be amended or
otherwise modified from time to time.
"Subordinated Bridge Facility" means the $30,000,000 unsecured
subordinated bridge loan facility made available to the Borrower under the
Senior Subordinated Credit Agreement dated as of March 31, 1999 among the
Borrower, as borrower thereunder, the lenders listed therein and Fleet Corporate
Finance, Inc., as lead arranger and administrative agent.
"Subordinated Debt" means Indebtedness arising under (a) the
Subordinated Seller Notes, (b) the Subordinated Sponsor Notes, (c) the
Subordinated Bridge Facility and (d) the Permitted Senior Subordinated Debt, if
any.
"Subordinated Seller Notes" means unsecured subordinated notes to be
(i) issued on the Founding Company Acquisition Date by the Borrower to various
sellers of the Founding Companies in connection with the Acquisitions by the
Borrower of such Founding Companies, on terms and conditions reasonably
acceptable to the Agent and the Required Lenders and (ii) unsecured subordinated
notes to be issued after the date hereof by the Borrower to sellers of equity
ownership in connection with a Permitted Acquisition containing provisions
substantially similar to those set forth on Exhibit L and on terms and
conditions reasonably acceptable to the Agent and the Required Lenders.
"Subordinated Sponsor Notes" means unsecured subordinated notes to be
issued on the Founding Company Acquisition Date by the Borrower to Sterling City
Capital LLC, on terms and conditions reasonably acceptable to the Agent and the
Required Lenders.
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"Subsidiary" of a Person means (i) any corporation more than fifty
percent (50%) of the outstanding securities having ordinary voting power to
elect a majority of the board of directors of such corporation of which shall at
the time be owned or controlled, directly or indirectly, by such Person or by
one or more of its Subsidiaries or by such Person and one or more of its
Subsidiaries, or (ii) any partnership, limited liability company, association,
joint venture or similar business organization more than fifty percent (50%) of
the ownership interests having ordinary voting power to elect a majority of
Persons performing functions similar to those of a board of directors of a
corporation of which shall at the time be so owned or controlled, in each case
irrespective of whether or not at the time securities or other ownership
interests of any other class or classes of such corporation or such other entity
shall or might have voting power upon the occurrence of any contingency. Unless
otherwise expressly provided, all references herein to a "Subsidiary" shall mean
a Subsidiary of the Borrower.
"Swing Loan" is defined in Section 2.07.
"Target" means a Person (other than a natural person) that is the
subject of a proposed or actual Acquisition.
"Taxes" means any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings, and any and all liabilities with
respect to the foregoing, but excluding Excluded Taxes.
"Transferee" is defined in Section 12.04.
"Type" means, with respect to any Advance, its nature as a Floating
Rate Advance or a Eurodollar Advance.
"Unfunded Liabilities" means the amount (if any) by which the present
value of all vested and unvested accrued benefits under all Single Employer
Plans exceeds the fair market value of all such Plan assets allocable to such
benefits, all determined as of the then most recent valuation date for such
Plans using PBGC actuarial assumptions for single employer plan terminations.
"Unmatured Default" means an event which but for the lapse of time or
the giving of notice, or both, would constitute a Default.
"Wholly-Owned Subsidiary" of a Person means (i) any Subsidiary all of
the outstanding voting securities of which shall at the time be owned or
controlled, directly or indirectly, by such Person or one or more Wholly-Owned
Subsidiaries of such Person, or by such Person and one or more Wholly-Owned
Subsidiaries of such Person, or (ii) any partnership, limited liability company,
association, joint venture or similar business organization one hundred percent
(100%) of the ownership interests having ordinary voting power of which shall at
the time be so owned or controlled.
"Year 2000 Issues" means anticipated costs, problems and uncertainties
associated with the inability of certain computer applications to effectively
handle data including dates on and after
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January 1, 2000, as such inability affects the business, operations and
financial condition of the Borrower and its Subsidiaries.
"Year 2000 Program" is defined in Section 5.19.
ARTICLE II
THE CREDITS
2.01. Commitment. From and including the date hereof and prior to the
Facility Termination Date, each Lender severally agrees, on the terms and
conditions set forth in this Agreement, to (i) make Loans to the Borrower and
(ii) participate in Facility LCs issued upon the request of Borrower, provided
that, after giving effect to the making of each such Loan and the issuance of
each such Facility LC, such Lender's Outstanding Credit Exposure shall not
exceed its Commitment. Subject to the terms of this Agreement, the Borrower may
borrow, repay and reborrow at any time prior to the Facility Termination Date.
The Commitments to extend credit hereunder shall expire on the Facility
Termination Date. The LC Issuer will issue Facility LCs hereunder on the terms
and conditions set forth in Section 2.20.
2.02. Required Payments. The Aggregate Outstanding Credit Exposure and
all other unpaid Obligations shall be paid in full by the Borrower on the
Facility Termination Date. Notwithstanding anything to the contrary contained in
this Agreement or in any other Loan Document, if at any time the sum of the
aggregate principal amount of all Loans outstanding at such time plus the
aggregate amount of all LC Obligations at such time exceeds the Aggregate
Commitment at such time, the Borrower shall immediately prepay the principal of
the Loans in an amount at least equal to such excess. In addition to the amounts
required above, the Borrower shall make, promptly but in no event beyond five
(5) Business Days after the receipt thereof, the following mandatory principal
payments on the Loans:
(i) one hundred percent (100%) of the cash proceeds from any
claim on insurance covering any Property of Borrower or any of its
Subsidiaries with proceeds which, after deducting therefrom the amount
of such proceeds applied or to be promptly applied toward the repair or
replacement of damaged Property which was the subject of such claim, is
greater than $100,000;
(ii) one hundred percent (100%) of the net proceeds realized
from an Equity Offering of the Borrower and any of its Subsidiaries
minus the sum of (a) the amount of such proceeds paid as principal,
interest and fees on the Subordinated Bridge Facility, (b) if the
Subordinated Bridge Facility is paid in full and terminated, the amount
of such proceeds paid on the Subordinated Seller Notes, (c) if the
Subordinated Bridge Facility is paid in full and terminated and if the
Subordinated Seller Notes are paid in full, the amount of such proceeds
paid on the Subordinated Sponsor Notes, and (d) if the Subordinated
Bridge Facility is paid in full and terminated and if the Subordinated
Seller Notes and the Subordinated Sponsor Notes
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are paid in full, the amount of such proceeds paid on the Borrower
Preferred Stock issued to Christianson.
(iii) one hundred percent (100%) of the nets proceeds received
from the issuance of Permitted Senior Subordinated Debt and of any
other public or private debt financing by the Borrower or any of its
Subsidiaries (other than the Subordinated Debt in existence at the
close of business on the Founding Company Acquisition Date) minus the
sum of (a) the amount of such proceeds paid as principal, interest and
fees on the Subordinated Bridge Facility, (b) if the Subordinated
Bridge Facility is paid in full and terminated, the amount of such
proceeds paid on the Subordinated Seller Notes, and (c) if the
Subordinated Bridge Facility is paid in full and terminated and if the
Subordinated Seller Notes are paid in full, the amount of such proceeds
paid on the Subordinated Sponsor Notes.
2.03. Ratable Loans. Each Advance hereunder shall consist of Loans made
from the several Lenders ratably according to their Pro Rata Shares.
2.04. Types of Advances. The Advances may be Floating Rate Advances or
Eurodollar Advances, or a combination thereof, selected by the Borrower in
accordance with Sections 2.09 and 2.10; provided that no more than six (6)
Eurodollar Advances may be outstanding at any time.
2.05. Commitment Fee; Reductions in Aggregate Commitment. The Borrower
agrees to pay to the Agent for the account of each Lender, according to its Pro
Rata Share, a commitment fee at a per annum rate equal to the Applicable Fee
Rate on the average daily the unused portion of the Aggregate Commitment
(without regard to any outstanding Swing Loans) from the date hereof to and
including the Facility Termination Date, which commitment fee shall be payable
on each Payment Date hereafter and on the Facility Termination Date. The
Borrower may permanently reduce the Aggregate Commitment in whole, or in part
ratably among the Lenders in integral multiples of $5,000,000, upon at least
three (3) Business Days' written notice to the Agent, which notice shall specify
the amount of any such reduction, provided, however, that the amount of the
Aggregate Commitment may not be reduced below the Aggregate Outstanding Credit
Exposure. All accrued commitment fees shall be payable on the effective date of
any termination of the obligations of the Lenders to make Credit Extensions
hereunder.
2.06. Minimum Amount of Each Advance. Each Eurodollar Advance shall be
in the minimum amount of $3,000,000 (and in multiples of $500,000 if in excess
thereof), and each Floating Rate Advance (other than a Swing Loan) shall be in
the minimum amount of $1,000,000 (and in multiples of $500,000 if in excess
thereof), provided, however, that any Floating Rate Advance may be in the amount
of the Available Aggregate Commitment. Each borrowing on a Swing Loan hereunder
shall be in an aggregate amount of not less than $100,000 and in multiples of
$100,000 if in excess thereof.
2.07. Swing Loans. (i) In addition to the Loans, Agent shall, from time
to time upon the request of the Borrower, if the applicable conditions precedent
specified in Sections 4.01 and 4.02 have been satisfied, make loans (the "Swing
Loans") to the Borrower in an aggregate amount which
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shall not exceed the Available Aggregate Amount on such Business Day; provided
that the aggregate amount of Swing Loans outstanding at any time shall not
exceed $5,000,000; provided further that the sum of aggregate amount of Swing
Loans outstanding at any time plus the Aggregate Outstanding Credit Exposure at
such time shall not exceed the Aggregate Commitment at such time. Swing Loans
shall constitute "Loans" for all purposes hereunder, except they shall be held
by Agent and shall not be considered a utilization of the Aggregate Commitment
hereunder for purposes of calculating fees hereunder. Subject to the terms and
conditions of this Agreement, all Swing Loans shall be made as Floating Rate
Loans and may be borrowed, paid, or repaid and reborrowed pursuant to this
Agreement and all such Swing Loans shall be due and payable in full on the
Facility Termination Date. All Swing Loans shall bear interest based on
applicable Floating Rate.
(ii) At any time before or after a Default or Unmatured Default, upon
the request of Agent or the Borrower through the Agent, each Lender other than
Agent shall be deemed, without further action by any Person, to have purchased
from Agent a participation in any one or more Swing Loans described in such
notice in an amount equal to such Lender's Pro Rata Share of such Swing Loans.
The Agent shall notify each such Lender of the amount of such participation and
such Lender will transfer to Agent on the next Business Day following such
request, in immediately available funds, the amount of its participation.
Whenever, at any time after Agent has received from any Lender such Lender's
participating interest in a Swing Loan, Agent receives from Borrower any payment
on account thereof, Agent will pay to such Lender its participating interest in
such amount (appropriately adjusted, in the case of interest payments, to
reflect the period of time during which such Lender's participating interest was
outstanding and funded) which payment shall be subject to repayment by such
Lender if such payment received by Agent is required to be returned. Each
Lender's obligation to purchase such participating interests shall be absolute
and unconditional and shall not be affected by any circumstance, including,
without limitation, (A) any set-off, counterclaim, recoupment, defense or other
right which such Lender or any other Person may have against Agent or any other
Person for any reason whatsoever; (B) the occurrence or continuance of a Default
or an Unmatured Default or the termination of the Commitments; (C) any adverse
change in the condition (financial or otherwise) of the Borrower or any other
Person; (D) any breach of this Agreement by the Borrower or any other Lender; or
(E) any other circumstance, happening or event whatsoever, whether or not
similar to any of the foregoing. Each Swing Loan, once so participated by any
Lender, shall cease to be a Swing Loan with respect to that amount for purposes
of this Agreement but shall continue to be a Loan.
2.08. Optional Principal Payments. The Borrower may from time to time
pay, without penalty or premium, (i) all outstanding Floating Rate Advances, or
(ii) for any outstanding Floating Rate Advance (other than a Swing Loan), any
portion of such Floating Rate Advance in a minimum aggregate amount of
$1,000,000 or any integral multiple of $100,000 in excess thereof, in each case
upon prior notice to the Agent by 12:00 p.m. noon (Chicago time) two (2)
Business Days prior to the proposed prepayment. The Borrower may from time to
time pay, without penalty or premium, all or any portion of outstanding Swing
Loans, but partial payments thereon shall be in an aggregate principal amount of
at least $100,000, upon prior notice to the Agent by 12:00 p.m. noon (Chicago
time) on the same Business Day as the date of the proposed prepayment. The
Borrower may from time to time pay, subject to the payment of any funding
indemnification amounts required by
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Section 3.04 but without penalty or premium, all outstanding Eurodollar Advances
of a Eurodollar Loan, upon three (3) Business Days' prior notice to the Agent.
2.09. Method of Selecting Types and Interest Periods for New Advances.
The Borrower shall select the Type of Advance and, in the case of each
Eurodollar Advance, the Interest Period applicable thereto from time to time;
provided, that Borrower may not select a Eurodollar Advance as the Type of
Advance if a Default or Unmatured Default is in existence on the proposed
Borrowing Date. The Borrower shall give the Agent irrevocable notice (a
"Borrowing Notice") substantially in the form of Exhibit B not later than 12:00
p.m. noon (Chicago time) at least one (1) Business Day before the Borrowing Date
of each Floating Rate Advance (other than a Swing Loan), three (3) Business Days
before the Borrowing Date for each Eurodollar Advance, and on the Borrowing Date
for a Swing Loan, specifying:
(i) the Borrowing Date, which shall be a Business Day, of such Advance,
(ii) the aggregate amount of such Advance,
(iii) the Type of Advance selected, and
(iv) in the case of each Eurodollar Advance, the Interest Period
applicable thereto.
Not later than 12:00 p.m. noon (Chicago time) on each Borrowing Date (other than
with respect to a Borrowing Notice for a Swing Loan), each Lender shall make
available its Loan or Loans in funds immediately available in Chicago to the
Agent at its address specified pursuant to Article XIII. Not later than 3:00
p.m. (Chicago time) on each Borrowing Date for a Swing Loan, the Agent shall
make available its Swing Loan or Swing Loans in funds immediately available in
Chicago to the Borrower. The Agent will make the funds so received from the
Lenders available to the Borrower at the Agent's aforesaid address.
2.10. Conversion and Continuation of Outstanding Advances. Floating
Rate Advances shall continue as Floating Rate Advances unless and until such
Floating Rate Advances are converted into Eurodollar Advances pursuant to this
Section 2.10 or are repaid in accordance with Section 2.07. Each Eurodollar
Advance shall continue as a Eurodollar Advance until the end of the then
applicable Interest Period therefor, at which time such Eurodollar Advance shall
be automatically converted into a Floating Rate Advance unless (x) such
Eurodollar Advance is or was repaid in accordance with Section 2.08 or (y) the
Borrower shall have given the Agent a Conversion/Continuation Notice (as defined
below) requesting that, at the end of such Interest Period, all or a portion of
the outstanding principal amount of such Eurodollar Advance continue as a
Eurodollar Advance for the same or another Interest Period. Subject to the terms
of Section 2.06, the Borrower may elect from time to time to convert all or any
part of a Floating Rate Advance into a Eurodollar Advance. The Borrower shall
give the Agent irrevocable notice (a "Conversion/Continuation Notice") in the
form of Exhibit C of each conversion of a Floating Rate Advance into a
Eurodollar Advance or continuation of a Eurodollar Advance not later than 12:00
p.m. noon (Chicago time) at least three (3) Business Days prior to the date of
the requested conversion or continuation, specifying:
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(i) the requested date, which shall be a Business Day, of such
conversion or continuation,
(ii) the aggregate amount and Type of the Advance which is to be
converted or continued, and
(iii) the amount of such Advance which is to be converted into or
continued as a Eurodollar Advance and the duration of the
Interest Period applicable thereto;
provided, that no Advances may be converted into or continued as a Eurodollar
Advance if a Default is in existence on or an Unmatured Default existed thirty
(30) days prior to the date of the proposed conversion or continuation, provided
further that any Advance that is converted into or continued as an Eurodollar
Advance shall not have an Interest Period greater than one month.
2.11. Changes in Interest Rate, etc. Each Floating Rate Advance shall
bear interest on the outstanding principal amount thereof, for each day from and
including the date such Advance is made or is automatically converted from a
Eurodollar Advance into a Floating Rate Advance pursuant to Section 2.10, to but
excluding the date it is paid or is converted into a Eurodollar Advance pursuant
to Section 2.10, at a rate per annum equal to the Floating Rate for such day.
Changes in the rate of interest on that portion of any Advance maintained as a
Floating Rate Advance will take effect simultaneously with each change in the
Alternate Base Rate. Each Eurodollar Advance shall bear interest on the
outstanding principal amount thereof from and including the first day of the
Interest Period applicable thereto to (but not including) the last day of such
Interest Period at the interest rate determined by the Agent as applicable to
such Eurodollar Advance based upon the Borrower's selections under Sections 2.09
and 2.10 and otherwise in accordance with the terms hereof. No Interest Period
may end after the Facility Termination Date.
2.12. Rates Applicable After Default. Notwithstanding anything to the
contrary contained in Section 2.09 or 2.10, during the continuance of a Default
or on and after the thirtieth day of a continuing Unmatured Default, no Advance
may be made as, converted into or continued as a Eurodollar Advance. During the
continuance of a Default or Unmatured Default the Required Lenders may, at their
option, by notice to the Borrower (which notice may be revoked at the option of
the Required Lenders notwithstanding any provision of Section 8.03 requiring
unanimous consent of the Lenders to changes in interest rates), declare that (i)
each outstanding Eurodollar Advance shall bear interest for the remainder of the
applicable Interest Period at the rate otherwise applicable to such Interest
Period plus two percent (2%) per annum, (ii) each Floating Rate Advance and each
Swing Loan shall bear interest at a rate per annum equal to the Floating Rate in
effect from time to time plus two percent (2%) per annum, and (iii) the LC Fee
shall be increased by two percent (2%) per annum; provided that, during the
continuance of a Default under Section 7.06 or 7.07, the interest rates set
forth in clauses (i) and (ii) above and the increase in the LC Fee set forth in
clause (iii) above shall be applicable to all Credit Extensions without any
election or action on the part of the Agent or any Lender.
2.13. Method of Payment. All payments of the Obligations hereunder
shall be made, without setoff, deduction, or counterclaim, in immediately
available funds to the Agent at the
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Agent's address specified pursuant to Article XIII, or at any other Lending
Installation of the Agent specified in writing by the Agent to the Borrower, by
12:00 p.m. noon (Chicago time) on the date when due and shall (except in the
case of Reimbursement Obligations for which the LC Issuer has not been fully
indemnified by the Lenders, or as otherwise specifically required hereunder) be
applied ratably by the Agent among the Lenders. Each payment delivered to the
Agent for the account of any Lender shall be delivered promptly by the Agent to
such Lender in the same type of funds that the Agent received at its address
specified pursuant to Article XIII or at any Lending Installation specified in a
notice received by the Agent from such Lender. The Agent is hereby authorized to
charge the account of the Borrower maintained with First Chicago for each
payment of principal, interest, Reimbursement Obligations and fees as it becomes
due hereunder. Each reference to the Agent in this Section 2.13 shall also be
deemed to refer, and shall apply equally, to the LC Issuer, in the case of
payments required to be made by the Borrower to the LC Issuer pursuant to
Section 2.20.06.
2.14. Noteless Agreement; Evidence of Indebtedness. (i) Each Lender
shall maintain in accordance with its usual practice an account or accounts
evidencing the indebtedness of the Borrower to such Lender resulting from each
Loan made by such Lender from time to time, including the amounts of principal
and interest payable and paid to such Lender from time to time hereunder.
(ii) The Agent shall also maintain accounts in which it will record (a)
the amount of each Loan made hereunder, the Type thereof and the Interest Period
with respect thereto, (b) the amount of any principal or interest due and
payable or to become due and payable from the Borrower to each Lender hereunder,
(c) the original stated amount of each Facility LC and the amount of LC
Obligations outstanding at any time, and (d) the amount of any sum received by
the Agent hereunder from the Borrower and each Lender's share thereof. The
Borrower's obligation on the Swing Loans shall be recorded as loans and advances
made by the Agent in accordance with its customary accounting practices. The
Agent is authorized to record advances and interest on the Swing Loans and
repayments of the Swing Loans in its books and records and the net balance
reflected in such records shall be controlling absent manifest error as to the
Borrower's indebtedness with respect to Swing Loans.
(iii) The entries maintained in the accounts maintained pursuant to
paragraphs (i) and (ii) above shall be prima facie evidence of the existence and
amounts of the Obligations therein recorded, absent manifest error; provided,
however, that the failure of the Agent or any Lender to maintain such accounts
or any error therein shall not in any manner affect the obligation of the
Borrower to repay the Obligations in accordance with their terms.
(iv) Any Lender may request that its Loans be evidenced by a promissory
note (a "Note"). In such event, the Borrower shall execute and deliver to such
Lender a Note payable to the order of such Lender. Thereafter, the Loans
evidenced by such Note and interest thereon shall at all times (including after
any assignment pursuant to Section 12.03) be represented by one or more Notes
payable to the order of the payee named therein or any assignee pursuant to
Section 12.03, except to the extent that any such Lender or assignee
subsequently returns any such Note for cancellation and requests that such Loans
once again be evidenced as described in paragraphs (i) and (ii) above.
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2.15. Telephonic Notices. The Borrower hereby authorizes the Lenders
and the Agent to extend, convert or continue Advances, effect selections of
Types of Advances and to transfer funds based on telephonic notices made by any
person or persons the Agent or any Lender in good faith believes to be acting on
behalf of the Borrower, it being understood that the foregoing authorization is
specifically intended to allow Borrowing Notices and Conversion/Continuation
Notices to be given telephonically. The Borrower agrees to deliver promptly to
the Agent a written confirmation, if such confirmation is requested by the Agent
or any Lender, of each telephonic notice signed by an Authorized Officer. If the
written confirmation differs in any material respect from the action taken by
the Agent and the Lenders, the records of the Agent and the Lenders shall govern
absent manifest error.
2.16. Interest Payment Dates; Interest and Fee Basis. Interest accrued
on each Floating Rate Advance shall be payable on each Payment Date, commencing
with the first such date to occur after the date hereof and at maturity.
Interest accrued on each Eurodollar Advance shall be payable on the last day of
its applicable Interest Period, on any date on which the Eurodollar Advance is
prepaid, whether by acceleration or otherwise, and at maturity. Interest accrued
on each Eurodollar Advance having an Interest Period longer than three months
shall also be payable on the last day of each three-month interval during such
Interest Period. Interest, commitment fees and LC Fees shall be calculated for
actual days elapsed on the basis of a 360-day year; provided that interest on
Floating Rate Advances shall be calculated for actual days elapsed on the basis
of a 365 days year. Interest shall be payable for the day an Advance is made but
not for the day of any payment on the amount paid if payment is received prior
to 12:00 p.m. noon (Chicago time) at the place of payment. If any payment of
principal of or interest on an Advance shall become due on a day which is not a
Business Day, such payment shall be made on the next succeeding Business Day
and, in the case of a principal payment, such extension of time shall be
included in computing interest in connection with such payment.
2.17. Notification of Advances, Interest Rates, Prepayments and
Commitment Reductions. Promptly after receipt thereof, the Agent will notify
each Lender of the contents of each Aggregate Commitment reduction notice,
Borrowing Notice, Conversion/Continuation Notice, and repayment notice received
by it hereunder. Promptly after notice from the LC Issuer, the Agent will notify
each Lender of the contents of each request for issuance of a Facility LC
hereunder. The Agent will notify each Lender of the interest rate applicable to
each Eurodollar Advance promptly upon determination of such interest rate and
will give each Lender prompt notice of each change in the Alternate Base Rate.
2.18. Lending Installations. Each Lender may book its Loans and its
participation in any LC Obligations and the LC Issuer may book the Facility LCs
at any Lending Installation selected by such Lender or the LC Issuer, as the
case may be, and may change its Lending Installation from time to time. All
terms of this Agreement shall apply to any such Lending Installation, and the
Loans, Facility LCs, participations in LC Obligations and any Notes issued
hereunder shall be deemed held by each Lender or the LC Issuer, as the case may
be, for the benefit of any such Lending Installation. Each Lender and the LC
Issuer may, by written notice to the Agent and the Borrower in accordance with
Article XIII, designate replacement or additional Lending Installations through
which Loans
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will be made by it or Facility LCs will be issued by it and for whose account
Loan payments or payments with respect to Facility LCs are to be made.
2.19. Non-Receipt of Funds by the Agent. Unless the Borrower or a
Lender, as the case may be, notifies the Agent prior to the date on which it is
scheduled to make payment to the Agent of (i) in the case of a Lender, the
proceeds of a Loan or (ii) in the case of the Borrower, a payment of principal,
interest or fees to the Agent for the account of the Lenders, that it does not
intend to make such payment, the Agent may assume that such payment has been
made. The Agent may, but shall not be obligated to, make the amount of such
payment available to the intended recipient in reliance upon such assumption. If
such Lender or the Borrower, as the case may be, has not in fact made such
payment to the Agent on or before when such payment is due, the recipient of
such payment shall, on demand by the Agent, repay to the Agent the amount so
made available together with interest thereon in respect of each day during the
period commencing on the date such amount was so made available by the Agent
until the date the Agent recovers such amount at a rate per annum equal to (x)
in the case of payment by a Lender, the Federal Funds Effective Rate for such
day for the first Business Day and, thereafter, the interest rate applicable to
the relevant Loan or (y) in the case of payment by the Borrower, the interest
rate applicable to the relevant Loan. Nothing herein shall be deemed to relieve
any Lender or the Borrower, as the case may be, from its obligations hereunder
or to prejudice any rights any party hereto may have against such Lender or
Borrower as a result of any default by such Lender or Borrower, respectively.
2.20. Facility LCs.
2.20.01. Issuance. The LC Issuer hereby agrees, on the terms
and conditions set forth in this Agreement, to issue standby and
commercial letters of credit (each, a "Facility LC") and to renew,
extend, increase, decrease or otherwise modify each Facility LC
("Modify," and each such action a "Modification"), from time to time
from and including the date hereof and prior to the Facility
Termination Date upon the request of the Borrower; provided that after
giving effect to each such issued or Modified Facility LC (i) the
aggregate amount of the outstanding LC Obligations shall not exceed
$5,000,000 and (ii) the Aggregate Outstanding Credit Exposure shall not
exceed the Aggregate Commitment. No Facility LC shall have an expiry
date later than the earlier of (x) the fifth Business Day prior to the
Facility Termination Date and (y) one year after its issuance.
2.20.02. Participations. Upon the issuance or Modification by
the LC Issuer of a Facility LC in accordance with this Section 2.20,
the LC Issuer shall be deemed, without further action by any party
hereto, to have unconditionally and irrevocably sold to each Lender,
and each Lender shall be deemed, without further action by any party
hereto, to have unconditionally and irrevocably purchased from the LC
Issuer, a participation in such Facility LC (and each Modification
thereof) and the related LC Obligations in proportion to its Pro Rata
Share.
2.20.03. Notice. Subject to Section 2.20.01, the Borrower
shall give the LC Issuer notice prior to 12:00 p.m. noon (Chicago time)
at least three (3) Business Days prior to the proposed date of issuance
or Modification of each Facility LC, specifying the
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beneficiary, the proposed date of issuance (or Modification) and the
expiry date of such Facility LC, and describing the proposed terms of
such Facility LC and the nature of the transactions proposed to be
supported thereby. Upon receipt of such notice, the LC Issuer shall
promptly notify the Agent, and the Agent shall promptly notify each
Lender, of the contents thereof and of the amount of such Lender's
participation in such proposed Facility LC. The issuance or
Modification by the LC Issuer of any Facility LC shall, in addition to
the conditions precedent set forth in Article IV (the satisfaction of
which the LC Issuer shall have no duty to ascertain), be subject to the
conditions precedent (i) that such Facility LC shall be satisfactory to
the LC Issuer and (ii) that the Borrower shall have executed and
delivered such application agreement and/or such other instruments and
agreements relating to such Facility LC as the LC Issuer shall have
requested (each, a "Facility LC Application"). In the event of any
conflict between the terms of this Agreement and the terms of any
Facility LC Application, the terms of this Agreement shall control.
2.20.04. LC Fees. The Borrower shall pay to the Agent, for the
account of the Lenders ratably in accordance with their respective Pro
Rata Shares, with respect to each Facility LC, a letter of credit fee
at a per annum rate equal to the Applicable Margin for Eurodollar Loans
in effect from time to time on the average daily undrawn stated amount
under such Facility LC, such fee ("LC Fee") to be payable in arrears on
each Payment Date. The Borrower shall also pay to the LC Issuer for its
own account (x) at the time of issuance of each Facility LC, a fronting
fee in an amount to be agreed upon between the LC Issuer and the
Borrower, and (y) documentary and processing charges in connection with
the issuance or Modification of and draws under Facility LCs in
accordance with the LC Issuer's standard schedule for such charges as
in effect from time to time.
2.20.05. Administration; Reimbursement by Lenders. Upon
receipt from the beneficiary of any Facility LC of any demand for
payment under such Facility LC, the LC Issuer shall notify the Agent
and the Agent shall promptly notify the Borrower and each other Lender
as to the amount to be paid by the LC Issuer as a result of such demand
and the proposed payment date (the "LC Payment Date"). The
responsibility of the LC Issuer to the Borrower and each Lender shall
be only to determine that the documents (including each demand for
payment) delivered under each Facility LC in connection with such
presentment shall be in conformity in all material respects with such
Facility LC. The LC Issuer shall endeavor to exercise the same care in
the issuance and administration of the Facility LCs as it does with
respect to letters of credit in which no participations are granted, it
being understood that in the absence of any gross negligence or willful
misconduct by the LC Issuer, each Lender shall be unconditionally and
irrevocably liable without regard to the occurrence of any Default or
any condition precedent whatsoever, to reimburse the LC Issuer on
demand for (i) such Lender's Pro Rata Share of the amount of each
payment made by the LC Issuer under each Facility LC to the extent such
amount is not reimbursed by the Borrower pursuant to Section 2.20.06
below, plus (ii) interest on the foregoing amount to be reimbursed by
such Lender, for each day from the date of the LC Issuer's demand for
such reimbursement (or, if such demand is made after 11:00 a.m.
(Chicago time) on such date, from the next succeeding Business Day) to
the date on which such Lender pays the amount to be reimbursed by it,
at a rate of interest per annum equal to the Federal Funds Effective
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Rate for the first three days and, thereafter, at a rate of interest
equal to the rate applicable to Floating Rate Advances.
2.20.06. Reimbursement by Borrower. The Borrower shall be
irrevocably and unconditionally obligated to reimburse the LC Issuer on
the applicable LC Payment Date for any amounts to be paid by the LC
Issuer upon any drawing under any Facility LC, without presentment,
demand, protest or other formalities of any kind; provided that neither
the Borrower nor any Lender shall hereby be precluded from asserting
any claim for direct (but not consequential) damages suffered by the
Borrower or such Lender to the extent, but only to the extent, caused
by (i) the willful misconduct or gross negligence of the LC Issuer in
determining whether a request presented under any Facility LC issued by
it complied with the terms of such Facility LC or (ii) the LC Issuer's
failure to pay under any Facility LC issued by it after the
presentation to it of a request strictly complying with the terms and
conditions of such Facility LC. All such amounts paid by the LC Issuer
and remaining unpaid by the Borrower shall bear interest, payable on
demand, for each day until paid at a rate per annum equal to (x) the
rate applicable to Floating Rate Advances for such day if such day
falls on or before the applicable LC Payment Date and (y) the sum of
two percent (2%) per annum plus the rate applicable to Floating Rate
Advances for such day if such day falls after such LC Payment Date. The
LC Issuer will pay to each Lender ratably in accordance with its Pro
Rata Share all amounts received by it from the Borrower for application
in payment, in whole or in part, of the Reimbursement Obligation in
respect of any Facility LC issued by the LC Issuer, but only to the
extent such Lender has made payment to the LC Issuer in respect of such
Facility LC pursuant to Section 2.20.05. Subject to the terms and
conditions of this Agreement (including without limitation the
submission of a Borrowing Notice in compliance with Section 2.09 and
the satisfaction of the applicable conditions precedent set forth in
Article IV), the Borrower may request an Advance hereunder for the
purpose of satisfying any Reimbursement Obligation.
2.20.07. Obligations Absolute. The Borrower's obligations
under this Section 2.20 shall be absolute and unconditional under any
and all circumstances and irrespective of any setoff, counterclaim or
defense to payment which the Borrower may have or have had against the
LC Issuer, any Lender or any beneficiary of a Facility LC. The Borrower
further agrees with the LC Issuer and the Lenders that the LC Issuer
and the Lenders shall not be responsible for, and the Borrower's
Reimbursement Obligation in respect of any Facility LC shall not be
affected by, among other things, the validity or genuineness of
documents or of any endorsements thereon, even if such documents should
in fact prove to be in any or all respects invalid, fraudulent or
forged, or any dispute between or among the Borrower, any of its
Affiliates, the beneficiary of any Facility LC or any financing
institution or other party to whom any Facility LC may be transferred
or any claims or defenses whatsoever of the Borrower or of any of its
Affiliates against the beneficiary of any Facility LC or any such
transferee. The LC Issuer shall not be liable for any error, omission,
interruption or delay in transmission, dispatch or delivery of any
message or advice, however transmitted, in connection with any Facility
LC. The Borrower agrees that any action taken or omitted by the LC
Issuer or any Lender under or in connection with each Facility LC and
the related drafts and documents, if done without gross negligence or
willful
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misconduct, shall be binding upon the Borrower and shall not put the LC
Issuer or any Lender under any liability to the Borrower. Nothing in
this Section 2.20.07 is intended to limit the right of the Borrower to
make a claim against the LC Issuer for damages as contemplated by the
proviso to the first sentence of Section 2.20.06.
2.20.08. Actions of LC Issuer. The LC Issuer shall be entitled
to rely, and shall be fully protected in relying, upon any Facility LC,
draft, writing, resolution, notice, consent, certificate, affidavit,
letter, cablegram, telegram, telecopy, telex or teletype message,
statement, order or other document believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person or
Persons, and upon advice and statements of legal counsel, independent
accountants and other experts selected by the LC Issuer. The LC Issuer
shall be fully justified in failing or refusing to take any action
under this Agreement unless it shall first have received such advice or
concurrence of the Required Lenders as it reasonably deems appropriate
or it shall first be indemnified to its reasonable satisfaction by the
Lenders against any and all liability and expense which may be incurred
by it by reason of taking or continuing to take any such action.
Notwithstanding any other provision of this Section 2.20, the LC Issuer
shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement in accordance with a request of the
Required Lenders, and such request and any action taken or failure to
act pursuant thereto shall be binding upon the Lenders and any future
holders of a participation in any Facility LC.
2.20.09. Indemnification. The Borrower hereby agrees to
indemnify and hold harmless each Lender, the LC Issuer and the Agent,
and their respective directors, officers, agents and employees from and
against any and all claims and damages, losses, liabilities, costs or
expenses which such Lender, the LC Issuer or the Agent may incur (or
which may be claimed against such Lender, the LC Issuer or the Agent by
any Person whatsoever) by reason of or in connection with the issuance,
execution and delivery or transfer of or payment or failure to pay
under any Facility LC or any actual or proposed use of any Facility LC,
including, without limitation, any claims, damages, losses,
liabilities, costs or expenses which the LC Issuer may incur by reason
of or in connection with (i) the failure of any other Lender to fulfill
or comply with its obligations to the LC Issuer hereunder (but nothing
herein contained shall affect any rights the Borrower may have against
any defaulting Lender) or (ii) by reason of or on account of the LC
Issuer issuing any Facility LC which specifies that the term
"Beneficiary" included therein includes any successor by operation of
law of the named Beneficiary, but which Facility LC does not require
that any drawing by any such successor Beneficiary be accompanied by a
copy of a legal document, satisfactory to the LC Issuer, evidencing the
appointment of such successor Beneficiary; provided that the Borrower
shall not be required to indemnify any Lender, the LC Issuer or the
Agent for any claims, damages, losses, liabilities, costs or expenses
to the extent, but only to the extent, caused by (x) the willful
misconduct or gross negligence of the LC Issuer in determining whether
a request presented under any Facility LC complied with the terms of
such Facility LC or (y) the LC Issuer's failure to pay under any
Facility LC after the presentation to it of a request strictly
complying with the terms and conditions of such Facility LC. Nothing in
this Section 2.20.09 is intended to limit the obligations of the
Borrower under any other provision of this Agreement.
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2.20.10. Lenders' Indemnification. Each Lender shall, ratably
in accordance with its Pro Rata Share, indemnify the LC Issuer, its
affiliates and their respective directors, officers, agents and
employees (to the extent not reimbursed by the Borrower) against any
cost, expense (including reasonable counsel fees and disbursements),
claim, demand, action, loss or liability (except such as result from
such indemnitees' gross negligence or willful misconduct or the LC
Issuer's failure to pay under any Facility LC after the presentation to
it of a request strictly complying with the terms and conditions of the
Facility LC) that such indemnitees may suffer or incur in connection
with this Section 2.20 or any action taken or omitted by such
indemnitees hereunder.
2.20.11. Facility LC Collateral Account. The Borrower agrees
that it will, upon the request of the Agent or the Required Lenders and
until the final expiration date of any Facility LC and thereafter as
long as any amount is payable to the LC Issuer or the Lenders in
respect of any Facility LC, maintain a special collateral account
pursuant to arrangements satisfactory to the Agent (the "Facility LC
Collateral Account") at the Agent's office at the address specified
pursuant to Article XIII, in the name of such Borrower but under the
sole dominion and control of the Agent, for the benefit of the Lenders
and in which such Borrower shall have no interest other than as set
forth in Section 8.01. The Borrower hereby pledges, assigns and grants
to the Agent, on behalf of and for the ratable benefit of the Lenders
and the LC Issuer, a security interest in all of the Borrower's right,
title and interest in and to all funds which may from time to time be
on deposit in the Facility LC Collateral Account to secure the prompt
and complete payment and performance of the Obligations. The Agent will
invest any funds on deposit from time to time in the Facility LC
Collateral Account in certificates of deposit of First Chicago having a
maturity not exceeding 30 days. Nothing in this Section 2.20.11 shall
either obligate the Agent to require the Borrower to deposit any funds
in the Facility LC Collateral Account or limit the right of the Agent
to release any funds held in the Facility LC Collateral Account in each
case other than as required by Section 8.01.
2.20.12. Rights as a Lender. In its capacity as a Lender, the
LC Issuer shall have the same rights and obligations as any other
Lender.
2.21. Replacement of Lender. If the Borrower is required pursuant to
Section 3.01, 3.02 or 3.05 to make any additional payment to any Lender or if
any Lender's obligation to make or continue, or to convert Floating Rate
Advances into, Eurodollar Advances shall be suspended pursuant to Section 3.03
(any Lender so affected an "Affected Lender"), the Borrower may elect, if such
amounts have been paid within ninety days of such election or continue to be
charged or such suspension is still effective, to replace such Affected Lender
as a Lender party to this Agreement; provided that no Default or Unmatured
Default shall have occurred and be continuing at the time of such replacement;
and provided further that, concurrently with such replacement, (i) another bank
or other entity which is reasonably satisfactory to the Borrower and the Agent
shall agree, as of such date, to purchase for cash the Advances and other
Obligations due to the Affected Lender pursuant to an Assignment Agreement and
to become a Lender for all purposes under this Agreement and to assume all
obligations of the Affected Lender to be terminated as of such date and to
comply with the requirements of Section 12.03 applicable to assignments, and
(ii) the Borrower shall pay to such
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Affected Lender in same day funds on the day of such replacement all interest,
fees and other amounts then accrued but unpaid to such Affected Lender by the
Borrower hereunder to and including the date of termination, including without
limitation payments due to such Affected Lender under Sections 3.01, 3.02 and
3.05. Nothing herein shall be deemed to relieve any Lender or the Borrower, as
the case may be, from its obligations hereunder or to prejudice any rights any
party hereto may have against such Lender or Borrower as a result of any default
by such Lender or Borrower, respectively.
ARTICLE III
CHANGE IN CIRCUMSTANCES
3.01. Yield Protection. On or after the date hereof, if the adoption of
any law or any governmental or quasi-governmental rule, regulation, policy,
guideline or directive (whether or not having the force of law), or any change
after the date hereof in the interpretation or administration thereof by any
governmental or quasi-governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or after the date
hereof compliance by any Lender or applicable Lending Installation or the LC
Issuer with any request or directive (whether or not having the force of law) of
any such authority, central bank or comparable agency:
(i) subjects any Lender or any applicable Lending Installation or
the LC Issuer to any Taxes, or changes the basis of taxation
of payments (other than with respect to Excluded Taxes) to any
Lender or the LC Issuer in respect of its Eurodollar Loans,
Facility LCs or participations therein, or
(ii) imposes or increases or deems applicable any reserve,
assessment, insurance charge, special deposit or similar
requirement against assets of, deposits with or for the
account of, or credit extended by, any Lender or any
applicable Lending Installation or the LC Issuer (other than
reserves and assessments taken into account in determining the
interest rate applicable to Eurodollar Advances), or
(iii) imposes any other condition the result of which is to increase
the cost to any Lender or any applicable Lending Installation
or the LC Issuer of making, funding or maintaining its
Eurodollar Loans, or of issuing or participating in Facility
LCs or reduces any amount receivable by any Lender or any
applicable Lending Installation or the LC Issuer in connection
with its Eurodollar Loans, Facility LCs or participations
therein, or requires any Lender or any applicable Lending
Installation or the LC Issuer to make any payment calculated
by reference to the amount of Eurodollar Loans, Facility LCs
or participations therein held or interest or LC Fees received
by it, by an amount deemed material by such Lender or the LC
Issuer, as the case may be;
and the result of any of the foregoing is to increase the cost to such Lender or
applicable Lending Installation or the LC Issuer, as the case may be, of making
or maintaining its Eurodollar Loans or Commitment, or of issuing or
participating in Facility LCs or to reduce the return received by such
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Lender or applicable Lending Installation or the LC Issuer, as the case may be,
in connection with such Eurodollar Loans, Commitment, Facility LCs or
participations therein, then, within (5) five Business Days of demand by such
Lender or the LC Issuer, the Borrower shall pay such Lender or LC Issuer, as the
case may be, such additional amount or amounts as will compensate such Lender or
the LC Issuer, for such increased cost or reduction in amount received. A
certificate of the Lender (i) stating that the compensation sought to be
recovered hereunder is generally being charged to other customers of such Lender
and (ii) setting forth in reasonable detail such amount or amounts as shall be
necessary to compensate to such Letter for any of the foregoing, shall be
conclusive absent manifest error. The Borrower shall not be obligated to pay
reimbursement compensation to any Lender for additional costs under this Section
3.01 incurred or accrued more than two hundred seventy (270) days prior to the
date that such Lender or the Agent notifies the Borrower thereof.
3.02. Changes in Capital Adequacy Regulations. If a Lender or the LC
Issuer determines the amount of capital required or expected to be maintained by
such Lender or the LC Issuer, any Lending Installation of such Lender or the LC
Issuer or any corporation controlling such Lender or the LC Issuer is increased
as a result of a Change (defined below), then, within (5) Business Days of
demand by such Lender or the LC Issuer, the Borrower shall pay such Lender or
the LC Issuer the amount necessary to compensate for any shortfall in the rate
of return on the portion of such increased capital which such Lender or the LC
Issuer determines is attributable to this Agreement, its Outstanding Credit
Exposure or its Commitment to make Loans and issue or participate in Facility
LCs, as the case may be, hereunder (after taking into account such Lender's or
the LC Issuer's policies as to capital adequacy). A certificate of the Lender
(i) stating that the compensation sought to be recovered hereunder is generally
being charged to other customers of such Lender and (ii) setting forth in
reasonable detail such amount or amounts as shall be necessary to compensate to
such Letter for such Change, shall be conclusive absent manifest error. The
Borrower shall not be obligated to pay reimbursement compensation to any Lender
for additional costs under this Section 3.02 incurred or accrued more than two
hundred seventy (270) days prior to the date that such Lender or the Agent
notifies the Borrower thereof. "Change" means (i) any change after the date
hereof in the Risk-Based Capital Guidelines (defined below) or (ii) any adoption
of or change in any other law, governmental or quasi-governmental rule,
regulation, policy, guideline, interpretation, or directive (whether or not
having the force of law) after the date hereof which affects the amount of
capital required or expected to be maintained by any Lender or the LC Issuer or
any Lending Installation or any corporation controlling any Lender or the LC
Issuer. "Risk-Based Capital Guidelines" means (i) the risk-based capital
guidelines in effect in the United States on the date hereof, including
transition rules, and (ii) the corresponding capital regulations promulgated by
regulatory authorities outside the United States implementing the July 1988
report of the Basle Committee on Banking Regulation and Supervisory Practices
Entitled "International Convergence of Capital Measurements and Capital
Standards," including transition rules, and any amendments to such regulations
adopted prior to the date hereof.
3.03. Availability of Types of Advances. If any Lender determines that
maintenance of its Eurodollar Loans at a suitable Lending Installation would
violate any applicable law, rule, regulation, or directive, whether or not
having the force of law, or if the Required Lenders determine that (i) deposits
of a type and maturity appropriate to match fund Eurodollar Advances are not
available or (ii) the interest rate applicable to Eurodollar Advances does not
accurately reflect the cost of
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making or maintaining Eurodollar Advances, then the Agent shall suspend the
availability of Eurodollar Advances and require any affected Eurodollar Advances
to be repaid or converted to Floating Rate Advances, subject to the payment of
any funding indemnification amounts required by Section 3.04.
3.04. Funding Indemnification. If any payment of a Eurodollar Advance
occurs on a date which is not the last day of the applicable Interest Period,
whether because of acceleration, prepayment or otherwise, or a Eurodollar
Advance is not made on the date specified by the Borrower for any reason other
than default by the Lenders, the Borrower will indemnify each Lender for any
loss in the nature of breakage costs, expense or cost incurred by it resulting
therefrom, including, without limitation, any loss, expense or cost in
liquidating or employing deposits acquired to fund or maintain such Eurodollar
Advance.
3.05. Taxes. (i) All payments by the Borrower to or for the account of
any Lender, the LC Issuer or the Agent hereunder or under any Note or Facility
LC Application shall be made free and clear of and without deduction for any and
all Taxes. If the Borrower shall be required by law to deduct any Taxes from or
in respect of any sum payable hereunder to any Lender, the LC Issuer or the
Agent, (a) the sum payable shall be increased as necessary so that after making
all required deductions (including deductions applicable to additional sums
payable under this Section 3.05) such Lender or the Agent (as the case may be)
receives an amount equal to the sum it would have received had no such
deductions been made, (b) the Borrower shall make such deductions, (c) the
Borrower shall pay the full amount deducted to the relevant authority in
accordance with applicable law and (d) the Borrower shall furnish to the Agent
the original copy of a receipt evidencing payment thereof within 30 days after
such payment is made.
(ii) In addition, the Borrower hereby agrees to pay any present or
future stamp or documentary taxes and any other excise or property taxes,
charges or similar levies which arise from any payment made hereunder or under
any Note or Facility LC Application, or from the execution or delivery of, or
otherwise with respect to, this Agreement or any Note or Facility LC Application
("Other Taxes").
(iii) The Borrower hereby agrees to indemnify the Agent, the LC Issuer
and each Lender for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed on amounts payable under this
Section 3.05) paid by the Agent, the LC Issuer or such Lender and any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto. Payments due under this indemnification shall be made within 30 days of
the date the Agent, the LC Issuer or such Lender makes demand therefor pursuant
to Section 3.06.
(iv) Each Lender that is not incorporated under the laws of the United
States of America or a state thereof (each a "Non-U.S. Lender") agrees that it
will, not less than ten (10) Business Days after the date hereof, (i) deliver to
each of the Borrower and the Agent two duly completed copies of United States
Internal Revenue Service Form 1001 or 4224, certifying in either case that such
Lender is entitled to receive payments under this Agreement without deduction or
withholding of any United States federal income taxes, and (ii) deliver to each
of the Borrower and the Agent a United States Internal Revenue Form W-8 or W-9,
as the case may be, and certify that it is entitled
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to an exemption from United States backup withholding tax. Each Non-U.S. Lender
further undertakes to deliver to each of the Borrower and the Agent (x) renewals
or additional copies of such form (or any successor form) on or before the date
that such form expires or becomes obsolete, and (y) after the occurrence of any
event requiring a change in the most recent forms so delivered by it, such
additional forms or amendments thereto as may be reasonably requested by the
Borrower or the Agent. All forms or amendments described in the preceding
sentence shall certify that such Lender is entitled to receive payments under
this Agreement without deduction or withholding of any United States federal
income taxes, unless an event (including without limitation any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from duly completing and delivering any such
form or amendment with respect to it and such Lender advises the Borrower and
the Agent that it is not capable of receiving payments without any deduction or
withholding of United States federal income tax.
(v) For any period during which a Non-U.S. Lender has failed to provide
the Borrower with an appropriate form pursuant to clause (iv), above (unless
such failure is due to a change in treaty, law or regulation, or any change in
the interpretation or administration thereof by any governmental authority,
occurring subsequent to the date on which a form originally was required to be
provided), such Non-U.S. Lender shall not be entitled to indemnification under
this Section 3.05 with respect to Taxes imposed by the United States; provided
that, should a Non-U.S. Lender which is otherwise exempt from or subject to a
reduced rate of withholding tax become subject to Taxes because of its failure
to deliver a form required under clause (iv), above, the Borrower shall take
such steps as such Non-U.S. Lender shall reasonably request to assist such
Non-U.S. Lender to recover such Taxes.
(vi) Any Lender that is entitled to an exemption from or reduction of
withholding tax with respect to payments under this Agreement or any Note
pursuant to the law of any relevant jurisdiction or any treaty shall deliver to
the Borrower (with a copy to the Agent), at the time or times prescribed by
applicable law, such properly completed and executed documentation prescribed by
applicable law as will permit such payments to be made without withholding or at
a reduced rate.
(vii) If the U.S. Internal Revenue Service or any other governmental
authority of the United States or any other country or any political subdivision
thereof asserts a claim that the Agent did not properly withhold tax from
amounts paid to or for the account of any Lender (because the appropriate form
was not delivered or properly completed, because such Lender failed to notify
the Agent of a change in circumstances which rendered its exemption from
withholding ineffective, or for any other reason), such Lender shall indemnify
the Agent fully for all amounts paid, directly or indirectly, by the Agent as
tax, withholding therefor, or otherwise, including penalties and interest, and
including taxes imposed by any jurisdiction on amounts payable to the Agent
under this subsection, together with all costs and expenses related thereto
(including attorneys fees and time charges of attorneys for the Agent, which
attorneys may be employees of the Agent). The obligations of the Lenders under
this Section 3.05(vii) shall survive the payment of the Obligations and
termination of this Agreement.
3.06. Lender Statements; Survival of Indemnity. To the extent
reasonably possible, each Lender shall designate an alternate Lending
Installation with respect to its Eurodollar Loans to
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reduce any liability of the Borrower to such Lender under Sections 3.01, 3.02
and 3.05 or to avoid the unavailability of Eurodollar Advances under Section
3.03, so long as such designation is not, in the judgment of such Lender,
disadvantageous to such Lender. Each Lender shall deliver a written statement of
such Lender to the Borrower (with a copy to the Agent) as to the amount due, if
any, under Section 3.01, 3.02, 3.04 or 3.05. Such written statement shall set
forth in reasonable detail the calculations upon which such Lender determined
such amount and shall be final, conclusive and binding on the Borrower in the
absence of manifest error. Determination of amounts payable under such Sections
in connection with a Eurodollar Loan shall be calculated as though each Lender
funded its Eurodollar Loan through the purchase of a deposit of the type and
maturity corresponding to the deposit used as a reference in determining the
Eurodollar Rate applicable to such Loan, whether in fact that is the case or
not. Unless otherwise provided herein, the amount specified in the written
statement of any Lender shall be payable on demand after receipt by the Borrower
of such written statement. The obligations of the Borrower under Sections 3.01,
3.02, 3.04 and 3.05 shall survive payment of the Obligations and termination of
this Agreement.
ARTICLE IV
CONDITIONS PRECEDENT
4.01. Initial Credit Extension. The obligation of each Lender to make
its initial Credit Extension hereunder is subject to the conditions that such
Credit Extension occurs on or before May 31, 1999 and that the Borrower has
furnished to the Agent with sufficient copies for the Lenders, each dated the
date hereof and in form and substance satisfactory to the Agent, the following:
(i) This Agreement duly executed by the Borrower, the Lenders and
the Agent.
(ii) Any Notes requested by a Lender pursuant to Section 2.14
payable to the order of each such requesting Lender in the
face amount of the Commitment of such Lender.
(iii) The Guaranties, each one duly executed by the respective
Guarantors, together with a solvency certificate duly executed
by the Borrower and the respective Guarantors.
(iv) The Security Agreements, each one duly executed by the
respective Pledgors or the Borrower.
(v) The Stock Pledge Agreement, duly executed by Borrower together
with the stock certificates and instruments described in the
schedules thereto endorsed in blank (or in the case of stock
certificates, accompanied by appropriate stock powers).
(vi) The Note Pledge Agreements duly executed by Borrower, together
with the intercompany promissory notes and other instruments
described in the schedules thereto, in each case duly endorsed
to the order of the Agent.
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(vii) Copies of the certificate of incorporation of the Borrower,
together with all amendments, and certificates of existence
and good standing, each certified by the appropriate
governmental officer in its jurisdiction of incorporation.
(viii) A certificate of the Secretary of the Borrower certifying (a)
copies of the resolutions of the Board of Directors or the
Borrower approving this Agreement, the Notes, the Collateral
Documents of the Borrower and the other Loan Documents of the
Borrower and of all documents evidencing other necessary
corporate action and governmental approvals, if any, with
respect to the foregoing; and (b) that attached thereto are
true and complete copies of the by-laws of the Borrower.
(ix) An incumbency certificate, executed by the Secretary of the
Borrower, which shall identify by name and title and bear the
signatures of Authorized Officers and any other officers of
the Borrower authorized to sign the Loan Documents to which
the Borrower is a party, upon which certificate the Agent and
the Lenders shall be entitled to rely until informed of any
change in writing by the Borrower.
(x) Copies of the articles or certificate of incorporation of each
Obligor (other than the Borrower), together with all
amendments, and certificates of existence and good standing,
each certified by the appropriate governmental officer in its
jurisdiction of incorporation.
(xi) A certificate of the Secretary of each Obligor (other than the
Borrower) certifying (a) copies of the resolutions of the
Board of Directors or such Obligor approving the Loan
Documents of such Obligor and of all documents evidencing
other necessary corporate action and governmental approvals,
if any, with respect to the foregoing; and (b) that attached
thereto are true and complete copies of the by-laws of such
Obligor.
(xii) An incumbency certificate for each Obligor (other than the
Borrower), executed by the Secretary of such Obligor, which
shall identify by name and title and bear the signatures of
officers of such Obligor authorized to sign the Loan Documents
to which such Obligor is a party, upon which certificate the
Agent and the Lenders shall be entitled to rely until informed
of any change in writing by such Obligor.
(xiii) A certificate, signed by the chief financial officer of the
Borrower, (a) stating that on the initial Credit Extension
Date no Default or Unmatured Default has occurred and is
continuing, and (b) indicating that after giving effect to
this Agreement and the other Loan Documents and to the
Acquisitions of the Founding Companies, the Borrower and each
Obligor is solvent and is able to pay its debts and
liabilities as they become due and will not be left with
unreasonably small capital with which to engage in its
respective business.
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(xiv) A written opinion of Andrews & Kurth LLP, counsel to the
Borrower and the other Obligors, addressed to the Agent and
the Lenders in substantially the form of Exhibit K.
(xv) Written money transfer instructions, in substantially the form
of Exhibit E, addressed to the Agent and signed by an
Authorized Officer, together with such other related money
transfer authorizations as the Agent may have reasonably
requested.
(xvi) A certificate of an Authorized Officer certifying that
attached thereto are true, correct and complete copies of the
acquisition agreements for the Acquisitions of the Founding
Companies, each of which must be on terms and conditions
acceptable to the Agent and the Lenders and as described in
the Private Placement Memorandum.
(xvii) Evidence of the consummation (including without limitation,
that all necessary corporate, regulatory and legal appprovals
have been obtained) of the Acquisition of each Founding
Company.
(xviii) Evidence of the issuance of (a) approximately $5,765,000 of
the Subordinated Seller Notes, (b) approximately $3,801,000 of
the Sponsored Subordinated Notes, and (c) approximately
$13,635,000 of Borrower Preferred Stock issued to certain
shareholders of Christianson and (d) not less than $30,000,000
under the Subordinated Bridge Facility, in each case prior to
or substantially concurrent with the initial Credit Extension
hereunder and as presented in Case 2.4.
(xix) Evidence that upon the consummation of the Acquisitions of the
Founding Companies the Available Aggregate Commitment shall be
at least $20,000,000.
(xx) Fully completed questionnaire with respect to Year 2000 Issues
and related information satisfactory to the Agent and the
Required Lenders regarding the Borrower's Year 2000 Program.
(xxi) If the initial Credit Extension will be or will include the
issuance of a Facility LC, a properly completed Facility LC
Application.
(xxii) An insurance binder evidencing appropriate liability and
casualty insurance for the Borrower and each of the Founding
Companies.
(xxiii) Evidence of payment of fees owing to the Lenders.
(xxiv) Such other documents as any Lender or its counsel may
reasonably request.
4.02. Each Credit Extension. The obligation of each Lender or the LC
Issuer to make any Credit Extension hereunder is subject to the further
condition precedent that upon the effectiveness of the proposed Credit
Extension, the following statements shall be true and correct):
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(i) There exists no Default or Unmatured Default, and no Default or
Unmatured Default would result from the proposed Credit Extension or the
application of proceeds therefrom.
(ii) The representations and warranties contained in Article V are true
and correct as of such Credit Extension Date except to the extent any such
representation or warranty is stated to relate solely to an earlier date, in
which case such representation or warranty shall have been true and correct on
and as of such earlier date.
Each Borrowing Notice, Conversion/Continuation Note, or request for the
issuance or Modification of a Facility LC with respect to each such Credit
Extension shall constitute a representation and warranty by the Borrower that
the conditions contained in Sections 4.02(i) and 4.02(ii) have been satisfied as
of the applicable Credit Extension Date.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
In order to induce the Agent and the Lenders to enter into this
Agreement and to make the Advances provided for herein, the Borrower for itself
and each of its Subsidiaries (including, on the Founding Company Acquisition
Date, each Founding Company as if it were already acquired), on or as of the
occurrence of each Credit Extension (except to the extent such representation or
warranty expressly relate to an earlier date), represents and warrants to the
Agent and the Lenders that:
5.01. Existence and Standing. Each of the Borrower and its Subsidiaries
is a corporation, partnership (in the case of Subsidiaries only) or limited
liability company duly and properly incorporated or organized, as the case may
be, validly existing and (to the extent such concept applies to such entity) in
good standing under the laws of its jurisdiction of incorporation or
organization and has all requisite authority to conduct its business in each
jurisdiction in which its business is conducted.
5.02. Authorization and Validity. The Borrower has the power and
authority and legal right to execute and deliver the Loan Documents to which it
is a party and to perform its obligations thereunder. The execution and delivery
by the Borrower of the Loan Documents to which it is a party and the performance
of its obligations thereunder have been duly authorized by proper corporate
proceedings, and the Loan Documents to which the Borrower is a party constitute
legal, valid and binding obligations of the Borrower enforceable against the
Borrower in accordance with their terms, except as enforceability may be limited
by bankruptcy, insolvency or similar laws affecting the enforcement of
creditors' rights generally.
5.03. No Conflict; Government Consent. Neither the execution and
delivery by the Borrower of the Loan Documents to which it is a party, nor the
consummation of the transactions therein contemplated, nor compliance with the
provisions thereof will violate (i) any law, rule, regulation, order, writ,
judgment, injunction, decree or award binding on the Borrower or any of its
Subsidiaries or (ii) the Borrower's or any Subsidiary's articles or certificate
of incorporation, partnership agreement, certificate of partnership, articles or
certificate of organization, by-laws, or
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operating or other management agreement, as the case may be, or (iii) the
provisions of any indenture, instrument or agreement to which the Borrower or
any of its Subsidiaries is a party or is subject, or by which it, or its
Property, is bound, or conflict with or constitute a default thereunder, or
result in, or require, the creation or imposition of any Lien in, of or on the
Property of the Borrower or any of its Subsidiaries pursuant to the terms of any
such indenture, instrument or agreement. No order, consent, adjudication,
approval, license, authorization, or validation of, or filing, recording or
registration with, or exemption by, or other action in respect of any
governmental or public body or authority, or any subdivision thereof, which has
not been obtained by the Borrower or any of its Subsidiaries, is required to be
obtained by the Borrower or any of its Subsidiaries in connection with the
execution and delivery of the Loan Documents, the borrowings under this
Agreement, the payment and performance by the Borrower of the Obligations or the
legality, validity, binding effect or enforceability of any of the Loan
Documents.
5.04. Financial Statements. The consolidated financial statements of
the Borrower and its Subsidiaries heretofore delivered to the Lenders were
prepared in accordance with generally accepted accounting principles in effect
on the date such statements were prepared and fairly present the consolidated
financial condition and operations of the Borrower and its Subsidiaries at such
date and the consolidated results of their operations for the period then ended.
5.05. Material Adverse Change. Since September 30, 1998 there has been
no change in the business, Property, operations, performance, condition
(financial or otherwise) or results of operations of the Borrower and its
Subsidiaries which could have a Material Adverse Effect.
5.06. Taxes. The Borrower and its Subsidiaries have filed all United
States federal tax returns and all other tax returns which are required to be
filed and have paid all taxes due pursuant to said returns or pursuant to any
assessment received by the Borrower or any of its Subsidiaries, except such
taxes, if any, as are being contested in good faith and as to which adequate
reserves have been provided in accordance with GAAP and as to which no Lien
exists. No tax liens have been filed and no claims are being asserted with
respect to any such taxes. The charges, accruals and reserves on the books of
the Borrower and its Subsidiaries in respect of any taxes or other governmental
charges are adequate. If any Subsidiary of the Borrower is a limited liability
company, each such limited liability company qualifies for partnership tax
treatment under United States federal tax law.
5.07. Litigation and Contingent Obligations. There is no litigation,
arbitration, governmental investigation, proceeding or inquiry pending or, to
the knowledge of any of their officers, threatened against or affecting the
Borrower or any of its Subsidiaries which could have a Material Adverse Effect
or which seeks to prevent, enjoin or delay the making of any Credit Extension.
Other than any liability incident to any litigation, arbitration or proceeding
which could not have a Material Adverse Effect, the Borrower has no material
contingent obligations not provided for or disclosed in the financial statements
referred to in Section 5.04.
5.08. Subsidiaries. Schedule III contains an accurate list of all
Subsidiaries of the Borrower as of the date hereof, setting forth their
respective jurisdictions of organization and the percentage of their respective
capital stock or other ownership interests owned by the Borrower or other
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Subsidiaries. All of the issued and outstanding shares of capital stock or other
ownership interests of such Subsidiaries have been (to the extent such concepts
are relevant with respect to such ownership interests) duly authorized and
issued and are fully paid and non-assessable.
5.09. ERISA. To the extent that none of the following could have a
Material Adverse Effect, (i) the Unfunded Liabilities of all Single Employer
Plans are non-existent or minimal could not have a Material Adverse Effect; (ii)
neither the Borrower nor any other member of the Controlled Group has incurred,
or is expected to incur, any withdrawal liability to Multiemployer Plans; (iii)
each Plan complies in all material respects with all applicable requirements of
law and regulations, no Reportable Event has occurred with respect to any Plan,
neither the Borrower nor any other member of the Controlled Group has withdrawn
from any Plan or initiated steps to do so, and no steps have been taken to
reorganize or terminate any Plan.
5.10. Accuracy of Information. No information, exhibit or report
furnished by the Borrower or any of its Subsidiaries to the Agent or to any
Lender in connection with the negotiation of, or compliance with, the Loan
Documents contained any material misstatement of fact or omitted to state a
material fact or any fact necessary to make the statements contained therein,
together with all exhibits, reports and other information furnished to the
Borrower and its Subsidiaries to the Agent and the Lenders, taken as a whole,
not misleading.
5.11. Regulation U. Margin stock (as defined in Regulation U)
constitutes less than twenty-five percent (25%) of the value of those assets of
the Borrower and its Subsidiaries which are subject to any limitation on sale,
pledge, or other restriction hereunder.
5.12. Material Agreements. Neither the Borrower nor any Subsidiary is a
party to any agreement or instrument or subject to any charter or other
corporate restriction which could have a Material Adverse Effect. Neither the
Borrower nor any Subsidiary is in default in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in (i)
any agreement to which it is a party, which default could have a Material
Adverse Effect or (ii) any one or more agreements or instruments evidencing or
governing Material Indebtedness.
5.13. Compliance With Laws. The Borrower and its Subsidiaries have
complied with all applicable statutes, rules, regulations, orders and
restrictions of any domestic or foreign government or any instrumentality or
agency thereof having jurisdiction over the conduct of their respective
businesses or the ownership of their respective Property except for any failure
to comply with any of the foregoing which could not have a Material Adverse
Effect.
5.14. Ownership of Properties. Except as set forth on Schedule V, on
the date hereof, the Borrower and its Subsidiaries will have good title, free of
all Liens other than those permitted by Section 6.15, to all of the Property and
assets reflected in the Borrower's most recent consolidated financial statements
provided to the Agent as owned by the Borrower and its Subsidiaries.
5.15. Plan Assets; Prohibited Transactions. The Borrower is not an
entity deemed to hold "plan assets" within the meaning of 29 C.F.R. Section
2510.3-101 of an employee benefit plan (as defined in Section 3(3) of ERISA)
which is subject to Title I of ERISA or any plan (within the meaning of
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Section 4975 of the Code), "benefit plan investors" (as defined in 29 C.F.R.
Section 2510.3-101(f)) do not own twenty-five percent (25%) or more of the value
of any class of equity interests in the Borrower and neither the execution of
this Agreement nor the making of any Credit Extension hereunder gives rise to a
prohibited transaction within the meaning of Section 406 of ERISA or Section
4975 of the Code.
5.16. Environmental Matters. In the ordinary course of its business,
the officers of the Borrower consider the effect of Environmental Laws on the
business of the Borrower and its Subsidiaries, in the course of which they
identify and evaluate potential risks and liabilities accruing to the Borrower
due to Environmental Laws. On the basis of this consideration, the Borrower has
concluded that Environmental Laws do not have a Material Adverse Effect. Neither
the Borrower nor any Subsidiary has received any notice to the effect that its
operations are not in compliance with any of the requirements of applicable
Environmental Laws or are the subject of any federal or state investigation
evaluating whether any remedial action is needed to respond to a release of any
toxic or hazardous waste or substance into the environment, which non-compliance
or remedial action could have a Material Adverse Effect.
5.17. Investment Company Act. Neither the Borrower nor any Subsidiary
is an "investment company" or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended.
5.18. Public Utility Holding Company Act. Neither the Borrower nor any
Subsidiary is a "holding company" or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company", within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
5.19. Year 2000. The Borrower has made a full and complete assessment
of the Year 2000 Issues and has a realistic and achievable program for
remediating the Year 2000 Issues on a timely basis (the "Year 2000 Program").
Based on such assessment and on the Year 2000 Program the Borrower does not
reasonably anticipate that Year 2000 Issues will have a Material Adverse Effect.
5.20. Subordinated Debt. The Obligations constitute senior indebtedness
which is entitled to the benefits of the subordination provisions of all
outstanding Subordinated Debt.
5.22. Insurance. The certificate signed by the President or Chief
Financial Officer of the Borrower, that attests to the existence and adequacy
of, and summarizes, the property and casualty insurance program carried by the
Borrower with respect to itself and its Subsidiaries and that has been furnished
by the Borrower to the Agent and the Lenders, is complete and accurate. This
summary includes the insurer's or insurers' name(s), policy number(s),
expiration date(s), amount(s) of coverage, type(s) of coverage, exclusion(s),
and deductibles. This summary also includes similar information, and describes
any reserves, relating to any self-insurance program that is in effect.
5.23. Solvency. (i) Immediately after the consummation of the
transactions to occur on the date hereof and immediately following the making of
each Loan, if any, made on the date hereof and after giving effect to the
application of the proceeds of such Loans, (a) the fair value of the business
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of the Borrower and its Subsidiaries on a consolidated basis, will exceed the
debts and liabilities, subordinated, contingent or otherwise, of the Borrower
and its Subsidiaries on a consolidated basis; (b) the present fair saleable
value of the Property of the Borrower and its Subsidiaries on a consolidated
basis will be greater than the amount that will be required to pay the probable
liability of the Borrower and its Subsidiaries on a consolidated basis on their
debts and other liabilities, subordinated, contingent or otherwise, as such
debts and other liabilities become absolute and matured; (c) the Borrower and
its Subsidiaries on a consolidated basis expect to be able to pay their debts
and liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured; and (d) the Borrower and its
Subsidiaries on a consolidated basis believe that it does not have unreasonably
small capital with which to conduct the businesses in which they are engaged as
such businesses are now conducted and are proposed to be conducted after the
date hereof.
(ii) The Borrower does not intend to, or to permit any of its
Subsidiaries to, and does not believe that it or any of its Subsidiaries will,
incur debts beyond its ability to pay such debts as they mature, taking into
account the timing of and amounts of cash to be received by it or any such
Subsidiary and the timing of the amounts of cash to be payable on or in respect
of its Indebtedness or the Indebtedness of any such Subsidiary.
5.24. General Purpose of Facility. The Borrower warrants and represents
to the Agent the LC Issuer and the Lenders and all other future owners and
holders of this Agreement, the Notes and the other Loan Documents, that all
Credit Extensions are and will be for business, commercial, investment or other
similar purpose and not primarily for personal, family, household or
agricultural use, as such terms are used in Chapter 1D or in the Texas Finance
Code.
ARTICLE VI
COVENANTS
So long as any Reimbursement Obligation or any other amount payable by
the Borrower hereunder or under any Note shall remain unpaid or any Lender shall
have any obligation to lend hereunder, and until all of the Commitments and all
of the Letters of Credit are terminated, unless the Required Lenders shall
otherwise consent in writing:
6.01. Financial and Other Reporting. The Borrower will maintain, for
itself and each Subsidiary, a system of accounting established and administered
in accordance with generally accepted accounting principles, and furnish to the
Lenders:
(i) Within ninety (90) days after the close of each of its fiscal
years, an unqualified audit report certified by independent certified public
accountants acceptable to the Lenders, prepared in accordance with GAAP on a
consolidated and consolidating basis (consolidating statements need not be
certified by such accountants) for itself and its Subsidiaries, including
balance sheets as of the end of such period, related profit and loss and
reconciliation of surplus statements, and a statement of cash flows, accompanied
by (a) any management letter prepared by said accountants, and (b) a certificate
of said accountants that, in the course of their examination necessary for their
certification
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of the foregoing, they have obtained no knowledge of any Default or Unmatured
Default, or if, in the opinion of such accountants, any Default or Unmatured
Default shall exist, stating the nature and status thereof.
(ii) Within forty-five (45) days after the close of the first three
quarterly periods of each of its fiscal years, for itself and its Subsidiaries,
consolidated and consolidating unaudited balance sheets as at the close of each
such period and consolidated and consolidating profit and loss and
reconciliation of surplus statements and a statement of cash flows for the
period from the beginning of such fiscal year to the end of such quarter, all
certified by its chief financial officer.
(iii) As soon as available, but in any event within ninety (90) days
after the beginning of each fiscal year of the Borrower, a copy of the plan and
forecast (including a projected consolidated and consolidating balance sheet,
income statement and funds flow statement) of the Borrower for such fiscal year.
(iv) Together with the financial statements required under Sections
6.01(i) and 6.01(ii), a compliance certificate in substantially the form of
Exhibit D signed by an Authorized Officer of the Borrower showing the
calculations necessary to determine compliance with this Agreement and stating
that no Default or Unmatured Default exists, or if any Default or Unmatured
Default exists, stating the nature and status thereof.
(v) Within 270 days after the close of each fiscal year, a statement of
the Unfunded Liabilities of each Single Employer Plan, certified as correct by
an actuary enrolled under ERISA.
(vi) As soon as possible and in any event within five (5) Business Days
after the Borrower knows that any Reportable Event has occurred with respect to
any Plan, a statement, signed by the chief financial officer of the Borrower,
describing said Reportable Event and the action which the Borrower proposes to
take with respect thereto.
(vii) As soon as possible and in any event within five (5) Business
Days after receipt by the Borrower, a copy of (a) any notice or claim to the
effect that the Borrower or any of its Subsidiaries is or may be liable to any
Person as a result of the release by the Borrower, any of its Subsidiaries, or
any other Person of any toxic or hazardous waste or substance into the
environment, and (b) any notice alleging any violation of any federal, state or
local environmental, health or safety law or regulation by the Borrower or any
of its Subsidiaries, which, in either case, could have a Material Adverse
Effect.
(viii) Promptly upon the filing thereof, copies of all registration
statements and annual, quarterly, monthly or other regular reports which the
Borrower or any of its Subsidiaries files with the Securities and Exchange
Commission.
(ix) Such other information (including non-financial information) of
the Borrower or any of its Subsidiaries as the Agent or any Lender may from time
to time reasonably request.
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6.02. Use of Proceeds. The Borrower will, and will cause each
Subsidiary to, use the proceeds of the Credit Extension for general corporate
purposes and, for Permitted Acquisitions and for intercompany loans to increase
the working capital of any Subsidiary of the Borrower that is an Obligor. The
Borrower will not, nor will it permit any Subsidiary to, use any of the proceeds
of the Advances (i) to purchase or carry any "margin stock" (as defined in
Regulation U) or to extend credit to any Person for that purpose or (ii) in any
manner which violates or results in a violation of any law or regulation,
including without limitation, any regulation of the Board of Governors of the
Federal Reserve System or the Securities Exchange Act of 1934, in each case as
now or hereafter in effect.
6.03. Notice of Default. The Borrower will, and will cause each
Subsidiary to, give prompt notice in writing to the Agent of the occurrence of
any Default or Unmatured Default, and (ii) of any development, financial or
otherwise (including, without limitation, developments with respect to Year 2000
Issues) which could have a Material Adverse Effect.
6.04. Conduct of Business. The Borrower will, and will cause each
Subsidiary to, (i) carry on and conduct its business in substantially the same
manner and in substantially the same fields of enterprise as it is presently
conducted and do all things necessary to remain duly incorporated or organized,
validly existing and (to the extent such concept applies to such entity) in good
standing as a domestic corporation, partnership or limited liability company in
its jurisdiction of incorporation or organization, as the case may be and, (ii)
except where the failure to do so could have a Material Adverse Effect, maintain
all requisite authority to conduct its business in each jurisdiction in which
its business is conducted.
6.05. Taxes. The Borrower will, and will cause each Subsidiary to,
timely file complete and correct United States federal and applicable foreign,
state and local tax returns required by law and pay when due all taxes,
assessments and governmental charges and levies upon it or its income, profits
or Property, except those which are being contested in good faith by appropriate
proceedings and with respect to which adequate reserves have been set aside in
accordance with GAAP. At any time that any Subsidiary of the Borrower is
organized as a limited liability company, each such limited liability company
will qualify for partnership tax treatment under United States federal tax law.
6.06. Insurance. The Borrower will, and will cause each Subsidiary to,
maintain with financially sound and reputable insurance companies insurance on
substantially all their Property in such amounts and covering such risks as is
consistent with sound business practice, and the Borrower will furnish to any
Lender upon request full information as to the insurance carried.
6.07. Compliance with Laws. The Borrower will, and will cause each
Subsidiary to, comply with all laws, rules, regulations, orders, writs,
judgments, injunctions, decrees or awards to which it may be subject which could
have a Material Effect including, without limitation, all Environmental Laws.
6.08. Maintenance of Properties. The Borrower will, and will cause each
Subsidiary to, do all things necessary to maintain, preserve, protect and keep
substantially all of its Property in good repair, working order and condition,
and make all necessary and proper repairs, renewals and
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replacements so that its business carried on in connection therewith may, in all
material respect, be properly conducted at all times.
6.09. Inspection. The Borrower will, and will cause each Subsidiary to,
permit the Agent and the Lenders, by their respective representatives and
agents, to inspect any of the Property, books and financial records of the
Borrower and each Subsidiary, to examine and make copies of the books of
accounts and other financial records of the Borrower and each Subsidiary, and
upon reasonable prior notice to discuss the affairs, finances and accounts of
the Borrower and each Subsidiary with, and to be advised as to the same by,
their respective officers at such times during normal business hours and
intervals as the Agent or any Lender may designate.
6.10. Dividends. The Borrower will not, nor will it permit any
Subsidiary to, declare or pay any dividends or make any Distribution on its
Capital Stock (other than dividends payable in its own Capital Stock) or redeem,
repurchase or otherwise acquire or retire any of its Capital Stock at any time
outstanding, except that (i) any Subsidiary of the Borrower may declare and pay
dividends and make Distributions (a) to a Wholly-Owned Subsidiary of the
Borrower that is a Guarantor if no Default or Unmatured Default would result
from such declaration, payment or making, or (b) to the Borrower, and (ii) the
Borrower (x) may declare and pay dividends on Borrower Preferred Stock to the
holders thereof if no Default or Unmatured Default exists at the time of such
declaration or payment and if no Default or Unmatured Default would result from
such declaration or payment or (y) may make Distributions in the manner
expressly specified in clause (ii) and (iii) of Section 2.02.
6.11. Indebtedness. The Borrower will not, nor will it permit any
Subsidiary to, create, incur or suffer to exist any Indebtedness, except:
(i) the Loans, the Reimbursement Obligations and other
Indebtedness arising under this Agreement and the Loan
Documents.
(ii) current liabilities incurred in the ordinary course of
business.
(iii) trade payables in the ordinary course of business.
(iv) Subordinated Debt.
(iii) Indebtedness arising under Related Rate Hedging Agreements.
(v) (a) Indebtedness arising out of Capitalized Leases, (b)
purchase money Indebtedness representing the portion of the
purchase price of Property acquired by the Borrower or such
Subsidiary which may be secured by Liens permitted by Section
6.15(vii), (c) Indebtedness assumed by the Borrower in
connection with a Permitted Acquisition and (d) unsecured
Indebtedness, in the aggregate for clauses (a) through (d),
inclusive, of this Section 6.11(v), of $5,000,000 in the
aggregate outstanding at any time.
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(vi) Indebtedness not exceeding $5,000,000 in the aggregate at any
time acquired in Permitted Acquisition and released within 30
days from the close of Acquisition in which such Indebtedness
was acquired.
6.12. Merger. The Borrower will not, nor will it permit any Subsidiary
to, merge or consolidate with or into any other Person, or sell, convey,
transfer, lease or otherwise dispose of (whether in one transaction or in a
series of transaction) all or substantially all of its assets (whether now owned
or hereafter acquired), except that (i) a Subsidiary may merge into the Borrower
or a Wholly-Owned Subsidiary and (ii) the Target of the Permitted Acquisition
may merge into a Wholly-Owned Subsidiary, in each case if immediately prior to
and after giving effect to such merger no event has occurred and is continuing,
or would result, which constitutes a Default or Unmatured Default.
6.13. Sale of Assets. The Borrower will not, nor will it permit any
Subsidiary to, lease, sell or otherwise dispose of its Property to any other
Person, except:
(i) Sales of inventory in the ordinary course of business.
(ii) Sales of worn-out or obsolete equipment in the normal
course of business, if no Default exists at the time of such sale
(iii) Replacement of equipment in the normal course of
business with other equipment at least as useful and beneficial to the
Borrower and its Subsidiaries and their respective businesses as the
equipment replaced if no Default exists at the time of such replacement
and an Acceptable Security Interest exists in such other equipment at
the time of and at all times after such replacement,
(iv) Leases, sales or other dispositions of its Property that
does not exceed $100,000 for any single item of such Property, together
with all other Property of the Borrower and its Subsidiaries previously
leased, sold or disposed of (other than Property described in clauses
(i) through (iii) of this Section 6.13 during the twelve-month period
ending with the month in which any such lease, sale or other
disposition occurs, do not aggregate $100,000 during any single
calendar year.
6.14. Investments and Acquisitions. The Borrower will not, nor will it
permit any Subsidiary to, make or suffer to exist any Investments (including
without limitation, loans and advances to, and other Investments in,
Subsidiaries), or commitments therefor, or to create any Subsidiary or to become
or remain a partner in any partnership or joint venture, or to make any
Acquisition of any Person, except (i) Cash Equivalent Investments, (ii) existing
Investments in Subsidiaries and other Investments in existence on the date
hereof and described in Schedule III, (iii) Wholly-Owned Subsidiaries in
compliance with Section 6.19, and (iv) Permitted Acquisitions not described on
Schedule III.
6.15. Liens. The Borrower will not, nor will it permit any Subsidiary
to, create, incur, or suffer to exist any Lien in, of or on the Property of the
Borrower or any of its Subsidiaries, except:
(i) Liens for taxes, assessments or governmental charges or
levies on its Property if the same shall not at the time be delinquent
or thereafter can be paid without penalty, or
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are being contested in good faith and by appropriate proceedings and
for which adequate reserves in accordance with GAAP shall have been set
aside on its books.
(ii) Liens imposed by law, such as carriers', warehousemen's
and mechanics' liens and other similar liens arising in the ordinary
course of business which secure payment of obligations not more than 60
days past due or which are being contested in good faith by appropriate
proceedings and for which adequate reserves shall have been set aside
on its books.
(iii) Liens arising out of pledges or deposits under worker's
compensation laws, unemployment insurance, old age pensions, or other
social security or retirement benefits, or similar legislation.
(iv) Rights of set off arising under common law or by statute.
(v) Utility easements, building restrictions and such other
encumbrances or charges against real property as are of a nature
generally existing with respect to properties of a similar character
and which do not in any material way affect the marketability of the
same or interfere with the use thereof in the business of the Borrower
or its Subsidiaries.
(vi) Liens existing on the date hereof and listed on Schedule
V and renewals and extensions thereof.
(vii) Liens securing the Indebtedness permitted by clauses
(a), (b) and (c) of Section 6.11(v) and placed on Property,
contemporaneously with the purchase thereof, by the Borrower or any of
its Subsidiaries to secure all of a portion of the purchase price
therefor, provided that such Lien shall not extent to any other
Property of the Borrower or its Subsidiaries.
(viii) Liens in favor of the Agent, for the benefit of the
Lenders, granted pursuant to any Collateral Document.
(ix) UCC protective filings with respect to personal property
permitted to be leased hereunder by the Borrower or its Subsidiaries in
the ordinary course of business.
(x) Liens securing judgments and orders which do not exceed
$1,000,000 in the aggregate at any time and which, individually or in
the aggregate, could not have a Material Adverse Effect.
6.16. Year 2000. The Borrower will take and will cause each of its
Subsidiaries to take all such actions as are reasonably necessary to
successfully implement the Year 2000 Program and to assure that Year 2000 Issues
will not have a Material Adverse Effect. At the request of the Agent or any
Lender, the Borrower will provide a description of the Year 2000 Program,
together with any updates or progress reports with respect thereto.
6.17. Sale of Accounts. The Borrower will not, nor will it permit any
Subsidiary to, sell or otherwise dispose of any notes receivable or accounts
receivable, with or without recourse.
6.18. Affiliates. The Borrower will not, and will not permit any
Subsidiary to, directly or indirectly (i) enter into any transaction (including,
without limitation, the purchase or sale of any Property or service) with, or
make any payment or transfer to, any Affiliate or (ii) make any material
arrangement or other material transaction with or for the benefit of any
Affiliate, in each case except in the ordinary course of business and pursuant
to the reasonable requirements of the Borrower's or
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such Subsidiary's business and upon fair and reasonable terms no less favorable
to the Borrower or such Subsidiary than the Borrower or such Subsidiary would
obtain in a comparable arms-length transaction with a Person not an Affiliate.
6.19. New Subsidiaries. Contemporaneously with the creation or
acquisition of any direct or indirect Subsidiary of the Borrower (a "New
Subsidiary"), the Borrower shall, or shall cause the parent of such New
Subsidiary to:
(a) grant or cause to be granted to the Agent, pursuant to
Note Pledge Agreements and Stock Pledge Agreements, an Acceptable
Security Interest in (i) all Capital Stock and other Investments in
such New Subsidiary;
(b) cause each such New Subsidiary to guaranty the payment and
performance of the Obligations by executing and delivering to the Agent
a Guaranty; and
(c) cause each such New Subsidiary to execute and deliver to
the Agent a Security Agreement and such other Collateral Documents as
the Agent may reasonably request to grant the Agent and the Lenders an
Acceptable Security Interest on all personal property of such New
Subsidiary.
6.20. Amendments to Material Agreements. The Borrower will not, and
will not permit any Subsidiary to amend, waive, terminate or otherwise modify,
or to cancel or breach any term or provision of, any Material Agreement, except
the amendment, waiver or modification of those, but only those terms and
provisions whose amendment, waiver or modification thereunder are clearly
beneficial to the Borrower and its Subsidiaries and could not have an adverse
effect on the performance of any Obligation or on any right or benefit available
to the Agent, the LC Issuer or any Lender..
6.21. Subordinated Debt. The Borrower will not, and will not permit any
Subsidiary to, make any amendment or modification to the indenture, note or
other agreement evidencing or governing any Subordinated Debt, or directly or
indirectly voluntarily prepay, defease or in substance defease, purchase,
redeem, retire or otherwise acquire, any Subordinated Debt, except (i) promptly
upon the issuance of Capital Stock, net proceeds therefrom applied as permitted
in accordance with Section 2.02(ii), (ii) promptly upon the issuance of
Permitted Senior Subordinated Debt, net proceeds therefrom applied as permitted
in accordance with Section 2.02(iii) and (iii) any amendment or modification
allowed under Section 6.20.
6.22. Sale and Leaseback Transactions and other Off-Balance Sheet
Liabilities. The Borrower will not, nor will it permit any Subsidiary to, enter
into or suffer to exist any (i) Sale and Leaseback Transaction or (ii) any other
transaction pursuant to which it incurs or has incurred Off-Balance Sheet
Liabilities, except for Related Rate Hedging Obligations.
6.23. Contingent Obligations. The Borrower will not, nor will it permit
any Subsidiary to, make or suffer to exist any Contingent Obligation (including,
without limitation, any Contingent Obligation with respect to the obligations of
a Subsidiary), except (i) by endorsement of instruments for deposit or
collection in the ordinary course of business, (ii) the Reimbursement
Obligations, (iii) each Guaranty of the Obligations, and (iv) as permitted by
Section 6.26.
6.24. Letters of Credit. The Borrower will not, nor will it permit any
Subsidiary to, apply for or become liable upon or in respect of any Letter of
Credit other than Facility LCs.
6.25. No Lien Restriction. The Borrower will not, nor will it permit
any Subsidiary to, enter into any contract or agreement which in any way limits
or restricts the Borrower or any of its
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Subsidiaries from granting an Acceptable Security Interest on any Property or
from granting a Lien on its Property to secure a Related Rate Hedging Agreement.
6.26. Financial Contracts. The Borrower will not, nor will it permit
any Subsidiary to, enter into or remain liable upon any Financial Contract,
except Rate Hedging Agreements permitted hereunder.
6.27. Financial Covenants.
6.27.01. Total Debt to EBITDA Ratio. The Borrower
will not permit the ratio, determined as of the end of each of
its fiscal quarters for the then most-recently ended four
fiscal quarters, of (i) Consolidated Funded Total Debt to (ii)
Consolidated EBITDA to be: (a) if no Permitted Senior
Subordinated Debt has been issued, greater than 3.50 to 1.0;
or (b) if any Permitted Senior Subordinated Debt has been
issued, greater than 4.00 to 1.0.
6.27.02. Senior Debt to EBITDA Ratio. The Borrower
will not permit the ratio, determined as of the end of each of
its fiscal quarters for the then most-recently ended four
fiscal quarters, of (i) Consolidated Senior Total Debt to (ii)
Consolidated EBITDA to be: (a) if no Permitted Senior
Subordinated Debt has been issued, greater than 2.75 to 1.0;
or (b) if any Permitted Senior Subordinated Debt has been
issued, greater than 2.50 to 1.0.
6.27.03. Fixed Charge Coverage Ratio. The Borrower
will not permit the ratio, determined as of the end of each of
its fiscal quarters for the then most-recently ended four
fiscal quarters, of (i) Consolidated EBITDA minus the sum of
Consolidated Cash Taxes and Consolidated Capital Expenditures,
to (ii) Consolidated Cash Interest Expense, plus current
maturities of principal Indebtedness, plus Scheduled Preferred
Dividend Payments, plus one seventh (1/7th) of the Aggregate
Outstanding Credit Exposure, all calculated for the Borrower
and its Subsidiaries on a consolidated basis, to be: (i) on or
before December 31, 1999, less than 1.0 to 1.0; (ii) after
December 31, 1999 and on or before December 31, 2000, less
than 1.15 to 1.0; and (iii) after December 31, 2000, less than
1.25 to 1.0.
6.27.04. Minimum Net Worth. The Borrower will at all
times maintain Consolidated Net Worth of not less than the sum
of (i) $[ ] plus (ii) the amount of net change (if such net
change is an increase), or minus the amount of net change (if
such net change is a decrease), in assets and liabilities
resulting from the final allocation of the purchase price for
the Acquisitions of the Founding Companies (such final
allocation to be made by the Borrower's auditors no later than
120 days after the Founding Company Acquisition Date), plus
(iii) seventy-five percent (75%) of Consolidated Net Income
earned in each fiscal quarter beginning with the quarter
ending June 30, 1999 (without deduction for losses) plus (iv)
one hundred percent (100%) of the net proceeds realized from
each sale of any common stock, preferred stock or other equity
(other than the sale of equity with the Acquisitions of the
Founding Companies) of the Borrower and any of its
Subsidiaries.
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ARTICLE VII
DEFAULTS
The occurrence of any one or more of the following events shall
constitute a Default:
7.01. Misrepresentation. Any representation or warranty made or deemed
made by or on behalf of the Borrower or any of its Subsidiaries to the Lenders,
the LC Issuer or the Agent under or in connection with this Agreement, any
Credit Extension, or any certificate or information delivered in connection with
this Agreement or any other Loan Document shall be false in any material respect
on the date as of which made.
7.02. Nonpayment of Obligations. Nonpayment of principal of any Loan
when due, nonpayment of any Reimbursement Obligation within one (1) Business Day
after the same becomes due, or nonpayment of interest upon any Loan or of any
commitment fee, LC Fee or other obligations under any of the Loan Documents
within five days after the same becomes due.
7.03. Certain Covenants. The breach by the Borrower of any of the terms
or provisions either of Section 6.02, or any of Sections 6.10 through 6.27,
inclusive.
7.04. Other Breach. The breach by the Borrower (other than a breach
which constitutes a Default under another Section of this Article VII) of any of
the terms or provisions of this Agreement which is not remedied within thirty
(30) days after written notice from the Agent or any Lender.
7.05. Other Indebtedness. Failure of the Borrower or any of its
Subsidiaries, or any Obligor to pay when due any Indebtedness aggregating in
excess of $1,000,000 ("Material Indebtedness"); or the default by the Borrower
or any of its Subsidiaries or any Obligor in the performance of any term,
provision or condition contained in any agreement under which any such Material
Indebtedness was created or is governed, or any other event shall occur or
condition exist, the effect of which default or event is to cause, or to permit
the holder or holders of such Material Indebtedness to cause, such Material
Indebtedness to become due prior to its stated maturity; or any Material
Indebtedness of the Borrower or any of its Subsidiaries or any Obligor shall
become due and payable or required to be prepaid or repurchased (other than by a
regularly scheduled payment) prior to the stated maturity thereof; or the
Borrower or any of its Subsidiaries or any Obligor shall not pay, or admit in
writing its inability to pay, its debts generally as they become due.
7.06. Bankruptcy, Reorganization, etc. The Borrower or any of its
Subsidiaries or any Obligor shall (i) have an order for relief entered with
respect to it under the Federal bankruptcy laws as now or hereafter in effect,
(ii) make an assignment for the benefit of creditors, (iii) apply for, seek,
consent to, or acquiesce in, the appointment of a receiver, custodian, trustee,
examiner, liquidator or similar official for it or any Property with an
aggregate value not exceeding $1,000,000, (iv) institute any proceeding seeking
an order for relief under the Federal bankruptcy laws as now or hereafter in
effect or seeking to adjudicate it a bankrupt or insolvent, or seeking
dissolution, winding up, liquidation, reorganization, arrangement, adjustment or
composition of it or its debts under any law relating to bankruptcy, insolvency
or reorganization or relief of debtors or fail to file an answer or other
pleading denying the material allegations of any such proceeding filed against
it, (v) take any corporate or partnership action to authorize or effect any of
the foregoing actions set forth in this Section 7.06 or (vi) fail to contest in
good faith any appointment or proceeding described in Section 7.07.
7.07. Appointment of Receiver. Without the application, approval or
consent of the Borrower, any of its Subsidiaries or any Obligor, a receiver,
trustee, examiner, liquidator or similar official shall be appointed for the
Borrower, any of its Subsidiaries or any Obligor or any Property with an
aggregate value exceeding $1,000,000, or a proceeding described in Section
7.06(iv) shall
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be instituted against the Borrower, any of its Subsidiaries or any Obligor and
such appointment continues undischarged or such proceeding continues undismissed
or unstayed for a period of 60 consecutive days.
7.08. Seizure of Property. Any court, government or governmental
agency shall condemn, seize or otherwise appropriate, or take custody or control
of, all or any portion of the Property of the Borrower and its Subsidiaries or
any Obligor which, when taken together with all other Property of the Borrower
and its Subsidiaries or any Obligor so condemned, seized, appropriated, or taken
custody or control of, during the twelve-month period ending with the month in
which any such action occurs, has an aggregate value in excess of $1,000,000.
7.09. Judgment. The Borrower or any of its Subsidiaries shall fail
within 30 days to pay, bond or otherwise discharge one or more (i) judgments or
orders for the payment of money in excess of $1,000,000 (or the equivalent
thereof in currencies other than U.S. Dollars) in the aggregate, or (ii)
nonmonetary judgments or orders which, individually or in the aggregate, could
have a Material Adverse Effect, which judgment(s), in any such case, is/are not
stayed on appeal or otherwise being appropriately contested in good faith.
7.10. Excessive Unfunded ERISA Liabilities. The Unfunded Liabilities of
all Single Employer Plans shall exceed in the aggregate $1,000,000 or any
Reportable Event which could have a Material Adverse Effect shall occur in
connection with any Plan.
7.11. Withdrawal Liability. The Borrower or any other member of the
Controlled Group shall have been notified by the sponsor of a Multiemployer Plan
that it has incurred withdrawal liability to such Multiemployer Plan in an
amount which, when aggregated with all other amounts required to be paid to
Multiemployer Plans by the Borrower or any other member of the Controlled Group
as withdrawal liability (determined as of the date of such notification),
exceeds $1,000,000 or could have a Material Adverse Effect.
7.12. Reorganization of Multiemployer Plan. The Borrower or any other
member of the Controlled Group shall have been notified by the sponsor of a
Multiemployer Plan that such Multiemployer Plan is in reorganization or is being
terminated, within the meaning of Title IV of ERISA, if as a result of such
reorganization or termination (i) the aggregate annual contributions of the
Borrower and the other members of the Controlled Group (taken as a whole) to all
Multiemployer Plans which are then in reorganization or being terminated have
been or will be increased over the amounts contributed to such Multiemployer
Plans for the respective plan years of each such Multiemployer Plan immediately
preceding the plan year in which the reorganization or termination occurs by an
amount exceeding $1,000,000 and (ii) such reorganization or termination could
have a Material Adverse Effect.
7.13. Environmental Release or Violation. The Borrower or any of its
Subsidiaries shall (i) be the subject of any proceeding or investigation
pertaining to the release by the Borrower, any of its Subsidiaries or any other
Person of any toxic or hazardous waste or substance into the environment, or
(ii) violate any Environmental Law, which, in the case of an event described in
clause (i) or clause (ii), could have a Material Adverse Effect.
7.14. Change of Control. The occurrence of a Change in Control other
than pursuant to an IPO of the Borrower.
7.15. Unremedied Default. The occurrence of any "default", as defined
in any Loan Document (other than this Agreement) or the breach of any of the
terms or provisions of any Loan Document (other than this Agreement), which
default or breach continues beyond any period of grace therein provided.
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7.16. Guaranty. Any Guaranty shall fail to remain in full force or
effect or any action shall be taken to discontinue or to assert the invalidity
or unenforceability of any Guaranty, or any Guarantor shall fail to comply with
any of the terms or provisions of any Guaranty to which it is a party, or any
Guarantor shall deny that it has any further liability under any Guaranty to
which it is a party, or shall give notice to such effect.
7.17. Lack of Acceptable Security Interest. Any Collateral Document
shall for any reason fail to create an Acceptable Security Interest in any
collateral purported to be covered thereby, except as permitted by the terms of
any Collateral Document, or any Collateral Document shall fail to remain in full
force or effect or any action shall be taken to discontinue or to assert the
invalidity or unenforceability of any Collateral Document, or the Borrower or
any Pledgor shall fail to comply with any of the terms or provisions of any
Collateral Document.
7.18. ERISA Misrepresentation. The representations and warranties set
forth in Section 5.15 (entitled "Plan Assets; Prohibited Transactions") shall at
any time not be true and correct.
7.19. Breach of Rate Hedging Obligation, etc. The Borrower or any of
its Subsidiaries shall fail to pay when due any Rate Hedging Obligation,
obligation under a Sale and Leaseback Transaction or Contingent Obligation, or
the breach by the Borrower or any of its Subsidiaries of any term, provision or
condition contained in any Rate Hedging Agreement, any Sale and Leaseback
Transaction or any Contingent Obligation, and such non-payment or breach could
have a Material Adverse Effect, or a default (however so named) by the Borrower
or any of its Subsidiaries of any term, provision or condition contained in any
Related Rate Hedging Agreement.
ARTICLE VIII
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
8.01. Acceleration; Facility LC Collateral Account. (i) If any Default
described in Section 7.06 or 7.07 occurs with respect to the Borrower, the
obligations of the Lenders to make Loans hereunder and the obligation and power
of the LC Issuer to issue Facility LCs shall automatically terminate and the
Obligations shall immediately become due and payable without any election or
action on the part of the Agent, the LC Issuer or any Lender, and the Borrower
will be and become thereby unconditionally obligated, without any further
notice, act or demand, to pay to the Agent an amount in immediately available
funds, which funds shall be held in the Facility LC Collateral Account, equal to
the difference of (x) the amount of LC Obligations at such time minus (y) the
amount on deposit in the Facility LC Collateral Account at such time which is
free and clear of all rights and claims of third parties and has not been
applied against the Obligations (such difference, the "Collateral Shortfall
Amount"). If any other Default occurs, the Required Lenders (or the Agent with
the consent of the Required Lenders) may (a) terminate or suspend the
obligations of the Lenders to make Loans hereunder, or declare the Obligations
to be due and payable, or both, whereupon the Obligations shall become
immediately due and payable, without presentment, demand, protest or notice of
any kind, all of which the Borrower hereby expressly waives, and (b) upon notice
to the Borrower and in addition to the continuing right to demand payment of all
amounts payable under this Agreement, make demand on the Borrower to pay, and
the Borrower will, forthwith upon such demand and without any further notice or
act, pay to the Agent the Collateral Shortfall Amount, which funds shall be
deposited in the Facility LC Collateral Account.
(ii) If at any time while any Default is continuing, the Agent
determines that the Collateral Shortfall Amount as such time is greater than
zero, the Agent may make demand on the Borrower to pay, and the Borrower will,
forthwith upon such demand and without any further notice or act, pay
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to the Agent the Collateral Shortfall Amount, which funds shall be deposited in
the Facility LC Collateral Account.
(iii) The Agent may at any time or from time to time after funds are
deposited in the Facility LC Collateral Account, apply such funds to the payment
of the Obligations and any other amounts as shall from time to time have become
due and payable by the Borrower to the Lenders or the LC Issuer under the Loan
Documents.
(iv) At any time which any Default is continuing, neither the Borrower
nor any Person claiming on behalf of or through the Borrower shall have any
right to withdraw any of the funds held in the Facility LC Collateral Account.
After all of the Obligations have been indefeasibly paid in full and the
Aggregate Commitment has been terminated, any funds remaining in the Facility LC
Collateral Account shall be returned by the Agent to the Borrower or paid to
whomever may be legally entitled thereto at such time.
(v) If, within thirty (30) days after acceleration of the maturity of
the Obligations or termination of the obligations of the Lenders to make Loans
and the obligation and power of the LC Issuer to issue Facility LCs hereunder as
a result of any Default (other than any Default as described in Section 7.06 or
7.07 with respect to the Borrower) and before any judgment or decree for the
payment of the Obligations due shall have been obtained or entered, the Required
Lenders (in their sole discretion) shall so direct, the Agent shall, by notice
to the Borrower, rescind and annul such acceleration and/or termination.
8.02. Other Remedies. If any Default occurs, the Agent may, and upon
the request of the Required Lenders shall, proceed to protect and enforce the
rights of the Agent and the Lenders by suit in equity, by action at law or both,
whether for the specific performance of any covenant or agreement contained in
this Agreement or in any other Loan Document or in aid of the exercise of any
power granted in this Agreement or pursuant to any other Loan Document; or may
proceed to enforce the payment of any amounts outstanding hereunder, under the
Notes and under the other Loan Documents in the manner set forth herein and
therein; or may proceed to foreclose upon any Lines granted pursuant to the
Collateral Documents and other Loan Documents in the manner set forth therein,
it being the intention that no remedy conferred herein or in any other Loan
Document is to be exclusive of any other remedy, and each and every remedy
contained herein or in any other Loan Document shall be cumulative and shall be
in addition to every other remedy given hereunder and under the other Loan
Documents, or now or hereafter existing at law or in equity or by statue or
otherwise.
8.03. Amendments. Subject to the provisions of this Article VIII, the
Required Lenders (or the Agent with the consent in writing of the Required
Lenders) and the Borrower may enter into agreements supplemental hereto for the
purpose of adding or modifying any provisions to the Loan Documents or changing
in any manner the rights of the Lenders or the Borrower hereunder or waiving any
Default hereunder; provided, however, that no such supplemental agreement shall,
without the consent of all of the Lenders:
(i) Extend the final maturity of any Loan, or extend the expiry
date of any Facility LC to a date after the Facility
Termination Date or forgive all or any portion of the
principal amount thereof or any Reimbursement Obligation
related thereto, or reduce the rate or extend the time of
payment of interest or fees thereon or Reimbursement
Obligations related thereto.
(ii) Reduce the percentage specified in the definition of Required
Lenders.
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(iii) Extend the Facility Termination Date, or reduce the amount or
extend the payment date for, the mandatory payments required
under Section 2.02, or increase the amount of the Aggregate
Commitment, the Commitment of any Lender hereunder or the
commitment to issue Facility LCs, or permit the Borrower to
assign its rights under this Agreement.
(iv) Amend this Section 8.03.
(v) Release any guarantor of any Credit Extension or, except as
provided in the Collateral Documents, release all or
substantially all of the Collateral.
No amendment of any provision of this Agreement relating to the Agent shall be
effective without the written consent of the Agent, and no amendment of any
provision relating to the LC Issuer shall be effective without the written
consent of the LC Issuer. The Agent may waive payment of the fee required under
Section 12.03.02 without obtaining the consent of any other party to this
Agreement.
8.04. Preservation of Rights. No delay or omission of the Lenders, the
LC Issuer or the Agent to exercise any right under the Loan Documents shall
impair such right or be construed to be a waiver of any Default or an
acquiescence therein, and the making of a Credit Extension notwithstanding the
existence of a Default or the inability of the Borrower to satisfy the
conditions precedent to such Credit Extension shall not constitute any waiver or
acquiescence. Any single or partial exercise of any such right shall not
preclude other or further exercise thereof or the exercise of any other right,
and no waiver, amendment or other variation of the terms, conditions or
provisions of the Loan Documents whatsoever shall be valid unless in writing
signed by the Lenders required pursuant to Section 8.03, and then only to the
extent in such writing specifically set forth. All remedies contained in the
Loan Documents or by law afforded shall be cumulative and all shall be available
to the Agent, the LC Issuer and the Lenders until the Obligations have been paid
in full and all of the Commitments have been terminated.
ARTICLE IX
GENERAL PROVISIONS
9.01. Survival of Representations. All representations and warranties
of the Borrower contained in this Agreement shall survive the making of the
Credit Extensions herein contemplated.
9.02. Governmental Regulation. Anything contained in this Agreement to
the contrary notwithstanding, neither the LC Issuer nor any Lender shall be
obligated to extend credit to the Borrower in violation of any limitation or
prohibition provided by any applicable statute or regulation.
9.03. Headings. Section headings in the Loan Documents are for
convenience of reference only, and shall not govern the interpretation of any of
the provisions of the Loan Documents.
9.04. Entire Agreement. The Loan Documents embody the entire agreement
and understanding among the Borrower, the Agent, the LC Issuer and the Lenders
and supersede all prior agreements and understandings among the Borrower, the
Agent, the LC Issuer and the Lenders relating to the subject matter thereof
other than the fee letter described in Section 10.13.
9.05. Several Obligations; Benefits of this Agreement. The respective
obligations of the Lenders hereunder are several and not joint and no Lender
shall be the partner or agent of any other (except to the extent to which the
Agent is authorized to act as such). The failure of any Lender to perform any of
its obligations hereunder shall not relieve any other Lender from any of its
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obligations hereunder. This Agreement shall not be construed so as to confer any
right or benefit upon any Person other than the parties to this Agreement and
their respective successors and assigns, provided, however, that the parties
hereto expressly agree that the Arranger shall enjoy the benefits of the
provisions of Sections 9.06, 9.10 and 10.11 to the extent specifically set forth
therein and shall have the right to enforce such provisions on its own behalf
and in its own name to the same extent as if it were a party to this Agreement.
9.06. Expenses; Indemnification. (i) The Borrower shall reimburse the
Agent and the Arranger for any costs, internal charges and out-of-pocket
expenses (including attorneys' fees and time charges of attorneys for the Agent,
which attorneys may be employees of the Agent) paid or incurred by the Agent or
the Arranger in connection with the preparation, negotiation, execution,
delivery, syndication, review, amendment, modification, and (excluding internal
charges prior to an Unmatured Default) administration of the Loan Documents. The
Borrower also agrees to reimburse the Agent, the Arranger, the LC Issuer and the
Lenders for any costs, internal charges and out-of-pocket expenses (including
attorneys' fees and time charges of attorneys for the Agent, the Arranger, the
LC Issuer and the Lenders, which attorneys may be employees of the Agent, the
Arranger, the LC Issuer or the Lenders) paid or incurred by the Agent, the
Arranger, the LC Issuer or any Lender in connection with the collection and
enforcement of the Loan Documents. Expenses being reimbursed by the Borrower
under this Section 9.06 include, without limitation, costs and expenses incurred
in connection with the Reports described in the following sentence. The Borrower
acknowledges that from time to time First Chicago may prepare and may distribute
to the Lenders (but shall have no obligation or duty to prepare or to distribute
to the Lenders) certain audit reports (the "Reports") pertaining to the
Borrower's assets for internal use by First Chicago from information furnished
to it by or on behalf of the Borrower, after First Chicago has exercised its
rights of inspection pursuant to this Agreement.
(ii) THE BORROWER HEREBY FURTHER AGREES TO INDEMNIFY THE AGENT, THE
ARRANGER, THE LC ISSUER AND EACH LENDER, ITS DIRECTORS, OFFICERS AND EMPLOYEES
AGAINST ALL LOSSES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, LIABILITIES AND
EXPENSES (INCLUDING, WITHOUT LIMITATION, ALL EXPENSES OF LITIGATION OR
PREPARATION THEREFOR WHETHER OR NOT THE AGENT, THE ARRANGER, THE LC ISSUER OR
ANY LENDER IS A PARTY THERETO) WHICH ANY OF THEM MAY PAY OR INCUR ARISING OUT OF
OR RELATING TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, THE TRANSACTIONS
CONTEMPLATED HEREBY OR THE DIRECT OR INDIRECT APPLICATION OR PROPOSED
APPLICATION OF THE PROCEEDS OF ANY CREDIT EXTENSION HEREUNDER, INCLUDING WITHOUT
LIMITATION, THOSE ARISING OUT OF ORDINARY NEGLIGENCE, EXCEPT TO THE EXTENT THAT
THEY ARE DETERMINED IN A FINAL NON-APPEALABLE JUDGMENT BY A COURT OF COMPETENT
JURISDICTION TO HAVE RESULTED FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF
THE PARTY SEEKING INDEMNIFICATION. The obligations of the Borrower under this
Section 9.06 shall survive the termination of this Agreement.
9.07. Numbers of Documents. All statements, notices, closing documents,
and requests hereunder shall be furnished to the Agent with sufficient
counterparts so that the Agent may furnish one to each of the Lenders.
9.08. Accounting. Except as provided to the contrary herein, all
accounting terms used herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with GAAP.
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9.09. Credit Agreement Controls. In the event of any conflict or
inconsistencies among this Agreement and any of the other Loan Documents, the
terms and provisions of this Agreement shall prevail and control.
9.10. Severability of Provisions. Any provision in any Loan Document
that is held to be inoperative, unenforceable, or invalid in any jurisdiction
shall, as to that jurisdiction, be inoperative, unenforceable, or invalid
without affecting the remaining provisions in that jurisdiction or the
operation, enforceability, or validity of that provision in any other
jurisdiction, and to this end the provisions of all Loan Documents are declared
to be severable.
9.11. Nonliability of Lenders. The relationship between the Borrower on
the one hand and the Lenders, the LC Issuer and the Agent on the other hand
shall be solely that of borrower and lender. Neither the Agent, the Arranger,
the LC Issuer nor any Lender shall have any fiduciary responsibilities to the
Borrower. Neither the Agent, the Arranger, the LC Issuer nor any Lender
undertakes any responsibility to the Borrower to review or inform the Borrower
of any matter in connection with any phase of the Borrower's business or
operations. The Borrower agrees that neither the Agent, the Arranger, the LC
Issuer nor any Lender shall have liability to the Borrower (whether sounding in
tort, contract or otherwise) for losses suffered by the Borrower in connection
with, arising out of, or in any way related to, the transactions contemplated
and the relationship established by the Loan Documents, or any act, omission or
event occurring in connection therewith, unless it is determined in a final
non-appealable judgment by a court of competent jurisdiction that such losses
resulted from the gross negligence or willful misconduct of the party from which
recovery is sought. Neither the Agent, the Arranger, the LC Issuer nor any
Lender shall have any liability with respect to, and the Borrower hereby waives,
releases and agrees not to sue for, any special, indirect or consequential
damages suffered by the Borrower in connection with, arising out of, or in any
way related to the Loan Documents or the transactions contemplated thereby.
9.12. Confidentiality. Each Lender agrees to hold any confidential
information which it may receive from the Borrower pursuant to this Agreement in
confidence, except for disclosure (i) to its Affiliates and to other Lenders and
their respective Affiliates, (ii) to legal counsel, accountants, and other
professional advisors to such Lender or to a Transferee, (iii) to regulatory
officials, (iv) to any Person as requested pursuant to or as required by law,
regulation, or legal process, (v) to any Person in connection with any legal
proceeding to which such Lender is a party, (vi) to such Lender's direct or
indirect contractual counterparties in swap agreements or to legal counsel,
accountants and other professional advisors to such counterparties, and (vii)
permitted by Section 12.04.
9.13. Nonreliance. Each Lender hereby represents that it is not relying
on or looking to any margin stock (as defined in Regulation U of the Board of
Governors of the Federal Reserve System) for the repayment of the Credit
Extensions provided for herein.
ARTICLE X
THE AGENT
10.01. Appointment; Nature of Relationship. The First National Bank of
Chicago is hereby appointed by each of the Lenders as its contractual
representative (herein referred to as the "Agent") hereunder and under each
other Loan Document, and each of the Lenders irrevocably authorizes the Agent to
act as the contractual representative of such Lender with the rights and duties
expressly set forth herein and in the other Loan Documents. The Agent agrees to
act as such contractual representative upon the express conditions contained in
this Article X. Notwithstanding the use of the defined term "Agent," it is
expressly understood and agreed that the Agent shall not have any fiduciary
responsibilities to any Lender by reason of this Agreement or any other Loan
Document and that the Agent is merely acting as the contractual representative
of the Lenders with only those
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duties as are expressly set forth in this Agreement and the other Loan
Documents. In its capacity as the Lenders' contractual representative, the Agent
(i) does not hereby assume any fiduciary duties to any of the Lenders, (ii) is a
"representative" of the Lenders within the meaning of Section 9-105 of the
Uniform Commercial Code and (iii) is acting as an independent contractor, the
rights and duties of which are limited to those expressly set forth in this
Agreement and the other Loan Documents. Each of the Lenders hereby agrees to
assert no claim against the Agent on any agency theory or any other theory of
liability for breach of fiduciary duty, all of which claims each Lender hereby
waives.
10.02. Powers. The Agent shall have and may exercise such powers under
the Loan Documents as are specifically delegated to the Agent by the terms of
each thereof, together with such powers as are reasonably incidental thereto.
The Agent shall have no implied duties to the Lenders, or any obligation to the
Lenders to take any action thereunder except any action specifically provided by
the Loan Documents to be taken by the Agent.
10.03. General Immunity. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable to the Borrower, the Lenders or
any Lender for any action taken or omitted to be taken by it or them hereunder
or under any other Loan Document or in connection herewith or therewith except
to the extent such action or inaction is determined in a final non-appealable
judgment by a court of competent jurisdiction to have arisen from the gross
negligence or willful misconduct of such Person.
10.04. No Responsibility for Loans, Recitals, etc. Neither the Agent
nor any of its directors, officers, agents or employees shall be responsible for
or have any duty to ascertain, inquire into, or verify (a) any statement,
warranty or representation made in connection with any Loan Document or any
borrowing hereunder; (b) the performance or observance of any of the covenants
or agreements of any obligor under any Loan Document, including, without
limitation, any agreement by an obligor to furnish information directly to each
Lender; (c) the satisfaction of any condition specified in Article IV, except
receipt of items required to be delivered solely to the Agent; (d) the existence
or possible existence of any Default or Unmatured Default; (e) the validity,
enforceability, effectiveness, sufficiency or genuineness of any Loan Document
or any other instrument or writing furnished in connection therewith; (f) the
value, sufficiency, creation, perfection or priority of any Lien in any
collateral security; or (g) the financial condition of the Borrower or any
guarantor of any of the Obligations or of any of the Borrower's or any such
guarantor's respective Subsidiaries. The Agent shall have no duty to disclose to
the Lenders information that is not required to be furnished by the Borrower to
the Agent at such time, but is voluntarily furnished by the Borrower to the
Agent (either in its capacity as Agent or in its individual capacity).
10.05. Action on Instructions of Lenders. The Agent shall in all cases
be fully protected in acting, or in refraining from acting, hereunder and under
any other Loan Document in accordance with written instructions signed by the
Required Lenders, and such instructions and any action taken or failure to act
pursuant thereto shall be binding on all of the Lenders. The Lenders hereby
acknowledge that the Agent shall be under no duty to take any discretionary
action permitted to be taken by it pursuant to the provisions of this Agreement
or any other Loan Document unless it shall be requested in writing to do so by
the Required Lenders. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN
OR IN ANY OTHER LOAN DOCUMENT, EACH OF THE AGENT AND THE LC ISSUER SHALL BE
FULLY JUSTIFIED IN FAILING OR REFUSING TO TAKE ANY ACTION HEREUNDER AND UNDER
ANY OTHER LOAN DOCUMENT UNLESS IT SHALL FIRST BE INDEMNIFIED TO ITS SATISFACTION
BY THE LENDERS AGAINST ANY AND ALL LIABILITY, LOSSES, DAMAGES JUDGMENTS, COSTS,
EXPENSES AND DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED
UPON, INCURRED BY OR
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ASSERTED AGAINST SUCH AGENT OR LC ISSUER IN ANY WAY RELATING TO OR ARISING OUT
OF ITS TAKING OR CONTINUING TO TAKE ANY ACTION.
10.06. Employment of Agents and Counsel. The Agent may execute any of
its duties as Agent hereunder and under any other Loan Document by or through
employees, agents, and attorneys-in-fact and shall not be answerable to the
Lenders, except as to money or securities received by it or its authorized
agents, for the default or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care. The Agent shall be entitled to advice of
counsel concerning the contractual arrangement between the Agent and the Lenders
and all matters pertaining to the Agent's duties hereunder and under any other
Loan Document.
10.07. Reliance on Documents; Counsel. The Agent shall be entitled to
rely upon any Note, notice, consent, certificate, affidavit, letter, telegram,
statement, paper or document believed by it to be genuine and correct and to
have been signed or sent by the proper person or persons, and, in respect to
legal matters, upon the opinion of counsel selected by the Agent, which counsel
may be employees of the Agent.
10.08. Agent's Reimbursement and Indemnification. The Lenders agree to
reimburse and indemnify the Agent ratably in proportion to their respective
Commitments (or, if the Commitments have been terminated, in proportion to their
Commitments immediately prior to such termination) (i) for any amounts not
reimbursed by the Borrower for which the Agent is entitled to reimbursement by
the Borrower under the Loan Documents, (ii) for any other expenses incurred by
the Agent on behalf of the Lenders, in connection with the preparation,
execution, delivery, administration and enforcement of the Loan Documents
(including, without limitation, for any expenses incurred by the Agent in
connection with any dispute between the Agent and any Lender or between two or
more of the Lenders) and (iii) for any liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind and nature whatsoever which may be imposed on, incurred by or
asserted against the Agent in any way relating to or arising out of the Loan
Documents or any other document delivered in connection therewith or the
transactions contemplated thereby (including, without limitation, for any such
amounts incurred by or asserted against the Agent in connection with any dispute
between the Agent and any Lender or between two or more of the Lenders), or the
enforcement of any of the terms of the Loan Documents or of any such other
documents, provided that (i) no Lender shall be liable for any of the foregoing
to the extent any of the foregoing is found in a final non-appealable judgment
by a court of competent jurisdiction to have resulted from the gross negligence
or willful misconduct of the Agent and (ii) any indemnification required
pursuant to Section 3.05(vii) shall, notwithstanding the provisions of this
Section 10.08, be paid by the relevant Lender in accordance with the provisions
thereof. The obligations of the Lenders under this Section 10.08 shall survive
payment of the Obligations and termination of this Agreement.
10.09. Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Unmatured Default
hereunder unless the Agent has received written notice from a Lender or the
Borrower referring to this Agreement describing such Default or Unmatured
Default and stating that such notice is a "notice of default". In the event that
the Agent receives such a notice, the Agent shall give prompt notice thereof to
the Lenders.
10.10. Rights as a Lender. In the event the Agent is a Lender, the
Agent shall have the same rights and powers hereunder and under any other Loan
Document with respect to its Commitment and its Loans as any Lender and may
exercise the same as though it were not the Agent, and the term "Lender" or
"Lenders" shall, at any time when the Agent is a Lender, unless the context
otherwise indicates, include the Agent in its individual capacity. The Agent and
its Affiliates may accept deposits from, lend money to, and generally engage in
any kind of trust, debt, equity or other transaction, in addition to those
contemplated by this Agreement or any other Loan Document, with
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the Borrower or any of its Subsidiaries in which the Borrower or such Subsidiary
is not restricted hereby from engaging with any other Person. The Agent, in its
individual capacity, is not obligated to remain a Lender.
10.11. Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Agent, the Arranger or any other
Lender and based on the financial statements prepared by the Borrower and such
other documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement and the other Loan
Documents. Each Lender also acknowledges that it will, independently and without
reliance upon the Agent, the Arranger or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement and the other Loan Documents.
10.12. Successor Agent. The Agent may resign at any time by giving
written notice thereof to the Lenders and the Borrower, such resignation to be
effective upon the appointment of a successor Agent or, if no successor Agent
has been appointed, forty-five days after the retiring Agent gives notice of its
intention to resign. The Agent may be removed at any time with or without cause
by written notice received by the Agent from the Required Lenders, such removal
to be effective on the date specified by the Required Lenders. Upon any such
resignation or removal, the Borrower (if no Default or Unmatured Default shall
exist) and the Required Lenders shall have the right to appoint, on behalf of
the Borrower and the Lenders, a successor Agent. If no successor Agent shall
have been so appointed by the Borrower (if applicable) and the Required Lenders
within thirty days after the resigning Agent's giving notice of its intention to
resign, then the resigning Agent may appoint, on behalf of the Borrower and the
Lenders, a successor Agent. Notwithstanding the previous sentence, the Agent may
at any time without the consent of the Borrower or any Lender, appoint any of
its Affiliates which is a commercial bank as a successor Agent hereunder. If the
Agent has resigned or been removed and no successor Agent has been appointed,
the Lenders may perform all the duties of the Agent hereunder and the Borrower
shall make all payments in respect of the Obligations to the applicable Lender
and for all other purposes shall deal directly with the Lenders. No successor
Agent shall be deemed to be appointed hereunder until such successor Agent has
accepted the appointment. Any such successor Agent shall be a commercial bank
having capital and retained earnings of at least $100,000,000. Upon the
acceptance of any appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the resigning or removed Agent. Upon
the effectiveness of the resignation or removal of the Agent, the resigning or
removed Agent shall be discharged from its duties and obligations hereunder and
under the Loan Documents. After the effectiveness of the resignation or removal
of an Agent, the provisions of this Article X shall continue in effect for the
benefit of such Agent in respect of any actions taken or omitted to be taken by
it while it was acting as the Agent hereunder and under the other Loan
Documents. In the event that there is a successor to the Agent by merger, or the
Agent assigns its duties and obligations to an Affiliate pursuant to this
Section 10.12, then the term "Corporate Base Rate" as used in this Agreement
shall mean the prime rate, base rate or other analogous rate of the new Agent.
10.13. Agent's Fee. The Borrower agrees to pay to the Agent and the LC
Issuer, for their own respective accounts, the fees agreed to by the Borrower
pursuant to that certain fee letter agreement dated March 10, 1999 among the
Borrower, the Arranger and Bank One, Texas, N.A. on behalf of the Agent, or as
otherwise agreed from time to time.
10.14. Delegation to Affiliates. The Borrower and the Lenders agree
that the Agent may delegate any of its duties under this Agreement to any of its
Affiliates. Any such Affiliate (and such Affiliate's directors, officers, agents
and employees) which performs duties in connection with this Agreement shall be
entitled to the same benefits of the indemnification, waiver and other
protective provisions to which the Agent is entitled under Articles IX and X.
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10.15. Execution of Collateral Documents. The Lenders hereby empower
and authorize the Agent to execute and deliver to the Borrower on their behalf
the Collateral Documents and all related financing statements and any financing
statements, agreements, documents or instruments as shall be necessary or
appropriate to effect the purposes of the Collateral Documents.
10.16. Collateral Releases. The Lenders hereby empower and authorize
the Agent to execute and deliver to the Borrower on their behalf any agreements,
documents or instruments as shall be necessary or appropriate to effect any
releases of Collateral which shall be permitted by the terms hereof or of any
other Loan Document or which shall otherwise have been approved by the Required
Lenders (or, if required by the terms of Section 8.03, all of the Lenders) in
writing, and in each case all other action reasonably incidental thereto.
10.17. Documentary Agent. The Lender that is the Documentation Agent
shall not have any right, power, obligation, liability, responsibility or duty
under this Agreement other than those applicable to all Lenders generally.
Without limiting the foregoing, no Lender shall have or be deemed to have a
fiduciary relationship with any other Lender. Each Lender hereby makes the same
acknowledgments with respect to such Lenders as it makes with respect to the
Agent in Section 10.11.
10.18. Highest Lawful Rate. Each provision in this Agreement and each
other Loan Document is expressly limited so that in no event whatsoever shall
the amount paid, or otherwise agreed to be paid, to the Agent, the LC Issuer or
any Lender for the use, forbearance or detention of the money to be loaned under
this Agreement or any Loan Document or otherwise (including any sums paid as
required by any covenant or obligation contained herein or in any other Loan
Document which is for the use, forbearance or detention of such money), exceed
that amount of money which would cause the effective rate of interest to exceed
the Highest Lawful Rate, and all amounts owed under this Agreement and each
other Loan Document shall be held to be subject to reduction to the effect that
such amounts so paid or agreed to be paid which are for the use, forbearance or
detention of money under this Agreement or such Loan Document shall in no event
exceed that amount of money which would cause the effective rate of interest to
exceed the Highest Lawful Rate. Anything in this Agreement, any Note or any
other Loan Document would exceed the Highest Lawful Rate or if the holder of
such Note shall receive any unearned interest on any Note or ever be required to
pay interest on such Note at a rate in excess of the Highest Lawful Rate, and if
the effective rate of interest which would otherwise be payable under this
Agreement, such Note or any other Loan Document would exceed the Highest Lawful
Rate, or if the holder of such Note shall receive any unearned interest or shall
receive monies that are deemed to constitute interest which would increase the
effective rate of interest payable by the Borrower under this Agreement, such
Note and the other Loan Documents to a rate in excess of the Highest Lawful
Rate, then (i) the amount of interest which would otherwise be payable by the
Borrower under this Agreement, such Note and other Loan Documents shall be
reduced to the amount allowed under applicable law, and (ii) any unearned
interest paid by the Borrower or any interest paid by the Borrower in excess of
the Highest Lawful Rate shall be in the first instance credited on the principal
of such Note with the excess thereof, if any, refunded to the Company. It is
further agreed that, without limitation of the foregoing, all calculations of
the rate of interest contracted for, charged or received by the Agent, the LC
Issuer or any Lender under the Notes or under this Agreement or the other Loan
Documents, are made for the purpose of determining whether such rate exceeds the
Highest Lawful Rate applicable to the Agent, the LC Issuer or any Lender and
shall be made, to the extent permitted by usury laws applicable to the Agent the
LC Issuer or any Lender (now or hereafter enacted), by amortizing, prorating and
spreading in equal party during the period of the full stated term of the notes
all interest at any time contracted for, charged or received by the Agent, the
LC Issuer or such Lender in connection therewith. If at any time and from time
to time, (i) the amount of interest payable to the Agent, the LC Issuer or any
Lender on any date shall be computed at the Highest Lawful Rate pursuant to this
Section 10.18 and (ii) in respect of any subsequent interest computation period
the amount of interest
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<PAGE> 66
otherwise payable to the Agent, the LC Issuer or any Lender would be less than
the amount of interest payable to the Agent, the LC Issuer or such Lender, as
the case may be, computed at the Highest Lawful Rate, then the amount of
interest payable to the Agent, the LC Issuer or such Lender, as the case may be,
in respect of such subsequent interest computation period shall continue to be
computed at the Highest Lawful Rate until the total amount of interest payable
to the Agent, the LC Issuer or such Lender, as the case may be, shall equal the
total amount of interest which would have been payable to the Agent, the LC
Issuer or such Lender if the total amount of interest had been computed without
giving effect to this Section 10.18.
10.19. Chapter 346 Inapplicable. The Borrower agrees, pursuant to
Chapter 346 ("Chapter 346") of the Texas Finance Code, that Chapter 346 (which
relates to open-end line of credit revolving loan accounts) shall not apply to
the Obligations and that none of the Notes nor any Credit Extension shall be
governed by Chapter 346 or subject to its provisions in any manner whatsoever.
ARTICLE XI
SETOFF; RATABLE PAYMENTS
11.01. Setoff. In addition to, and without limitation of, any rights of
the Lenders under applicable law, if the Borrower becomes insolvent, however
evidenced, or any Default occurs, any and all deposits (including all account
balances, whether provisional or final and whether or not collected or
available) and any other Indebtedness at any time held or owing by any Lender or
any Affiliate of any Lender to or for the credit or account of the Borrower may
be offset and applied toward the payment of the Obligations owing to such
Lender, whether or not the Obligations, or any part hereof, shall then be due.
11.02. Ratable Payments. If any Lender, whether by setoff or otherwise,
has payment made to it upon its Outstanding Credit Exposure (other than payments
received pursuant to Section 3.01, 3.02, 3.04 or 3.05) in a greater proportion
than that received by any other Lender, such Lender agrees, promptly upon
demand, to purchase a portion of the Aggregate Outstanding Credit Exposure held
by the other Lenders so that after such purchase each Lender will hold its Pro
Rata Share of the Aggregate Outstanding Credit Exposure. If any Lender, whether
in connection with setoff or amounts which might be subject to setoff or
otherwise, receives collateral or other protection for its Obligations or such
amounts which may be subject to setoff, such Lender agrees, promptly upon
demand, to take such action necessary such that all Lenders share in the
benefits of such collateral ratably in proportion to their respective Pro Rata
Shares of the Aggregate Outstanding Credit Exposure. In case any such payment is
disturbed by legal process, or otherwise, appropriate further adjustments shall
be made.
ARTICLE XII
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
12.01. Successors and Assigns. The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of the Borrower and the
Lenders and their respective successors and assigns, except that (i) the
Borrower shall not have the right to assign its rights or obligations under the
Loan Documents and (ii) any assignment by any Lender must be made in compliance
with Section 12.03. Notwithstanding clause (ii) of this Section 12.01, any
Lender may at any time, without the consent of the Borrower or the Agent, assign
all or any portion of its rights under this Agreement and any Note to a Federal
Reserve Bank; provided, however, that no such assignment to a Federal Reserve
Bank shall release the transferor Lender from its obligations hereunder. The
Agent may treat the Person which made any Loan or which holds any Note as the
owner thereof for all purposes hereof unless and until such Person complies with
Section 12.03 in
60
<PAGE> 67
the case of an assignment thereof or, in the case of any other transfer, a
written notice of the transfer is filed with the Agent. Any assignee or
transferee of the rights to any Loan or any Note agrees by acceptance of such
transfer or assignment to be bound by all the terms and provisions of the Loan
Documents. Any request, authority or consent of any Person, who at the time of
making such request or giving such authority or consent is the owner of the
rights to any Loan (whether or not a Note has been issued in evidence thereof),
shall be conclusive and binding on any subsequent holder, transferee or assignee
of the rights to such Loan.
12.02. Participations.
12.02.1. Permitted Participants; Effect. Any Lender may, in
the ordinary course of its business and in accordance with applicable
law, at any time sell to one or more Eligible Institutions
("Participants") participating interests in any Outstanding Credit
Exposure of such Lender, any Note held by such Lender, any Commitment
of such Lender or any other interest of such Lender under the Loan
Documents. In the event of any such sale by a Lender of participating
interests to a Participant, such Lender's obligations under the Loan
Documents shall remain unchanged, such Lender shall remain solely
responsible to the other parties hereto for the performance of such
obligations, such Lender shall remain the owner of its Outstanding
Credit Exposure and the holder of any Note issued to it in evidence
thereof for all purposes under the Loan Documents, all amounts payable
by the Borrower under this Agreement shall be determined as if such
Lender had not sold such participating interests, and the Borrower and
the Agent shall continue to deal solely and directly with such Lender
in connection with such Lender's rights and obligations under the Loan
Documents.
12.02.2. Voting Rights. Each Lender shall retain the sole
right to approve, without the consent of any Participant, any
amendment, modification or waiver of any provision of the Loan
Documents other than any amendment, modification or waiver with respect
to any Credit Extension or Commitment in which such Participant has an
interest which forgives principal, interest, fees or any Reimbursement
Obligation or reduces the interest rate or fees payable with respect to
any such Credit Extension or Commitment, extends the Facility
Termination Date, postpones any date fixed for any regularly-scheduled
payment of principal of or interest on, any Loan in which such
Participant has an interest, or any regularly scheduled payment of fees
on any such Credit Extension or Commitment, releases any guarantor of
any such Credit Extension or, except in accordance with the terms
hereof, releases all or substantially all of the Collateral, if any,
securing any such Credit Extension.
12.02.3. Benefit of Setoff. The Borrower agrees that each
Participant shall be deemed to have the right of setoff provided in
Section 11.01 in respect of its participating interest in amounts owing
under the Loan Documents to the same extent as if the amount of its
participating interest were owing directly to it as a Lender under the
Loan Documents, provided that each Lender shall retain the right of
setoff provided in Section 11.01 with respect to the amount of
participating interests sold to each Participant. The Lenders agree to
share with each Participant, and each Participant, by exercising the
right of setoff provided in Section 11.01, agrees to share with each
Lender, any amount received pursuant to the exercise of its right of
setoff, such amounts to be shared in accordance with Section 11.02 as
if each Participant were a Lender.
12.03. Assignments.
12.03.01. Permitted Assignments. Any Lender may, in accordance
with applicable law, at any time assign to one or more Eligible
Institutions ("Purchasers") all or any part of its rights and
obligations under the Loan Documents. Such assignment
61
<PAGE> 68
("Assignment Agreement") shall be substantially in the form of Exhibit
J or in such other form as may be agreed to by the parties thereto. The
consent of the Borrower and the Agent shall be required prior to an
assignment becoming effective with respect to a Purchaser which is not
a Lender or an Affiliate thereof; provided, however, that if a Default
has occurred and is continuing, the consent of the Borrower shall not
be required. Such consent shall not be unreasonably withheld or
delayed. Each such assignment with respect to a Purchaser which is not
a Lender or an Affiliate thereof shall (unless each of the Borrower and
the Agent otherwise consents) be in an amount not less than the lesser
of (i) $5,000,000 or (ii) the remaining amount of the assigning
Lender's Commitment (calculated as at the date of such assignment) or
outstanding Loans (if the applicable Commitment has been terminated).
12.03.02. Effect; Effective Date. Upon (i) delivery to the
Agent of an assignment, together with any consents required by Section
12.03.01, and (ii) payment of a $3,500 fee to the Agent for processing
such assignment (unless such fee is waived by the Agent), such
assignment shall become effective on the effective date specified in
such assignment. The assignment shall contain a representation by the
Purchaser to the effect that none of the consideration used to make the
purchase of the Commitment and Outstanding Credit Exposure under the
applicable assignment agreement constitutes "plan assets" as defined
under ERISA and that the rights and interests of the Purchaser in and
under the Loan Documents will not be "plan assets" under ERISA. On and
after the effective date of such assignment, such Purchaser shall for
all purposes be a Lender party to this Agreement and any other Loan
Document executed by or on behalf of the Lenders and shall have all the
rights and obligations of a Lender under the Loan Documents, to the
same extent as if it were an original party hereto, and no further
consent or action by the Borrower, the Lenders or the Agent shall be
required to release the transferor Lender with respect to the
percentage of the Aggregate Commitment and Outstanding Credit Exposure
assigned to such Purchaser. Upon the consummation of any assignment to
a Purchaser pursuant to this Section 12.03.02, the transferor Lender,
the Agent and the Borrower shall, if the transferor Lender or the
Purchaser desires that its Loans be evidenced by Notes, make
appropriate arrangements so that new Notes or, as appropriate,
replacement Notes are issued to such transferor Lender and new Notes
or, as appropriate, replacement Notes, are issued to such Purchaser, in
each case in principal amounts reflecting their respective Commitments,
as adjusted pursuant to such assignment.
12.04. Dissemination of Information. The Borrower authorizes each
Lender to disclose to any Participant or Purchaser or any other Eligible
Institution acquiring an interest in the Loan Documents by operation of law
(each a "Transferee") and any prospective Transferee any and all information in
such Lender's possession concerning the creditworthiness of the Borrower and its
Subsidiaries, including without limitation any information contained in any
Reports; provided that each Transferee and prospective Transferee agrees to be
bound by Section 9.11 of this Agreement.
12.05. Tax Treatment. If any interest in any Loan Document is
transferred to any Transferee which is organized under the laws of any
jurisdiction other than the United States or any State thereof, the transferor
Lender shall cause such Transferee, concurrently with the effectiveness of such
transfer, to comply with the provisions of Section 3.05(iv).
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<PAGE> 69
ARTICLE XIII
NOTICES
13.01. Notices. Except as otherwise permitted by Section 2.15 with
respect to Borrowing Notices and Conversion/Continuation Notices, all notices,
requests and other communications to any party hereunder shall be in writing
(including electronic transmission, facsimile transmission or similar writing)
and shall be given to such party: (x) in the case of the Borrower or the Agent,
at its address or facsimile number set forth on the signature pages hereof, (y)
in the case of any Lender, at its address or facsimile number set forth in the
Lending Installation Schedule or (z) in the case of any party, at such other
address or facsimile number as such party may hereafter specify for the purpose
by notice to the Agent and the Borrower in accordance with the provisions of
this Section 13.01. Each such notice, request or other communication shall be
effective (i) if given by facsimile transmission, when transmitted to the
facsimile number specified in this Section 13.01 and confirmation of receipt is
received, (ii) if given by mail, 72 hours after such communication is deposited
in the mails with first class postage prepaid, addressed as aforesaid, or (iii)
if given by any other means, when delivered (or, in the case of electronic
transmission, received) at the address specified in this Section 13.01; provided
that notices to the Agent under Article II shall not be effective until
received.
13.02. Change of Address. The Borrower, the Agent and any Lender may
each change the address for service of notice upon it by a notice in writing to
the other parties hereto.
ARTICLE XIV
COUNTERPARTS
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one agreement, and any of the parties
hereto may execute this Agreement by signing any such counterpart. This
Agreement shall be effective when it has been executed by the Borrower, the
Agent and the Lenders, the LC Issuer and each party has notified the Agent by
facsimile transmission or telephone that it has taken such action.
ARTICLE XV
CHOICE OF LAW; CONSENTS; WAIVER OF JURY TRIAL
15.01. Choice of Law. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A
CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH
THE LAW (WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS) OF THE STATE OF
TEXAS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
15.02. Consent to Jurisdiction. THE BORROWER HEREBY IRREVOCABLY SUBMITS
TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR STATE COURT
SITTING IN HOUSTON, TEXAS IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING
TO ANY LOAN DOCUMENTS AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS
IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH
COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO
THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT
SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE
AGENT, THE LC ISSUER OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE
63
<PAGE> 70
BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE
BORROWER AGAINST THE AGENT, THE LC ISSUER OR ANY LENDER OR ANY AFFILIATE OF THE
AGENT, THE LC ISSUER OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER
IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL
BE BROUGHT ONLY IN A COURT IN HOUSTON, TEXAS.
15.03. Waiver of Jury Trial. THE BORROWER, THE AGENT, THE LC ISSUER AND
EACH LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR
OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN
DOCUMENT OR THE RELATIONSHIP
ESTABLISHED THEREUNDER.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
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<PAGE> 71
IN WITNESS WHEREOF, the Borrower, the Lenders, the LC Issuer and the
Agent have executed this Agreement as of the date first above written.
AMERICAN PLUMBING & MECHANICAL, INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
Address: 1502 Augusta, Suite 425
Houston, Texas 77057
Attention: David C. Baggett
Telephone: (713) 243-7351
FAX: (713) 243-7333
Commitments
$25,000,000 THE FIRST NATIONAL BANK OF CHICAGO,
Individually, as LC Issuer and as Agent
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
Address: One First National Plaza
Chicago, Illinois 60670
Attention:
-------------------------
Telephone: (312)
FAX: (312)
with a copy to:
The First National Bank of Chicago
c/o Bank One, Texas, N.A.
910 Travis Street, 7th Floor
Houston, Texas 77002
Attention: Barry Kelly
Telephone: (713) 751-3831
FAX: (713) 751-6199
$25,000,000 CREDIT LYONNAIS, NEW YORK BRANCH
Individually, and as Documentation Agent
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
<PAGE> 72
$20,000,000 UNION BANK OF CALIFORNIA, N.A.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
$15,000,000 MERRILL LYNCH
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
$10,000,000 FLEET NATIONAL BANK
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
===========
$95,000,000
<PAGE> 1
EXHIBIT 10.15
AMPAM PARENT/MGT
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and between American
Plumbing and Mechanical, Inc., a Delaware corporation (the "Company" or "AMPAM")
and all its subsidiaries, and Robert A. Christianson ("Executive") is hereby
entered into effective as of April 1, 1999.
RECITALS
Whereas, as of the Effective Date, the Company and the subsidiaries of
the Company (the Company and such subsidiaries being collectively, the "AMPAM
Companies") provide plumbing and mechanical contracting services; and
Whereas, the Company wishes to employ Executive, and Executive wishes
to be employed by the Company, on the terms set forth herein; and
Whereas, in the course of his employment with the Company, Executive
will become familiar with and aware of information as to the AMPAM Companies'
customers and specific manner of doing business, including the processes,
techniques and trade secrets used by the AMPAM Companies, and future plans with
respect thereto, all of which has been and will be established and maintained at
great expense to the AMPAM Companies and which constitutes trade secrets and the
valuable goodwill of the AMPAM Companies.
Therefore, in consideration of the mutual promises, terms, covenants
and conditions set forth herein and the performance of each, it is hereby agreed
as follows:
AGREEMENTS
1. Employment and Duties.
a. The Company hereby employs Executive as the Chief Executive
Officer of the Company. As such, Executive shall have the
responsibilities, duties and authority customarily
appertaining to such office and such other duties as may be
reasonably assigned to Executive and which are consistent with
such position. Executive shall report to the Chief Executive
Officer of the Company unless otherwise directed by the Board
of Directors. Executive hereby accepts this employment upon
the terms and conditions herein contained and, subject to
paragraph 1(c), agrees to devote substantially all of his
time, attention and efforts during normal business hours,
excluding any periods of vacation or sick leave, to promote
and further the business and interests of the Company and its
affiliates.
<PAGE> 2
b. Executive shall faithfully adhere to, execute and fulfill all
reasonable and lawful policies established by the Company, to
the extent such policies have been communicated to Executive
in writing and are not inconsistent with any of the terms of
this Agreement.
c. Except as set forth on Schedule 1c. hereto, Executive shall
not, during the term of his employment hereunder, engage in
any other business activity pursued for gain, profit or other
pecuniary advantage to the extent such activity interferes
materially with Executive's duties and responsibilities
hereunder. The foregoing limitations shall not prohibit
Executive from making personal investments in such form or
manner as will not materially interfere with Executive's
Performance of his duties under this Agreement.
d. Executive shall be entitled to vacation in accordance with the
policies of the Company for similarly-situated employees.
2. Compensation. For all services rendered by Executive, the Company shall
compensate Executive as follows:
a. Base Salary. The base salary payable to Executive during the
term shall be $220,000.00 per year ("Base Salary") payable in
accordance with the Company's payroll procedures for officers,
but not less frequently than twice monthly. On an annual basis
such base salary shall be reviewed by the Board of Directors
of the Company (the "Board"), and may be adjusted at its
discretion in light of the Executive's position,
responsibilities, performance and such other reasonable, job
related factors that the Board deems appropriate; provided,
however, as adjusted Base Salary may not be less than that
amount in effect on the Effective Date.
b. Annual Bonus. The Company will consider adopting an incentive
bonus plan under which Executive and other officers of the
Company will be eligible to receive annual bonus awards in
amounts that are competitive with those provided to similarly
situated executives and commensurate with the performance of
the AMPAM Companies, as reasonably determined by the Board.
c. Executive Perquisites and Benefits. Executive shall be
entitled to receive additional benefits and compensation from
the Company in the form and to the extent specified below:
i. Executive shall be reimbursed for all business travel
and other out-of-pocket expenses reasonably incurred
by Executive in the performance of his duties
pursuant to this Agreement and in accordance with the
Company's policy for its officers, including, without
limitation, continuing education, license and
administrative fees. All such expenses shall be
appropriately documented in
-2-
<PAGE> 3
reasonable detail by Executive upon submission of any
request for reimbursement, and in a format and manner
consistent with the Company's expense reporting
policy.
ii. Executive shall be entitled to participate in all
bonus and incentive compensation plans and to receive
all fringe benefits and perquisites offered by the
Company to any of the Company's similarly situated
executives, including, without limitation,
participation in the various employee benefit plans
or programs provided to the employees of the Company
in general, subject to the regular eligibility
requirements with respect to each of such benefit
plans or programs, and such other benefits or
perquisites as may be approved for Executive by the
Board during the term of this Agreement, all on a
basis as favorable to Executive as may be provided or
offered by the Company to other comparable officers
(in terms of position) of the Company.
Notwithstanding the above, until the Company
establishes employee welfare and pension benefit
plans for its officers, Executive shall participate
in such plans of the AMPAM Companies as may be
designated.
Notwithstanding the above, the Board may offer or provide to
Executive, or to any other officer or executive of the Company
or any AMPAM Company, special compensation, benefits, and/or
perquisites, in order to attract or retain that executive or
officer where the Board determines, in its discretion, that
the offer or provision of such special compensation, benefits,
and/or perquisites are in the best interests of AMPAM or any
AMPAM Company. Should the Board make such determination and
offer or provide special compensation, benefits and/or
perquisites to an officer or executive, Executive will not
automatically be entitled to such special compensation,
benefits and/or perquisites.
iii. Until such time as Executive becomes eligible for
coverage under a group health plan of AMPAM, the
Company shall monthly reimburse Executive for any
COBRA continuation premiums paid by Executive for his
coverage after the Effective Date.
3. Non-Competition Agreement.
a. Executive acknowledges that as a consequence of his employment
with the Company, he will be furnished or have access to
Confidential Information (as defined below). Executive further
recognizes that the Company's willingness to enter into this
Agreement is based in material part on Executive's agreement
to the provisions of this paragraph 3 and that Executive's
breach of the provisions of this paragraph 3 could materially
damage the Company. Subject to the further provisions of this
Agreement, Executive will not, during the term of his
employment with the Company and for a period of two years
immediately following the termination of such
-3-
<PAGE> 4
employment for any reason, directly or indirectly, for himself
or on behalf of or in conjunction with any other person,
company, partnership, corporation or business of whatever
nature:
i. engage, as an officer, director, shareholder, owner,
partner, joint venture, or in a managerial capacity,
whether as an employee, independent contractor,
consultant or advisor, or as a sales representative,
whether paid or unpaid, in any plumbing, piping,
mechanical, heating, ventilation or air conditioning
contracting; installation or services business
directly related thereto (such business and
operations referred to herein as the "Plumbing and
Mechanical Business"), in direct competition with any
of the AMPAM Companies within 100 miles of where any
of the AMPAM Companies conducts business including
any territory serviced by any of the AMPAM Companies
during the term of Executive's employment (the
"Territory");
ii. call upon any person who is, at that time, an
employee of the AMPAM Companies for the purpose or
with the intent of enticing such employee away from
or out of the employ of the AMPAM Companies;
iii. call upon any person or entity which is, at that
time, or which has been, within one year prior to
that time, a customer of the AMPAM Companies within
the Territory for the purpose of soliciting
customers, orders or contracts for any Plumbing and
Mechanical Business within the Territory;
iv. call upon any prospective acquisition candidate, on
Executive's own behalf or on behalf of any
competitor, which candidate was, to Executive's
knowledge after due inquiry, either called upon by
the AMPAM Companies or for which the AMPAM Companies
made an acquisition analysis, for the purpose of
acquiring such entity;
v. disclose customers, whether in existence or proposed,
of the AMPAM Companies to any person, firm,
partnership, corporation or business for any reason
or purpose whatsoever except to the extent that the
AMPAM Companies has in the past disclosed such
information to the public, any person, firm,
partnership, corporation, business, or other entity,
for valid business reasons; or
vi. testify as an expert witness in plumbing and
mechanical services matters for an adverse party to
any of the AMPAM Companies in litigation; provided
that nothing contained in this paragraph 3(a)(vi)
shall interfere with Executive's duty to testify as a
witness if required by law.
-4-
<PAGE> 5
Notwithstanding the above, the foregoing covenant
shall not be deemed to prohibit Executive from
acquiring as an investment (i) not more than 1% of
the capital stock of a company engaged in the
Plumbing and Mechanical Business, whose stock is
traded on a national securities exchange, the NASDAQ
Stock Market or on an over-the-counter or similar
market or (ii) not more than 1% of the capital stock
of a competing business whose stock is not publicly
traded if the Board consents to such acquisition. Any
ownership interest in any business which is in
competition with the AMPAM Companies shall
immediately be disclosed to the Board by Executive.
b. Because of the difficulty of measuring economic losses to the
Company as a result of a breach of the foregoing covenant, and
because of the immediate and irreparable damage that could be
caused to the Company for which they would have no other
adequate remedy, Executive agrees that foregoing covenant may
be enforced by the Company, in the event of breach by him, by
injunctions, restraining orders, and orders of specific
performance issued by a court of competent jurisdiction.
Executive further agrees to waive any requirement for the
Company's securing or posting of any bond in connection with
such remedies.
c. It is agreed by the parties that the foregoing covenants in
this paragraph 3 impose a reasonable restraint on Executive in
light of the activities and business of the AMPAM Companies on
the date of the execution of this Agreement and the current
plans of the AMPAM Companies; but it is also the intent of the
Company and Executive that, subject to paragraph 3(g) hereof,
such covenants be construed and enforced in accordance with
the changing activities, business and locations of the AMPAM
Companies throughout the term of this covenant, whether before
or after the date of termination of the employment of
Executive, unless the Executive was conducting such new
business prior to the AMPAM Companies conducting such new
business. For example, if, during the term of Executive's
employment, any of the AMPAM Companies engages in new and
different activities, enters a new business or establishes new
locations for its current or new activities or business in
addition to or other than the activities or business
enumerated under the Recitals above or the locations currently
established therefor, then, subject to paragraph 3g. hereof,
through the term of this covenant Executive will be precluded
from soliciting the customers or employees of such new
activities or business or from such new location and from
directly competing with such new business activities, or
locations within 100 miles of where such new activities,
business or locations are conducted, unless Executive was
conducting such new activities or business prior to any of the
AMPAM Companies conducting such new activities or business.
d. It is further agreed by the parties hereto that, in the event
that Executive shall cease to be employed hereunder and shall
enter into a business or pursue other activities not in
competition with the Plumbing and Mechanical Business of the
AMPAM
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Companies or related activities or business in locations the
operation of which, under such circumstances, does not violate
clause (a)(i) of this paragraph 3, and in any event such new
business, activities or location are not in violation of this
paragraph 3 or of Executive's obligations under this paragraph
3, if any, Executive shall not be chargeable with a violation
of this paragraph 3 if the AMPAM Companies shall at any time
after the termination of Executive's employment enter the
same, similar or a competitive (i) business, (ii) course of
activities or (iii) location, as applicable.
e. The covenants in this paragraph 3 are severable and separate,
and the non-enforceability of any specific covenant shall not
affect the provisions of any other covenant. Moreover, in the
event any court of competent jurisdiction shall determine that
the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that
such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be
reformed.
f. All of the covenants in this paragraph 3 shall be construed as
an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action
of Executive against any of the AMPAM Companies, whether
predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by the Company of such
covenants. It is specifically agreed that the period of two
years (subject to the further provisions of this Agreement)
following termination of employment stated at the beginning of
this paragraph 3, during which the agreements and covenants of
Executive made in this paragraph 3 shall be effective, shall
be computed by excluding from such computation any time during
which Executive is in violation of any provision of this
paragraph 3.
g. The Company and the Executive hereby agree that this covenant
is a material and substantial part of this transaction.
4. Term; Termination; Rights on Termination. The term of this Agreement
shall begin on the Effective Date and continue for five years (the
"Initial Term"), unless terminated sooner as herein provided; however,
beginning on the fifth anniversary of the Effective Date and on each
anniversary thereafter the term shall automatically continue for one
year on the same terms and conditions contained herein in effect as of
the time of renewal (the "Extended Term") unless not less than six
months prior to any such anniversary either party shall give written
notice to the other party that the term shall not be so extended;
provided further, however, upon a Change in Control (as defined in
paragraph 11(e)) during the Initial Term or any Extended Term the term
of this Agreement shall automatically continue following such Change in
Control for a period equal to the then remaining term or two years,
whichever period is longer (such longer period being an Extended Term),
unless earlier terminated as provided in paragraph 11. This Agreement
and Executive's employment may be terminated in any one of the
followings ways:
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<PAGE> 7
a. Death. The death of Executive shall immediately terminate this
Agreement with no severance compensation due Executive's
estate; provided, however, for the 90-day period following
Executive's death, the Company, at its sole cost and expense,
shall continue to provide Executive's then qualified
beneficiaries with coverage under the Company's group health
plan in which Executive participated immediately prior to
Executive's death or a successor plan thereto, subject to the
terms of such plan as it may be amended ("Company Health
Plan"). Thereafter, the Company shall provide continuation of
coverage elections to such qualified beneficiaries as are
required by law.
b. Disability. If Executive becomes entitled to and receives
benefits under an insured long term disability plan of the
AMPAM Companies (incurs a "Disability"), the Company, with the
approval of a majority of the members of the Board, may
terminate this Agreement and Executive's employment hereunder.
In the event this Agreement is terminated as a result of
Executive's Disability, Executive shall have no right to any
severance compensation; provided, however, (i) for 12 months
thereafter or until Executive's death, if earlier, the Company
shall continue to pay Executive an amount equal to Executive's
monthly adjusted Base Salary (computed by reference to
Executive's annual adjusted Base Salary at the time of his
termination) reduced by any cash benefits payable to Executive
under such long term disability plan and (ii) the Company, at
its sole cost and expense, shall continue the coverage of
Executive and his qualified beneficiaries (for as long as they
are qualified beneficiaries thereunder) under the Company
Health Plan for as long as Executive continues to qualify for
and receive benefits under such long term disability plan, but
not to exceed five years. Thereafter, the Company shall
provide continuation of coverage elections to Executive and
his qualified beneficiaries as required by law.
c. Cause. The Company may terminate this Agreement and
Executive's employment for "Cause", which shall be: (1)
Executive's willful and material breach of this Agreement
(which remains uncured at the end of a 30-day period);
provided, that none of the following shall constitute Cause
for purposes of this clause (1): isolated incidences of (A)
bad judgement, (B) negligence, or (C) any act or omission that
Executive believed in good faith to have been in or not
opposed to the interest of the Company; (2) Executive's gross
negligence in the performance or intentional nonperformance
(in either case continuing for 30 days after receipt of
written notice of need to cure) of any of Executive's material
duties and responsibilities hereunder; (3) Executive's
dishonesty or fraud with respect to the business, reputation
or affairs of the AMPAM Companies; or (4) Executive's
conviction of a felony crime involving moral turpitude. Any
termination for Cause must be approved by a majority of the
eligible members of the Board (for this purpose, any member of
the
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<PAGE> 8
Board reasonably believed by a majority of the Board to be at
fault in the events leading the Board to consider terminating
Executive for Cause shall also be excluded, including
Executive if Executive is a member of the Board). For purposes
hereof, no act, or failure to act, on Executive's part shall
be deemed "willful" unless done, or omitted to be done, by
Executive not in good faith and/or without reasonable belief
that Executive's action or omission was in the best interest
of the Company. Notwithstanding the foregoing, Executive shall
not be deemed to have been terminated for Cause unless and
until there shall have been delivered to Executive a Notice of
Termination and a copy of a resolution duly adopted by the
Board, finding that, in the good faith opinion of the Board,
Executive was guilty of conduct set forth above and specifying
the particulars thereof in detail. In the event of a
termination for Cause, Executive shall have no right to any
severance compensation.
i. The Company may not terminate Executive's employment
for Cause unless:
(1) no fewer than 30 days prior to the Date of
Termination, the Company provides Executive
with written notice (the "Notice of
Consideration") of its intent to consider
termination of Executive's employment for
Cause, including a detailed description of
the specific reasons which form the basis
for such consideration;
(2) for a period of not less than 25 days after
the date Notice of Consideration is
provided, Executive shall have the
opportunity to appear before the Board, with
or without legal representation, at
Executive's election, to present arguments
and evidence on his own behalf; and
(3) following the presentation to the Board as
provided in (2) above or Executive's failure
to appear before the Board at a date and
time specified in the Notice of
Consideration (which date shall not be more
than 30 days after the date the Notice of
Consideration is provided), Executive may be
terminated for Cause only if the Board, by
majority vote of its eligible voters,
determines that the actions or inactions of
Executive specified in the Notice of
Consideration, or reasonably related and/or
later-discovered actions or inactions,
occurred, that such actions or inactions
constitute Cause, and that Executive's
employment should accordingly be terminated
for Cause;
ii. Unless the Company (A) complies with the substantive
and procedural requirements of this Section 4.c.
prior to a Termination of Employment for Cause, and
(B) concludes, in its good faith discretion that
Executive's action or inaction specified in the
Notice of Termination for Cause did occur and
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<PAGE> 9
constituted Cause, any Termination of Employment
shall be deemed a termination without Cause for all
purposes of this Agreement.
iii. After providing a notice of need to cure or Notice of
Consideration pursuant to the provisions of this
Section 4.c., the Board may, by the affirmative vote
of all of its members (excluding for this purpose
Executive if he is a member of the Board, and any
other member of the Board reasonably believed by the
Board to be at fault in the events leading to issuing
the Notice of Consideration), suspend Executive with
pay until a final determination pursuant to this
Section 4.c. has been made.
d. Without Cause or For Good Reason. Executive may only be
terminated without Cause and other than due to Disability by
the Company during either the Initial Term or Extended Term if
such termination is approved by a majority of the members of
the Board. Should Executive be terminated by the Company
without Cause and other than due to Disability or should
Executive terminate with Good Reason during the Initial Term,
Executive shall receive from the Company, in addition to any
accrued but unpaid salary, bonus and benefits, a lump sum
payment due on the effective date of termination, an amount
equivalent to the annual adjusted Base Salary at the rate then
in effect for (i) whatever time period is remaining under the
Initial Term (but in no event more than two years) or (ii) for
one year, whichever amount is greater. Should Executive be
terminated by the Company without Cause and other than due to
Disability or should Executive terminate with Good Reason
during the Extended Term, Executive shall receive from the
Company, in a lump sum payment due on the effective date of
termination, an amount equivalent to the adjusted Base Salary
at the rate then in effect for one year. Further, any
termination by the Company without Cause or due to Disability
or by Executive for Good Reason whether during the Initial
Term or any Extended Term shall operate to shorten the period
set forth in paragraph 3.a. and during which the terms of
paragraph 3. apply to one year from the date of termination of
employment. If Executive resigns or otherwise terminates his
employment without Good Reason, rather than the Company
terminating his employment pursuant to that paragraph 4.d.,
Executive shall receive no severance compensation.
e. Executive shall have "Good Reason" to terminate his employment
hereunder as a consequence of any of the following events,
unless such event is agreed to in writing by Executive: (a) a
material reduction in his authority, title, responsibilities
or duties; (b) Executive's adjusted Base Salary is reduced
below that in effect on the Effective Date; (c) the relocation
of the Company's principal executive offices or Executive's
principal office to a location outside the state of Texas
without a commensurate adjustment in Executive's Base Annual
Salary to reflect any increase in cost of living as measured
by comparing the applicable regional or local consumer price
indices; (d) the assignment to Executive of any duties or
responsibilities which are materially
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<PAGE> 10
inconsistent with Executive's title, position or
responsibilities as in effect immediately prior to such
assignment; (e) the failure by the Company to continue in
effect any employee benefit plan in which Executive
participates and/or any perquisite provided Executive, which
is (are) material to Executive's total compensation and
benefits, unless an equitable arrangement (embodied in an
ongoing substitute or alternative plan) has been made with
respect to such plan or perquisite, or the failure by the
Company to continue Executive's participation therein, or any
action by the Company which would materially reduce
Executive's participation therein or reward opportunities
thereunder; (f) the failure of the Company to obtain a
satisfactory agreement from any successor or assign of the
Company to assume and agree to perform this Agreement, as
contemplated in paragraph 10.; (g) a material breach of this
Agreement by the Company (including failure of the Company to
pay Executive on a timely basis the amounts to which Executive
is entitled under this Agreement); provided, however, Good
Reason shall exist with respect to a matter only if such
matter is not corrected by the Company within 30 days of its
receipt of written notice of such matter from Executive, and
in no event shall a termination by Executive occurring more
than 60 days following the date of an event described above be
a termination for Good Reason due to such event.
f. If termination of Executive's employment arises out of the
Company's failure to pay Executive on a timely basis the
amounts to which Executive is entitled under this Agreement or
as a result of any other breach of this Agreement by the
Company, as determined by a court of competent jurisdiction or
pursuant to the provisions of paragraph 18. below, the Company
shall pay all amounts and damages to which Executive may be
entitled as a result of such breach, including interest
thereon and all reasonable legal fees and expenses and other
costs incurred by Executive to enforce his rights hereunder.
Further, none of the provisions of paragraph 3. shall apply in
the event this Agreement is terminated as a result of a breach
by the Company.
g. Resignation Without Good Reason. Executive may, without Good
Reason (as hereinafter defined), terminate this Agreement and
Executive's employment, effective 30 days after written notice
is provided to the Company. If Executive resigns or otherwise
terminates his employment without Good Reason, rather than the
Company terminating his employment pursuant to that paragraph
4.d., Executive shall receive all accrued but unpaid salary,
bonus and benefits. Under no circumstance where Executive
terminates Executive's employment without Good Reason, shall
Executive be entitled to any pro rata share or payment of any
bonus or other compensation which has not yet been determined
or which requires employment at the time of the determination
or award for eligibility.
h. Upon termination of this Agreement for any reason provided
above, in addition to the above payments, if any, Executive
shall be entitled to receive all compensation
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<PAGE> 11
earned, accrued vacation and reimbursements due through the
effective date of termination, paid to Executive in a lump sum
on the effective date of termination. In addition, a
termination of this Agreement shall not alter or impair any of
Executive's vested rights or benefits, if any, under any (i)
employee benefit plan of the AMPAM Companies or (ii) deferred
compensation plan, including, without limitation, any stock
option plan, of the AMPAM Companies. In addition,
notwithstanding any other provision of this Agreement, upon
termination of this Agreement other than (i) by the Company
for Cause, (ii) by Executive without Good Reason and in the
absence of a Change in Control or (iii) at the expiration of
the Initial Term or any Extended Term pursuant to a timely
notice, all options to purchase the stock of the Company (or
any successor thereof) and all similar equity-based awards,
outstanding granted or issued on the date hereof shall, at the
time of such termination, become vested without regard to any
vesting schedule thereof and in the case of options, shall be
exercisable for the greater of two years from the date of such
termination or the period provided in such award. All other
rights and obligations of the Company and Executive under this
Agreement shall cease as of the effective date of termination,
except that Executive's obligations under paragraphs 3., 5.,
6., 7., and 8. herein and the Company's obligations under
paragraphs 11.g. and 14. shall survive such termination in
accordance with their terms, unless or except as expressly
provided otherwise in this Agreement.
5. Return of Company Property. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other
property delivered to or compiled by Executive by or on behalf of any
of the AMPAM Companies or their representatives, vendors or customers
which pertain to the business of any AMPAM Companies shall be and
remain the property of the AMPAM Companies, as the case may be, and be
subject at all times to their discretion and control. Likewise, all
correspondence, reports, records, charts, advertising materials and
other similar data pertaining to the business, activities or future
plans of the AMPAM Companies which is collected by Executive shall be
delivered promptly to the Company without request by it upon
termination of Executive's employment and Executive shall not retain
any copies of the same.
6. Intellectual Property. Executive shall disclose promptly to the Company
any and all conceptions, ideas, designs, plans, know-how, processes,
improvements and other discoveries, whether patentable or not, which
(i) are conceived or made by Executive, solely or jointly with another,
during the period of employment or thereafter, (ii) are directly
related to the plumbing and mechanical business or activities of the
AMPAM Companies, and (iii) Executive conceives as a result of his
employment by the Company, including any predecessor (collectively, the
"Intellectual Property"). Executive hereby assigns and agrees to assign
all his interests therein to the Company or its nominee. Whenever
requested to do so by the Company, Executive shall execute any and all
applications, assignments or other instruments that the Company shall
deem necessary to apply for and obtain Letters Patent of the United
States or any foreign country or to otherwise protect the Company's
interest
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<PAGE> 12
therein. Executive must also render to the Company, at the Company's
expense, assistance in the perfection, enforcement and defense of any
Intellectual Property.
7. Trade Secrets. Executive agrees that he will not, during or after the
term of this Agreement, disclose the specific terms of the AMPAM
Companies' relationships or agreements with its respective vendors or
customers or any other trade secret of the AMPAM Companies, whether in
existence or proposed, to any person, firm, partnership, corporation or
business for any reason or purpose whatsoever, except as required by
law and prior to any such disclosure Executive shall give the Company
prior written notice thereof and the opportunity to contest such
disclosure.
8. Confidentiality.
a. Executive acknowledges and agrees that all Confidential
Information (as defined below) of the Company is confidential
and a valuable, special and unique asset of the Company that
gives the Company an advantage over its actual and potential,
current and future competitors. Executive further acknowledges
and agrees that Executive owes the Company a fiduciary duty to
preserve and protect all Confidential Information from
unauthorized disclosure or unauthorized use, that certain
Confidential Information constitutes "trade secrets" under
applicable laws and, that unauthorized disclosure or
unauthorized use of the Confidential Information would
irreparably injure the Company. Both during the term of
Executive's employment and after the termination of
Executive's employment for any reason (including wrongful
termination), Executive shall hold all Confidential
Information in strict confidence, and shall not use any
Confidential Information except for the benefit of the
Company, in accordance with the duties assigned to Executive.
Executive shall not, at any time (either during or after the
term of Executive's employment), disclose any Confidential
Information to any person or entity (except other employees of
the Company who have a need to know the information in
connection with the performance of their employment duties,
and who have been informed of the confidential nature of the
confidential information and have agreed to keep it
confidential), or copy, reproduce, modify, transmit, including
electronic transmission, decompile or reverse engineer any
Confidential Information, or remove any Confidential
Information from the Company's premises, without the prior
written consent of the Board, or permit any other person to do
so. Executive shall take reasonable precautions to protect the
physical security of all documents and other material
containing Confidential Information (regardless of the medium
on which the Confidential Information is stored). This
Agreement applies to all Confidential Information, whether now
known or later to become known to Executive.
b. Upon the termination of Executive's employment with the
Company for any reason, and upon written request of the
Company at any other time, Executive shall promptly surrender
and deliver to the Company all documents and other written
material of any
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<PAGE> 13
nature containing or pertaining to any Confidential
Information and shall not retain any such document or other
material. Within ten days of a written request by the Company,
Executive shall certify to the Company in writing that all
such materials have been returned.
As used in this Agreement, the term "Confidential Information"
shall mean any information or material known to or used by or
for the AMPAM Companies (whether or not owned or developed by
the AMPAM Companies and whether or not developed by Executive)
that is not generally known to persons in the Plumbing and
Mechanical Business, except as provided in this paragraph.
Confidential Information includes, but is not limited to, the
following: all trade secrets of the AMPAM Companies; all
information that the AMPAM Companies have marked as
confidential or has otherwise described to Executive (either
in writing or orally) as confidential; all nonpublic
information concerning the AMPAM Companies' products,
services, prospective products or services, research, product
designs, prices, discounts, costs, marketing plans, marketing
techniques, market studies, test data, customers, customer
lists and records, suppliers and contracts; all AMPAM
Companies' business records and plans; all AMPAM Companies'
personnel files; all financial information of or concerning
the AMPAM Companies; all information relating to operating
system software, application software, software and system
methodology, hardware platforms, technical information,
inventions, computer programs and listings, source codes,
object codes, copyrights and other intellectual property; all
technical specifications; any proprietary information
belonging to the AMPAM Companies; all computer hardware or
software manuals; all training or instruction manuals; and all
data and all computer system passwords and user codes. For
purposes hereof, Confidential Information shall not include
such information (i) which becomes or is already known to the
public or some other party through no fault of Executive; or
(ii) the disclosure of which (x) is required by law (including
regulations and rulings) or the order of any competent
governmental authority or (y) Executive reasonably believes is
required in connection with the defense of a lawsuit against
Executive, provided that in either case, prior to disclosing
any information, Executive shall give prior written notice
thereof to the Company and provide the Company with the
opportunity to contest such disclosure.
9. No Prior Agreements. Executive hereby represents and warrants to the
Company that the execution of this Agreement by Executive and his
employment by the Company and the performance of his duties hereunder
will not violate or be a breach of any agreement, including any
non-competition agreement, invention or secrecy agreement, with a
former employer, client or any other person or entity. Further,
Executive agrees to indemnify the Company for any loss, including but
not limited to, reasonable attorneys' fees and expenses, the Company
may incur based upon or arising out of Executive's breach of this
paragraph 9.
10. Assignment, Binding Effect. Executive understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Executive agrees, therefore,
that he cannot assign all or any portion of his performance under this
Agreement. Subject to the preceding two sentences and the express
provisions of paragraph 12. below, this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the parties hereto
and their respective heirs, legal representatives,
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<PAGE> 14
successors and assigns. The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and assets of the Company to
expressly assume and agree in writing reasonably satisfactory to
Executive to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such
written agreement prior to the effectiveness of any such succession
shall be a material breach of this Agreement.
11. Change in Control.
a. Executive understands and acknowledges that the Company may be
merged or consolidated with or into another entity and that
such entity shall automatically succeed to the rights and
obligations of the Company hereunder or that the Company may
undergo a Change in Control (as defined below). In the event a
Change in Control is initiated or occurs during the Initial
Term or an Extended Term, then the provisions of this
paragraph 11. shall be applicable.
b. In the event of a Change in Control wherein the Company and
Executive have not received written notice at least ten
business days prior to the date of the event giving rise to
the Change in Control from the successor to all or a
substantial portion of the Company's business and/or assets
that such successor is willing as of the closing to assume and
agrees to perform, or continue to cause the Company to
perform, the Company's obligations under this Agreement in the
same manner and to the same extent that the Company is hereby
required to perform, then Executive may, at Executive's sole
discretion, elect to terminate Executive's employment on the
effective date of such Change in Control by providing written
notice to the Board at least five business days prior to the
closing of the transaction giving rise to the Change in
Control. In such case, Executive shall be deemed to have
terminated Executive's employment for Good Reason on such
date; provided, however, the amount of the lump sum severance
payment due Executive shall be triple the amount calculated
under the terms of paragraph 4.d., but shall in no event
exceed nine times Executive's Base Annual Salary as in effect
at the time of termination.
c. In any Change in Control situation, Executive may, at
Executive's sole discretion, elect to terminate Executive's
employment upon the effective date of such Change in Control
by providing written notice to the Board at least five
business days prior to the closing of the transaction giving
rise to the Change in Control. In such case, Executive shall
be deemed to have terminated Executive's employment for Good
Reason on such date; provided, however, the amount of the lump
sum severance payment due Executive shall be double the amount
calculated under the terms of paragraph 4.d., but shall in no
event exceed six times Executive's Base Annual Salary as in
effect at the time of termination.
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<PAGE> 15
d. If, on or within two years following the effective date of a
Change in Control the Company terminates Executive's
employment other than for Cause or Disability or Executive
terminates his employment for Good Reason, or if Executive's
employment with the Company is terminated by the Company
within three months before the effective date of a Change in
Control and it is reasonably demonstrated that such
termination (i) was at the request of a third party that has
taken steps reasonably calculated to effect a Change in
Control, or (ii) otherwise arose in connection with or
anticipation of a Change in Control, then Executive shall
receive from Company, in a lump sum payment due on the
effective date of termination, the greater of (i) the
equivalent of three times Executive's Base Annual Salary at
the rate then in effect, or (ii) the base salary for whatever
period is then remaining on the Initial Term, if any, which
payment shall be in lieu of any amounts otherwise payable
pursuant to paragraph 4.d.
e. A "Change in Control" shall be deemed to have occurred if:
i. any person, entity or group (as such terms are used
in Sections 13d. and 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Act")), other
than persons and entities which owned any capital
stock of the Company at the closing date of the
transactions contemplated in the Acquisition
Agreements, the AMPAM Companies or an employee
benefit plan of the AMPAM Companies, acquires,
directly or indirectly, the beneficial ownership (as
defined in Section 13(d) of the Act) of any voting
security of the Company and immediately after such
acquisition such person, entity or group is, directly
or indirectly, the beneficial owner of voting
securities representing [35]% or more of the total
voting power of all of the then outstanding voting
securities of the Company entitled to vote generally
in the election of directors;
ii. upon the first purchase of the Company's common stock
pursuant to a tender or exchange offer (other than a
tender or exchange offer made by the Company);
iii. the stockholders of the Company shall approve a
merger, consolidation, recapitalization or
reorganization of the Company, or a reverse stock
split of outstanding voting securities, or
consummation of any such transaction if stockholder
approval is not obtained, other than any such
transaction which would result in at least 75% of the
total voting power represented by the voting
securities of the surviving entity outstanding
immediately after such transaction being beneficially
owned by the holders of all of the outstanding voting
securities of the Company immediately prior to the
transactions with the voting power of each such
continuing holder relative to other such continuing
holders not substantially altered in the transaction;
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<PAGE> 16
iv. the stockholders of the Company shall approve a plan
of complete liquidation or dissolution of the Company
or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's
assets; or
v. if, at any time during any period of two consecutive
years, individuals who at the beginning of such
period constitute the Board cease for any reason to
constitute at least a majority thereof, unless the
election or nomination for the election by the
Company's stockholders of each new director was
approved a vote of at least two-thirds of the
directors then still in office who were directors at
the beginning of the period.
f. Notwithstanding anything in this Agreement to the contrary, a
termination pursuant to paragraph 11.b., c., or d. shall
operate to automatically waive in full the non-competition
restrictions imposed on Executive pursuant to paragraph 3.
g. If it shall be determined that any payment made or benefit
provided to Executive in connection with a change in control
(as defined in Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), or any successor thereto) of
the Company occurring after the Effective Date and on or
before the termination of this Agreement, whether or not made
or provided pursuant to this Agreement, is subject to the
excise tax imposed by Section 4999 of the Code, the Company
shall pay Executive an amount of cash (the "Additional
Amount") such that the net amount received by Executive after
paying all applicable taxes on such Additional Amount and any
penalties, interest and other reasonable costs incurred as a
result of such excise tax or additional payment, shall be
equal to the amount that Executive would have received if
Section 4999 were not applicable.
12. No Mitigation or Offset. Executive shall not be required to mitigate
the amount of any Company payment provided for in this Agreement by
seeking other employment or otherwise. The amount of any payment
required to be paid to Executive by the Company pursuant to this
Agreement shall not be reduced by any amounts that are owed to the
Company by Executive, provided that Executive (i) executes and delivers
to the Company a promissory note evidencing a promise by Executive to
pay the full amount of any amounts owed to the Company within 12 months
from the date of Executive's termination of employment and (ii)
provides such collateral reasonably satisfactory to the Company to
ensure payment of such promissory note.
13. Release. Notwithstanding anything in this Agreement to the contrary,
Executive shall not be entitled to receive any severance payments
pursuant to paragraphs 4. or 11. of this Agreement unless Executive has
executed (and not revoked) a general release of all claims, known or
unknown, Executive may have against the Company, its subsidiaries,
their directors, officers, and employees, in a form of such release
reasonably acceptable to the Company.
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14. Indemnification. In the event Executive is made a party to any
threatened, pending or completed action, suit or proceeding, whether
civil, derivative, subrogation, criminal, administrative or
investigative (other than an action by the Company against Executive
and a derivative action shall not be considered an action by the
Company), by reason of the fact that he is or was performing services
for the Company or any of the AMPAM Companies or any present or future
subsidiary thereof, or as an executive officer of the AMPAM Companies
prior to the date of this Agreement, then the Company shall indemnify
Executive against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement, as actually and reasonably
incurred by Executive in connection therewith. In the event that both
Executive and the Company are made a party to the same third-party
action, complaint, suit or proceeding, the Company agrees to engage
competent legal representation, and Executive agrees to use the same
representation, provided that if counsel selected by the Company shall
have a conflict of interest that prevents such counsel from
representing Executive, Executive may engage separate counsel and the
Company shall pay as incurred all reasonable attorneys' fees and
reasonable expenses of such separate counsel, provided further that
Executive may at any time, at Executive's sole expense, hire separate
counsel to represent Executive in such matter. Further, while Executive
is expected at all times to use his best efforts to faithfully
discharge his duties under this Agreement, Executive cannot be held
liable to the Company for errors or omissions made in good faith where
Executive has not exhibited gross, willful and wanton negligence and
misconduct nor performed criminal and fraudulent acts which materially
damage the business of the Company. The Company shall indemnify
Executive against and hold Executive harmless from any costs, expenses
(including reasonable attorneys' fees as provided in this paragraph),
liabilities, losses and exposures for Executive's services as an
employee, officer and director of the Company (or any of AMPAM
Companies or any successor) to the maximum extent permitted under
applicable law. The indemnification required by this paragraph 14.
shall be made by the Company by periodic payments promptly as and when
bills are received or liabilities are incurred. The provisions of this
paragraph shall survive the termination of this Agreement.
15. Complete Agreement. This Agreement supersedes, and replaces in full,
all representations, understandings and agreements (oral or written)
between Executive and the Company or any of the AMPAM Companies or any
of their officers, directors or representatives existing as of the
Effective Date and covering the same subject matter as this Agreement.
This written Agreement is the final, complete and exclusive statement
and expression of the agreement between the Company and Executive and
of all the terms of this Agreement, and it cannot be varied,
contradicted or supplemented by evidence of any prior or
contemporaneous oral or written agreements. This written Agreement may
not be modified after the Effective Date except by a further writing
signed by a duly authorized officer of the Company and Executive, and
no term of this Agreement may be waived except by writing signed by the
party waiving the benefit of such term. Without limiting the generality
of the foregoing, either party's failure to insist on strict compliance
with this Agreement shall not be deemed a waiver thereof.
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<PAGE> 18
16. Notice. Whenever any notice is required hereunder, it shall be given in
writing addressed as follows:
To the Company: American Plumbing and Mechanical, Inc.
1502 Augusta, Suite 425
Houston, Texas 77057
Attn: Chairman of the Board of Directors
To Executive: Robert A. Christianson
5803 Long Court
Austin, TX 78730
Notice shall be deemed given and effective on the earlier of three days
after the deposit in the U.S. mail of a writing addressed as above and
sent first class mail, certified, return receipt requested, or when
actually received. Either party may change the address for notice by
notifying the other party of such change in accordance with this
paragraph 16.
17. Severability; Headings. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be
deemed valid and operative and, so far as is reasonable and possible,
effect shall be given to the intent manifested by the portion held
invalid or inoperative. The paragraph headings herein are for reference
purposes only and are not intended in any way to describe, interpret,
define or limit the extent or intent of the Agreement or of any part
hereof.
18. Dispute Resolutions. Except with respect to injunctive relief as
provided in paragraph 3b., neither party shall institute a proceeding
in any court or administrative agency to resolve a dispute between the
parties before that party has sought to resolve the dispute through
direct negotiation with the other party. If the dispute is not resolved
within two weeks after a demand for direct negotiation, the parties
shall attempt to resolve the dispute through mediation. If the parties
do not promptly agree on a mediator, the parties shall request the
Association of Attorney Mediators in Harris County, Texas (or if the
Company's principal offices are not in Harris County, a similar
organization in the county in which the Company's principal offices are
located) to appoint a mediator certified by the Supreme Court of Texas.
If the mediator is unable to facilitate a settlement of the dispute
within a reasonable period of time, as determined by the mediator, the
mediator shall issue a written statement to the parties to that effect
and any unresolved dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by
arbitration, conducted before a single arbitrator in the city in which
the Company has its principal offices, in accordance with the
Commercial Arbitration Rules of the American Arbitration Association
then in effect. The arbitrator shall have the authority to order
back-pay, severance compensation, vesting of options (or cash
compensation in lieu of vesting of options), reimbursement of costs and
expenses, including those incurred to enforce this Agreement, including
reasonable attorneys' fees and interest thereon in the event the
arbitrator determines that Executive was
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<PAGE> 19
involuntarily terminated by the Company without Disability or Cause, as
defined in paragraphs 4b. and 4c., respectively, or that the Company
has otherwise materially breached this Agreement. A decision by the
arbitrator shall be final and binding. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. The costs and
expenses, including reasonable attorneys' fees, of the prevailing party
in any dispute arising under this Agreement will be promptly paid by
the other party.
19. Governing Law. This Agreement shall in all respects be construed
according to the laws of the State of Texas without regard to its
conflicts of law provisions.
20. Counterparts. This Agreement may be executed simultaneously in two or
more Counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
21. Additional Provisions. The additional provisions set forth in Annex A
and Annex B hereto shall apply.
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<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective for all purposes as of the Effective Date.
Date: July 16, 1999
---------------------
AMERICAN PLUMBING AND MECHANICAL, INC.
/s/ DAVID C. BAGGETT
---------------------------------------
[Printed Name and Title]
Date: July 16, 1999
---------------------
EXECUTIVE
/s/ ROBERT A. CHRISTIANSON
---------------------------------------
Robert A. Christianson
---------------------------------------
[Printed Name]
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<PAGE> 21
Annex A
I. The Company shall grant to Executive a minimum of four weeks of
vacation per calendar year.
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<PAGE> 22
Annex B
Definitions. For purposes of this Annex B, "Christianson" shall be defined as
the combined operations of Christianson Enterprises, Inc., Christianson
Services, Inc. and GGR Leasing Corporation.
ADDITIONAL CONSIDERATION. In addition to the compensation provided in paragraphs
(a), (b) and (c) of paragraph 2 of the Agreement, AMPAM shall pay the Executive
such additional consideration (the "Additional Consideration") as shall be
determined in accordance with the following provisions (capitalized terms not
defined herein shall have the meaning ascribed to such term in the Acquisition
Agreement);
(i) Calculation of Additional Consideration.
(A) If Christianson generates actual Net Income (as
defined below) in the calendar year ended December
31, 1999 in excess of Target Net Income (as defined
below) for that same period, the Executive shall be
entitled to receive Additional Consideration in
accordance with the following formula:
A = 50% x (B - C) x 10.0 x 38.5%, where
"A" represents the amount of Additional Consideration
(provided that Additional Consideration shall be
limited to the maximum discussed below and will only
be paid in the event that "A" is a positive number);
"B" represents the amount of actual Net Income (as
defined below) generated by Christianson for the
calendar year ended December 31, 1999;
"C" represents Target Net Income (as defined below)
for the calendar year ended December 31, 1999.
(B) Net Income of Christianson shall be Christianson's
net income determined in accordance with GAAP applied
on a basis consistent with that used in preparing the
Financial Statements (subject to audit by AMPAM's
independent public accountants at the election of
AMPAM), as adjusted by:
(i) the exclusion of an allocation of
amortization of goodwill associated with the
consummation of the AMPAM Plan of
Organization;
(ii) the application of an 40% effective tax rate
to the Company's pretax income;
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<PAGE> 23
(iii) an allocation to Christianson of a charge
for selling, general and administrative
expense for the year ended December 31, 1999
determined by multiplying $4,000,000 by the
Applicable Percentage (as defined below).
(iv) an allocation to Christianson of
Christianson's allocable share of rebates
and other purchasing benefits received by
AMPAM from vendors and manufacturers of
equipment, material and supplies such
allocable share to be determined based upon
the relative purchase of equipment,
materials and supplies for the year ended
December 31, 1999 by Christianson from such
vendors and manufacturers in relation to the
purchase of equipment, materials and
supplies for the year ended December 31,
1999 by all Founding Companies and other
companies or businesses acquired by AMPAM
after the Closing Date from such vendors and
manufacturers, with the relative purchase
price relationship to be based upon the
criteria (such as quantity or dollar amount
of purchases) that forms the basis for such
rebates and other purchasing benefits
received from such vendors and
manufacturers; and
(v) the adjustment of Christianson's insurance
costs relating to general liability
insurance coverage, property damage
insurance coverage, workman's compensation
insurance coverage, health insurance
coverage and other insurance coverage to a
level consistent with Christianson's
insurance costs for the 12 month period
ended June 30, 1998, taking into
consideration changes in the size of the
business of Christianson an the number of
employees of the Company.
If the allocation of selling, general and
administrative expenses discussed in (iii) exceeds
the allocation of rebated and other purchasing
benefits discussed in (iv), then there will be no
allocations of the items discussed in (iii) and (iv)
above for purposes of the Additional Consideration
calculation.
(C) Target Net Income is defined as $6,733,357.
(ii) Maximum Additional Consideration. Notwithstanding the
foregoing formula, the maximum aggregate Additional
Consideration ("Maximum Additional Consideration") to be
received by the Executive is limited to 15% of the sum of the
Base Cash Amount, the principal amount of AMPAM Notes and the
value of the shares of AMPAM Stock paid to the Executive
pursuant to Section I.A. of the Annex I to the Acquisition
Agreement (prior to taking into account the adjustments
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<PAGE> 24
set forth in Sections I.B.2. and I.C.2.). For purposes of such
calculation, shares of AMPAM Stock received by the Executive
pursuant to Section I.A. of Annex I to the Acquisition
Agreement shall be given a value equal to the actual number of
shares of AMPAM Stock received by the Executive multiplied by
$13.00.
(iii) Form and Payment of Additional Consideration.
(A) Form. The Additional Consideration shall be paid 50%
in cash and 50% in AMPAM Stock; provided, however,
that the Executive may elect to receive all or a
portion of such cash in the form of AMPAM Notes
attached to Annex I to the Acquisition Agreement as
Appendix A. The number of shares of AMPAM Stock shall
be derived by dividing 50% of the amount of
Additional Consideration to be paid in AMPAM Stock by
the average closing price on the New York Stock
Exchange (or other exchange or quotation system as
the AMPAM Stock may be traded at such time) for AMPAM
Stock for the five trading days before and the five
trading days after March 31, 2000; provided, however,
that if AMPAM Stock is not traded on an exchange or
quotation system, the price to be used in making the
foregoing calculation will be $13.00 per share.
(B) Payment. Any Additional Consideration to be paid
shall be delivered by AMPAM to the Executive prior to
April 30, 2000. AMPAM's obligation to make any
payment of Additional Consideration will be subject
to the covenants and restrictions contained in
AMPAM's then existing private or public debt or
equity instruments.
(iv) Definitions.
"Applicable Percentage" shall mean the arithmetic average of
the following three percentages:
(a) the percentage that the aggregate dollar amount of
the payroll expenses of Christianson for the year
ended December 31, 1999 represents in relation to the
aggregate dollar amount of the payroll expenses of
all Founding Companies for the year ended December
31, 1999;
(b) the percentage that the aggregate dollar amount of
the operating revenue of Christianson for the year
ended December 31, 1999 represents in relation to the
aggregate dollar amount of the operating revenue of
all Founding Companies for the year ended December
31, 1999; and
(c) the percentage that the average net book value of the
total assets of Christianson for the year ended
December 31, 1999 represents in relation to
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<PAGE> 25
the average net book value of the sum of the total
assets of all Founding Companies for the year ended
December 31, 1999. For purposes of this provision,
the "average" net book value of total assets for
Christianson and for all Founding Companies, as the
case may be, will be determined by dividing (I) the
total assets of Christianson or the summation of the
total assets of all Founding Companies, as the case
may be, for each calendar month during the year ended
December 31, 1999 by (ii) 12.
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<PAGE> 1
EXHIBIT 10.17
AMPAM PARENT/MGT
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and between American
Plumbing and Mechanical, Inc., a Delaware corporation (the "Company" or
"AMPAM") and all its subsidiaries, and David C. Baggett ("Executive") is hereby
entered into effective as of April 1, 1999.
RECITALS
Whereas, as of the Effective Date, the Company and the subsidiaries of
the Company (the Company and such subsidiaries being collectively, the "AMPAM
Companies") provide plumbing and mechanical contracting services; and
Whereas, the Company wishes to employ Executive, and Executive wishes
to be employed by the Company, on the terms set forth herein; and
Whereas, in the course of his employment with the Company, Executive
will become familiar with and is aware of information as to the AMPAM
Companies' customers and specific manner of doing business, including the
processes, techniques and trade secrets used by the AMPAM Companies, and future
plans with respect thereto, all of which has been and will be established and
maintained at great expense to the AMPAM Companies and which constitutes trade
secrets and the valuable goodwill of the AMPAM Companies.
Therefore, in consideration of the mutual promises, terms, covenants
and conditions set forth herein and the performance of each, it is hereby
agreed as follows:
AGREEMENTS
1. Employment and Duties.
a. The Company hereby employs Executive as the Chief Financial
Officer of the Company. As such, Executive shall have the
responsibilities, duties and authority customarily appertaining
to such office and such other duties as may be reasonably
assigned to Executive and which are consistent with such
position. Executive shall report to the Chief Executive Officer
of the Company unless otherwise directed by the Board of
Directors. Executive hereby accepts this employment upon the
terms and conditions herein contained and, subject to paragraph
1(c), agrees to devote substantially all of his time, attention
and efforts during normal business hours, excluding any periods
of vacation or sick leave, to promote and further the business
and interests of the Company and its affiliates.
<PAGE> 2
b. Executive shall faithfully adhere to, execute and fulfill
all reasonable and lawful policies established by the Company,
to the extent such policies have been communicated to Executive
in writing and are not inconsistent with any of the terms of
this Agreement.
c. Except as set forth on Schedule 1c. hereto, Executive shall
not, during the term of his employment hereunder, engage in any
other business activity pursued for gain, profit or other
pecuniary advantage to the extent such activity interferes
materially with Executive's duties and responsibilities
hereunder. The foregoing limitations shall not prohibit
Executive from making personal investments in such form or
manner as will not materially interfere with Executive's
Performance of his duties under this Agreement.
d. Executive shall be entitled to vacation in accordance with
the policies of the Company for similarly-situated employees.
2. Compensation. For all services rendered by Executive, the Company
shall compensate Executive as follows:
a. Base Salary. The base salary payable to Executive during
the term shall be $200,000.00 per year ("Base Salary") payable
in accordance with the Company's payroll procedures for
officers, but not less frequently than twice monthly. On an
annual basis such base salary shall be reviewed by the Board of
Directors of the Company (the "Board"), and may be adjusted at
its discretion in light of the Executive's position,
responsibilities, performance and such other reasonable, job
related factors that the Board deems appropriate; provided,
however, as adjusted Base Salary may not be less than that
amount in effect on the Effective Date.
b. Annual Bonus. The Company will consider adopting an
incentive bonus plan under which Executive and other officers of
the Company will be eligible to receive annual bonus awards in
amounts that are competitive with those provided to similarly
situated executives and commensurate with the performance of the
AMPAM Companies, as reasonably determined by the Board.
c. Executive Perquisites and Benefits. Executive shall be
entitled to receive additional benefits and compensation from
the Company in the form and to the extent specified below:
i. Executive shall be reimbursed for all business travel
and other out-of-pocket expenses reasonably incurred by
Executive in the performance of his duties pursuant to
this Agreement and in accordance with the Company's
policy for its officers, including, without limitation,
continuing education, license and administrative fees.
All such expenses shall be appropriately documented in
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<PAGE> 3
reasonable detail by Executive upon submission of any
request for reimbursement, and in a format and manner
consistent with the Company's expense reporting policy.
ii. Executive shall be entitled to participate in all bonus
and incentive compensation plans and to receive all fringe
benefits and perquisites offered by the Company to any of
the Company's similarly situated executives, including,
without limitation, participation in the various employee
benefit plans or programs provided to the employees of the
Company in general, subject to the regular eligibility
requirements with respect to each of such benefit plans or
programs, and such other benefits or perquisites as may be
approved for Executive by the Board during the term of this
Agreement, all on a basis as favorable to Executive as may
be provided or offered by the Company to other comparable
officers (in terms of position) of the Company.
Notwithstanding the above, until the Company establishes
employee welfare and pension benefit plans for its
officers, Executive shall participate in such plans of the
AMPAM Companies as may be designated.
NOTWITHSTANDING THE ABOVE, THE BOARD MAY OFFER OR PROVIDE
TO EXECUTIVE, OR TO ANY OTHER OFFICER OR EXECUTIVE OF THE
COMPANY OR ANY AMPAM COMPANY, SPECIAL COMPENSATION,
BENEFITS, AND/OR PERQUISITES, IN ORDER TO ATTRACT OR RETAIN
THAT EXECUTIVE OR OFFICER WHERE THE BOARD DETERMINES, IN
ITS DISCRETION, THAT THE OFFER OR PROVISION OF SUCH SPECIAL
COMPENSATION, BENEFITS, AND/OR PERQUISITES ARE IN THE BEST
INTERESTS OF AMPAM OR ANY AMPAM COMPANY. SHOULD THE BOARD
MAKE SUCH DETERMINATION AND OFFER OR PROVIDE SPECIAL
COMPENSATION, BENEFITS AND/OR PERQUISITES TO AN OFFICER OR
EXECUTIVE, EXECUTIVE WILL NOT AUTOMATICALLY BE ENTITLED TO
SUCH SPECIAL COMPENSATION, BENEFITS AND/OR PERQUISITES.
iii. Until such time as Executive becomes eligible for
coverage under a group health plan of AMPAM, the Company
shall monthly reimburse Executive for any COBRA
continuation premiums paid by Executive for his coverage
after the Effective Date.
3. Non-Competition Agreement.
a. Executive acknowledges that as a consequence of his
employment with the Company, he will be furnished or have access
to Confidential Information (as defined below). Executive
further recognizes that the Company's willingness to enter into
this Agreement is based in material part on Executive's
agreement to the provisions of this paragraph 3 and that
Executive's breach of the provisions of this paragraph 3 could
materially damage the Company. Subject to the further provisions
of this Agreement, Executive will not, during the term of his
employment with the Company
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<PAGE> 4
and for a period of two years immediately following the
termination of such employment for any reason, directly or
indirectly, for himself or on behalf of or in conjunction with
any other person, company, partnership, corporation or business
of whatever nature:
i. engage, as an officer, director, shareholder, owner,
partner, joint venture, or in a managerial capacity,
whether as an employee, independent contractor,
consultant or advisor, or as a sales representative,
whether paid or unpaid, in any plumbing, piping,
mechanical, heating, ventilation or air conditioning
contracting, installation or services business directly
related thereto (such business and operations referred to
herein as the "Plumbing and Mechanical Business"), in
direct competition with any of the AMPAM Companies within
100 miles of where any of the AMPAM Companies conducts
business including any territory serviced by any of the
AMPAM Companies during the term of Executive's employment
(the "Territory");
ii. call upon any person who is, at that time, an employee
of the AMPAM Companies for the purpose or with the intent
of enticing such employee away from or out of the employ
of the AMPAM Companies;
iii. call upon any person or entity which is, at that time,
or which has been, within one year prior to that time, a
customer of the AMPAM Companies within the Territory for
the purpose of soliciting customers, orders or contracts
for any Plumbing and Mechanical Business within the
Territory;
iv. call upon any prospective acquisition candidate, on
Executive's own behalf or on behalf of any competitor,
which candidate was, to Executive's knowledge after due
inquiry, either called upon by the AMPAM Companies or for
which the AMPAM Companies made an acquisition analysis,
for the purpose of acquiring such entity;
v. disclose customers, whether in existence or proposed, of
the AMPAM Companies to any person, firm, partnership,
corporation or business for any reason or purpose
whatsoever except to the extent that the AMPAM Companies
has in the past disclosed such information to the public,
any person, firm, partnership, corporation, business, or
other entity, for valid business reasons, or
vi. testify as an expert witness in plumbing and mechanical
services matters for an adverse party to any of the AMPAM
Companies in litigation; provided that nothing contained
in this paragraph 3(a)(vi) shall interfere with
Executive's duty to testify as a witness if required by
law.
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<PAGE> 5
Notwithstanding the above, the foregoing covenant shall
not be deemed to prohibit Executive from acquiring as an
investment (i) not more than 1% of the capital stock of a
company engaged in the Plumbing and Mechanical Business,
whose stock is traded on a national securities exchange,
the NASDAQ Stock Market or on an over-the-counter or
similar market or (ii) not more than 1% of the capital
stock of a competing business whose stock is not publicly
traded if the Board consents to such acquisition. Any
ownership interest in any business which is in
competition with the AMPAM Companies shall immediately be
disclosed to the Board by Executive.
b. Because of the difficulty of measuring economic losses to
the Company as a result of a breach of the foregoing covenant,
and because of the immediate and irreparable damage that could
be caused to the Company for which they would have no other
adequate remedy, Executive agrees that foregoing covenant may be
enforced by the Company, in the event of breach by him, by
injunctions, restraining orders, and orders of specific
performance issued by a court of competent jurisdiction.
Executive further agrees to waive any requirement for the
Company's securing or posting of any bond in connection with
such remedies.
c. It is agreed by the parties that the foregoing covenants in
this paragraph 3 impose a reasonable restraint on Executive in
light of the activities and business of the AMPAM Companies on
the date of the execution of this Agreement and the current
plans of the AMPAM Companies; but it is also the intent of the
Company and Executive that, subject to paragraph 3(g) hereof,
such covenants be construed and enforced in accordance with the
changing activities, business and locations of the AMPAM
Companies throughout the term of this covenant, whether before
or after the date of termination of the employment of Executive,
unless the Executive was conducting such new business prior to
the AMPAM Companies conducting such new business. For example,
if, during the term of Executive's employment, any of the AMPAM
Companies engages in new and different activities, enters a new
business or establishes new locations for its current or new
activities or business in addition to or other than the
activities or business enumerated under the Recitals above or
the locations currently established therefor, then, subject to
paragraph 3g. hereof, through the term of this covenant
Executive will be precluded from soliciting the customers or
employees of such new activities or business or from such new
location and from directly competing with such new business
activities, or locations within 100 miles of where such new
activities, business or locations are conducted, unless
Executive was conducting such new activities or business prior
to any of the AMPAM Companies conducting such new activities or
business.
d. It is further agreed by the parties hereto that, in the
event that Executive shall cease to be employed hereunder and
shall enter into a business or pursue other activities not in
competition with the Plumbing and Mechanical Business of the
AMPAM
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<PAGE> 6
Companies or related activities or business in locations
the operation of which, under such circumstances, does not
violate clause (a)(i) of this paragraph 3, and in any event such
new business, activities or location are not in violation of
this paragraph 3 or of Executive's obligations under this
paragraph 3, if any, Executive shall not be chargeable with a
violation of this paragraph 3 if the AMPAM Companies shall at
any time after the termination of Executive's employment enter
the same, similar or a competitive (i) business, (ii) course of
activities or (iii) location, as applicable.
e. The covenants in this paragraph 3 are severable and
separate, and the non enforceability of any specific covenant
shall not affect the provisions of any other covenant. Moreover,
in the event any court of competent jurisdiction shall determine
that the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such
restrictions be enforced to the fullest extent which the court
deems reasonable, and the Agreement shall thereby be reformed.
f. All of the covenants in this paragraph 3 shall be construed
as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of
Executive against any of the AMPAM Companies, whether predicated
on this Agreement or otherwise, shall not constitute a defense
to the enforcement by the Company of such covenants. It is
specifically agreed that the period of two years (subject to the
further provisions of this Agreement) following termination of
employment stated at the beginning of this paragraph 3, during
which the agreements and covenants of Executive made in this
paragraph 3 shall be effective, shall be computed by excluding
from such computation any violation of any provision of this
paragraph 3.
g. The Company and the Executive hereby agree that this
covenant is a material and substantial part of this transaction.
4. Term, Termination; Rights on Termination. The term of this Agreement
shall begin on the Effective Date and continue for five years (the
"Initial Term"), unless terminated sooner as herein provided; however,
beginning on the fifth anniversary of the Effective Date and on each
anniversary thereafter the term shall automatically continue for one
year on the same terms and conditions contained herein in effect as of
the time of renewal (the "Extended Term") unless not less than six
months prior to any such anniversary either party shall give written
notice to the other party that the term shall not be so extended;
provided further, however, upon a Change in Control (as defined in
paragraph 11(e)) during the Initial Term or any Extended Term the term
of this Agreement shall automatically continue following such Change
in Control for a period equal to the then remaining term or two years,
whichever period is longer (such longer period being an Extended
Term), unless earlier terminated as provided in paragraph 11. This
Agreement and Executive's employment may be terminated in any one of
the followings ways:
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<PAGE> 7
a. Death. The death of Executive shall immediately terminate
this Agreement with no severance compensation due Executive's
estate; provided, however, for the 90-day period following
Executive's death, the Company, at its sole cost and expense,
shall continue to provide Executive's then qualified
beneficiaries with coverage under the Company's group health
plan in which Executive participated immediately prior to
Executive's death or a successor plan thereto, subject to the
terms of such plan as it may be amended ("Company Health Plan").
Thereafter, the Company shall provide continuation of coverage
elections to such qualified beneficiaries as are required by
law.
b. Disability. If Executive becomes entitled to and receives
benefits under an insured long term disability plan of the AMPAM
Companies (incurs a "Disability"), the Company, with the
approval of a majority of the members of the Board, may
terminate this Agreement and Executive's employment hereunder.
In the event this Agreement is terminated as a result of
Executive's Disability, Executive shall have no right to any
severance compensation; provided, however, (i) for 12 months
thereafter or until Executive's death, if earlier, the Company
shall continue to pay Executive an amount equal to Executive's
monthly adjusted Base Salary (computed by reference to
Executive's annual adjusted Base Salary at the time of his
termination) reduced by any cash benefits payable to Executive
under such long term disability plan and (ii) the Company, at
its sole cost and expense, shall continue the coverage of
Executive and his qualified beneficiaries (for as long as they
are qualified beneficiaries thereunder) under the Company Health
Plan for as long as Executive continues to qualify for and
receive benefits under such long term disability plan, but not
to exceed five years. Thereafter, the Company shall provide
continuation of coverage elections to Executive and his
qualified beneficiaries as required by law.
c. Cause. The Company may terminate this Agreement and
Executive's employment for "Cause", which shall be: (1)
Executive's willful and material breach of this Agreement (which
remains uncured at the end of a 30-day period); provided, that
none of the following shall constitute Cause for purposes of
this clause (1): isolated incidences of (A) bad judgement, (B)
negligence, or (C) any act or omission that Executive believed
in good faith to have been in or not opposed to the interest of
the Company; (2) Executive's gross negligence in the performance
or intentional nonperformance (in either case continuing for 30
days after receipt of written notice of need to cure) of any of
Executive's material duties and responsibilities hereunder; (3)
Executive's dishonesty or fraud with respect to the business,
reputation or affairs of the AMPAM Companies; or (4) Executive's
conviction of a felony crime involving moral turpitude. Any
termination for Cause must be approved by a majority of the
eligible members of the Board (FOR THIS PURPOSE, ANY MEMBER OF
THE BOARD REASONABLY BELIEVED BY A MAJORITY OF THE BOARD TO BE
AT FAULT IN THE EVENTS LEADING THE BOARD TO CONSIDER TERMINATING
EXECUTIVE FOR CAUSE SHALL ALSO BE EXCLUDED, INCLUDING EXECUTIVE
IF EXECUTIVE IS A MEMBER OF THE BOARD.). For
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purposes hereof, no act, or failure to act, on Executive's
part shall be deemed "willful" unless done, or omitted to be
done, by Executive not in good faith and/or without reasonable
belief that Executive's action or omission was in the best
interest of the Company. Notwithstanding the foregoing,
Executive shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to Executive a
Notice of Termination and a copy of a resolution duly adopted by
the Board, finding that, in the good faith opinion of the Board,
Executive was guilty of conduct set forth above and specifying
the particulars thereof in detail. In the event of a termination
for Cause, Executive shall have no right to any severance
compensation.
i. The Company may not terminate Executive's employment for
Cause unless:
(1) no fewer than 30 days prior to the Date of
Termination, the Company provides Executive with
written notice (the "Notice of Consideration") of
its intent to consider termination of Executive's
employment for Cause, including a detailed
description of the specific reasons which form the
basis for such consideration;
(2) for a period of not less than 25 days after the
date Notice of Consideration is provided, Executive
shall have the opportunity to appear before the
Board, with or without legal representation, at
Executive's election, to present arguments and
evidence on his own behalf, and
(3) following the presentation to the Board as provided
in (2) above or Executive's failure to appear
before the Board at a date and time specified in
the Notice of Consideration (which date shall not
be more than 30 days after the date the Notice of
Consideration is provided), Executive may be
terminated for Cause only if the Board, by majority
vote of its eligible voters, determines that the
actions or inactions of Executive specified in the
Notice of Consideration, or reasonably related
and/or later-discovered actions or inactions,
occurred, that such actions or inactions constitute
Cause, and that Executive's employment should
accordingly be terminated for Cause;
ii. Unless the Company (A) complies with the substantive and
procedural requirements of this Section 4.c. prior to a
Termination of Employment for Cause, and (B) concludes, in
its good faith discretion that Executive's action or
inaction specified in the Notice of Termination for Cause
did occur and constituted Cause, any Termination of
Employment shall be deemed a termination without Cause for
all purposes of this Agreement.
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<PAGE> 9
iii. After providing a notice of need to cure or Notice of
Consideration pursuant to the provisions of this Section
4.c., the Board may, by the affirmative vote of all of its
members (excluding for this purpose Executive if he is a
member of the Board, and any other member of the Board
reasonably believed by the Board to be at fault in the
events leading to issuing the Notice of Consideration),
suspend Executive with pay until a final determination
pursuant to this Section 4.c. has been made.
d. Without Cause or For Good Reason. Executive may only be
terminated without Cause and other than due to Disability by the
Company during either the Initial Term or Extended Term if such
termination is approved by a majority of the members of the
Board. Should Executive be terminated by the Company without
Cause and other than due to Disability or should Executive
terminate with Good Reason during the Initial Term, Executive
shall receive from the Company, in addition to any accrued but
unpaid salary, bonus and benefits in a lump sum payment due on
the effective date of termination, an amount equivalent to the
annual adjusted Base Salary at the rate then in effect for (i)
whatever time period is remaining under the Initial Term (but in
no event more than two years) or (ii) for one year, whichever
amount is greater. Should Executive be terminated by the Company
without Cause and other than due to Disability or should
Executive terminate with Good Reason during the Extended Term,
Executive shall receive from the Company, in a lump sum payment
due on the effective date of termination, an amount equivalent to
the adjusted Base Salary at the rate then in effect for one year.
Further, any termination by the Company without Cause or due to
Disability or by Executive for Good Reason whether during the
Initial Term or any Extended Term shall operate to shorten the
period set forth in paragraph 3.a. and during which the terms of
paragraph 3. apply to one year from the date of termination of
employment. If Executive resigns or otherwise terminates his
employment without Good Reason, rather than the Company
terminating his employment pursuant to that paragraph 4.d.,
Executive shall receive no severance compensation.
e. Executive shall have "Good Reason" to terminate his employment
hereunder as a consequence of any of the following events, unless
such event is agreed to in writing by Executive: (a) a material
reduction in his authority, title, responsibilities or duties;
(b) Executive's adjusted Base Salary is reduced below that in
effect on the Effective Date; (c) the relocation of the Company's
principal executive offices or Executive's principal office to a
location outside the state of Texas without a commensurate
adjustment in Executive's Base Annual Salary to reflect any
increase in cost of living as measured by comparing the
applicable regional or local consumer price indices; (d) the
assignment to Executive of any duties or responsibilities which
are materially inconsistent with Executive's title, position or
responsibilities as in effect immediately prior to such
assignment; (e) the failure by the Company to continue in effect
any employee benefit plan in which Executive participates and/or
any
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perquisite provided Executive, which is (are) material to
Executive's total compensation and benefits, unless an equitable
arrangement (embodied in an ongoing substitute or alternative
plan) has been made with respect to such plan or perquisite, or
the failure by the Company to continue Executive's participation
therein, or any action by the Company which would materially
reduce Executive s participation therein or reward opportunities
thereunder; (O the failure of the Company to obtain a
satisfactory agreement from any successor or assign of the
Company to assume and agree to perform this Agreement, as
contemplated in paragraph 10.; (g) a material breach of this
Agreement by the Company (including failure of the Company to pay
Executive on a timely basis the amounts to which Executive is
entitled under this Agreement); provided. however, Good Reason
shall exist with respect to a matter only if such matter is not
corrected by the Company within 30 days of its receipt of written
notice of such matter from Executive, and in no event shall a
termination by Executive occurring more than 60 days following
the date of an event described above be a termination for Good
Reason due to such event.
f. If termination of Executive's employment arises out of the
Company's failure to pay Executive on a timely basis the amounts
to which Executive is entitled under this Agreement or as a
result of any other breach of this Agreement by the Company, as
determined by a court of competent jurisdiction or pursuant to
the provisions of paragraph 18. below, the Company shall pay all
amounts and damages to which Executive may be entitled as a
result of such breach, including interest thereon and all
reasonable legal fees and expenses and other costs incurred by
Executive to enforce his rights hereunder. Further, none of the
provisions of paragraph 3. shall apply in the event this
Agreement is terminated as a result of a breach by the Company.
g. Resignation Without Good Reason. Executive may, without Good
Reason (as hereinafter defined), terminate this Agreement and
Executive's employment, effective 30 days after written notice is
provided to the Company. If Executive resigns or otherwise
terminates his employment without Good Reason, rather than the
Company terminating his employment pursuant to that paragraph
4.d., Executive shall receive all accrued but unpaid salary,
bonus and benefits. Under no circumstance where Executive
terminates Executive's employment without Good Reason, shall
Executive be entitled to any pro rata share or payment of any
bonus or other compensation which has not yet been determined or
which requires employment at the time of the determination or
award for eligibility.
h. Upon termination of this Agreement for any reason provided
above, in addition to the above payments, if any, Executive shall
be entitled to receive all compensation earned, accrued vacation
and reimbursements due through the effective date of termination,
paid to Executive in a lump sum on the effective date of
termination. In addition, a termination of this Agreement shall
not alter or impair any of
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<PAGE> 11
Executive's vested rights or benefits, if any, under any (i)
employee benefit plan of the AMPAM Companies or (ii) deferred
compensation plan, including, without limitation, any stock
option plan, of the AMPAM Companies. In addition, notwithstanding
any other provision of this Agreement, upon termination of this
Agreement other than (i) by the Company for Cause, (ii) by
Executive without Good Reason and in the absence of a Change in
Control or (iii) at the expiration of the Initial Term or any
Extended Term pursuant to a timely notice, all options to
purchase the stock of the Company (or any successor thereof) and
all similar equity-based awards, outstanding granted or issued on
the date hereof shall, at the time of such termination, become
vested without regard to any vesting schedule thereof and in the
case of options, shall be exercisable for the greater of two
years from the date of such termination or the period provided in
such award. All other rights and obligations of the Company and
Executive under this Agreement shall cease as of the effective
date of termination, except that Executive's obligations under
paragraphs 3., 5., 6., 7., and 8. herein and the Company's
obligations under paragraphs 1l.g. and 14. shall survive such
termination in accordance with their terms, unless or except as
expressly provided otherwise in this Agreement.
5. Return of Company Property. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other
property delivered to or compiled by Executive by or on behalf of any
of the AMPAM Companies or their representatives, vendors or customers
which pertain to, the business of any AMPAM Companies shall be and
remain the property of the AMPAM Companies, as the case may be, and be
subject at all times to their discretion and control. Likewise, all
correspondence, reports, records, charts, advertising materials and
other similar data pertaining to the business, activities or future
plans of the AMPAM Companies which is collected by Executive shall be
delivered promptly to the Company without request by it upon
termination of Executive's employment and Executive shall not retain
any copies of the same.
6. Intellectual Property. Executive shall disclose promptly to the
Company any and all conceptions, ideas, designs, plans, know-how,
processes, improvements and other discoveries, whether patentable or
not, which (i) are conceived or made by Executive, solely or jointly
with another, during the period of employment or thereafter, (ii) are
directly related to the plumbing and mechanical business or activities
of the AMPAM Companies, and (iii) Executive conceives as a result of
his employment by the Company, including any predecessor
(collectively, the "Intellectual Property"). Executive hereby assigns
and agrees to assign all his interests therein to the Company or its
nominee. Whenever requested to do so by the Company, Executive shall
execute any and all applications, assignments or other instruments
that the Company shall deem necessary to apply for and obtain Letters
Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein. Executive must also render to
the Company, at the Company's expense, assistance in the perfection,
enforcement and defense of any Intellectual Property.
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<PAGE> 12
7. Trade Secrets. Executive agrees that he will not, during or after the
term of this Agreement, disclose the specific terms of the AMPAM
Companies' relationships or agreements with its respective vendors or
customers or any other trade secret of the AMPAM Companies, whether in
existence or proposed, to any person, firm, partnership, corporation
or business for any reason or purpose whatsoever, except as required
by law and prior to any such disclosure Executive shall give the
Company prior written notice thereof and the opportunity to contest
such disclosure.
8. Confidentiality.
b. a. Executive acknowledges and agrees that all Confidential
Information (as defined below) of the Company is
confidential and a valuable, special and unique asset of the
Company that gives the Company an advantage over its actual
and potential, current and future competitors. Executive
further acknowledges and agrees that Executive owes the
Company a fiduciary duty to preserve and protect all
Confidential Information from unauthorized disclosure or
unauthorized use, that certain Confidential Information
constitutes "trade secrets" under applicable laws and that
unauthorized disclosure or unauthorized use of the
Confidential Information would irreparably injure the
Company. Both during the term of Executive's employment and
after the termination of Executive's employment for any
reason (including wrongful termination), Executive shall
hold all Confidential Information in strict confidence, and
shall not use any Confidential Information except for the
benefit of the Company, in accordance with the duties
assigned to Executive. Executive shall not at any time
(either during or after the term of Executive's employment),
disclose any Confidential Information to any person or
entity (except other employees of the Company who have a
need to know the information in connection with the
performance of their employment duties, and who have been
informed of the confidential nature of the Confidential
Information and have agreed to keep it confidential), or
copy, reproduce, modify, transmit, including electronic
transmission, decompile or reverse engineer any Confidential
Information, or remove any Confidential Information from the
Company's premises, without the prior written consent of the
Board, or permit any other person to do so. Executive shall
take reasonable precautions to protect the physical security
of all documents and other material containing Confidential
Information (regardless of the medium on which the
Confidential Information is stored). This Agreement applies
to all Confidential Information, whether now known or later
to become known to Executive.
c. Upon the termination of Executive's employment with the
Company for any reason, and upon written request of the
Company at any other time, Executive shall promptly
surrender and deliver to the Company all documents and other
written material of any nature containing or pertaining to
any Confidential Information and shall not retain any such
document or other material. Within ten days of a written
request by the
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<PAGE> 13
Company, Executive shall certify to the Company in writing
that all such materials have been returned.
As used in this Agreement, the term "Confidential
Information" shall mean any information or material known to
or used by or for the AMPAM Companies (whether or not owned
or developed by the AMPAM Companies and whether or not
developed by Executive) that is not generally known to
persons in the Plumbing and Mechanical Business, except as
provided in this paragraph. Confidential Information
includes, but is not limited to, the following: all trade
secrets of the AMPAM Companies; all information that the
AMPAM Companies have marked as confidential or have
otherwise described to Executive (either in writing or
orally) as confidential; all nonpublic information
concerning the AMPAM Companies' products, services,
prospective products or services, research, product designs,
prices, discounts, costs, marketing plans, marketing
techniques, market studies, test data, customers, customer
lists and records, suppliers and contracts; all AMPAM
Companies' business records and plans; all AMPAM Companies'
personnel files; all financial information of or concerning
the AMPAM Companies; all information relating to operating
system software, application software, software and system
methodology, hardware platforms, technical information,
inventions, computer programs and listings, source codes,
object codes, copyrights and other intellectual property;
all technical specifications; any proprietary information
belonging to the AMPAM Companies; all computer hardware or
software manuals; all training or instruction manuals; and
all data and all computer system passwords and user codes.
For purposes hereof, Confidential Information shall not
include such information (i) which becomes or is already
known to the public or some other party through no fault of
Executive; or (ii) the disclosure of which (x) is required
by law (including regulations and rulings) or the order of
any competent governmental authority or (y) Executive
reasonably believes is required in connection with the
defense of a lawsuit against Executive, provided that in
either case, prior to disclosing any information, Executive
shall give prior written notice thereof to the Company and
provide the Company with the opportunity to contest such
disclosure.
9. No Prior Agreements. Executive hereby represents and warrants to the
Company that the execution of this Agreement by Executive and his
employment by the Company and the performance of his duties hereunder
will not violate or be a breach of any agreement, including any
non-competition agreement, invention or secrecy agreement, with a
former employer, client or any other person or entity. Further,
Executive agrees to indemnify the Company for any loss, including, but
not limited to, reasonable attorneys' fees and expenses, the Company
may incur based upon or arising out of Executive's breach of this
paragraph 9.
10. Assignment; Binding Effect. Executive understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Executive agrees, therefore,
that he cannot assign all or any portion of his
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<PAGE> 14
performance under this Agreement. Subject to the preceding two
sentences and the express provisions of paragraph 12. below, this
Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective heirs, legal
representatives, successors and assigns. The Company will require any
successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the
business and assets of the Company to expressly assume and agree in
writing reasonably satisfactory to Executive to perform this Agreement
in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure
of the Company to obtain such written agreement prior to the
effectiveness of any such succession shall be a material breach of
this Agreement.
11. Change in Control.
a. Executive understands and acknowledges that the Company may be
merged or consolidated with or into another entity and that such
entity shall automatically succeed to the rights and obligations
of the Company hereunder or that the Company may undergo a Change
in Control (as defined below). In the event a Change in Control
is initiated or occurs during the Initial Term or an Extended
Term, then the provisions of this paragraph 11. shall be
applicable.
b. In the event of a Change in Control wherein the Company and
Executive have not received written notice at least ten business
days prior to the date of the event giving rise to the Change in
Control from the successor to all or a substantial portion of the
Company's business and/or assets that such successor is willing
as of the closing to assume and agrees to perform, or continue to
cause the Company to perform, the Company's obligations under
this Agreement in the same manner and to the same extent that the
Company is hereby required to perform, then Executive may, at
Executive's sole discretion, elect to terminate Executive's
employment on the effective date of such Change in Control by
providing written notice to the Board at least five business days
prior to the closing of the transaction giving rise to the Change
in Control. In such case, Executive shall be deemed to have
terminated Executive's employment for Good Reason on such date;
provided, however, the amount of the lump sum severance payment
due Executive shall be triple the amount calculated under the
terms of paragraph 4.d., but shall in no event exceed nine times
Executive's Base Annual Salary as in effect at the time of
termination.
c. In any Change in Control situation, Executive may, at Executive's
sole discretion, elect to terminate Executive's employment upon
the effective date of such Change in Control by providing written
notice to the Board at least five business days prior to the
Closing of the transaction giving rise to the Change in Control.
In such case, Executive shall be deemed to have terminated
Executive's employment for Good Reason on such date; provided,
however, the amount of the lump sum severance payment due
Executive shall be double the amount calculated under the terms
of
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paragraph 4.d., but shall in no event exceed six times
Executive's Base Annual Salary as in effect at the time of
termination.
d. If, on or within two years following the effective date of a
Change in Control the Company terminates Executive's employment
other than for Cause or Disability or Executive terminates his
employment for Good Reason, or if Executive's employment with the
Company is terminated by the Company within three months before
the effective date of a Change in Control and it is reasonably
demonstrated that such termination (i) was at the request of a
third party that has taken steps reasonably calculated to effect
a Change in Control, or (ii) otherwise arose in connection with
or anticipation of a Change in Control, then Executive shall
receive from Company, in a lump sum payment due on the effective
date of termination, the greater of (i) the equivalent of three
times Executive's Base Annual Salary at the rate then in effect,
or (ii) the base salary for whatever period is then remaining on
the Initial Term, if any, which payment shall be in lieu of any
amounts otherwise payable pursuant to paragraph 4.d.
e. A "Change in Control" shall be deemed to have occurred if:
i. any person, entity or group (as such terms are used in
Sections 13d. and 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Act")), other than persons and
entities which owned any capital stock of the Company at the
closing date of the transactions contemplated in the
Acquisition Agreements, the AMPAM Companies or an employee
benefit plan of the AMPAM Companies, acquires, directly or
indirectly, the beneficial ownership (as defined in Section
13(d) of the Act) of any voting security of the Company and
immediately after such acquisition such person, entity or
group is, directly or indirectly, the beneficial owner of
voting securities representing [35]% or more of the total
voting power of all of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors;
ii. upon the first purchase of the Company's common stock
pursuant to a tender or exchange offer (other than a tender
or exchange offer made by the Company);
iii. the stockholders of the Company shall approve a merger,
consolidation, recapitalization or reorganization of the
Company, or a reverse stock split of outstanding voting
securities, or consummation of any such transaction if
stockholder approval is not obtained, other than any such
transaction which would result in at least 75% of the total
voting power represented by the voting securities of the
surviving entity outstanding immediately after such
transaction being beneficially owned by the holders of all
of the outstanding
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<PAGE> 16
voting securities of the Company immediately prior to the
transactions with the voting power of each such continuing holder
relative to other such continuing holders not substantially
altered in the transaction;
iv. the stockholders of the Company shall approve a plan of complete
liquidation or dissolution of the Company or an agreement for the
sale or disposition by the Company of all or substantially all of
the Company's assets; or
v. if, at any, time during any period of two consecutive years,
individuals who at the beginning of such period constitute the
Board cease for any reason to constitute at least a majority
thereof, unless the election or nomination for the election by
the Company's stockholders of each new director was approved by a
vote of at least two-thirds of the directors then still in office
who were directors at the beginning of the period.
f. Notwithstanding anything in this Agreement to the contrary, a
termination pursuant to paragraph 11b., c., or d. shall operate to
automatically waive in full the non-competition restrictions imposed
on Executive pursuant to paragraph 3.
g. If it shall be determined that any payment made or benefit provided to
Executive in connection with a change in control (as defined in
Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code"), or any successor thereto) of the Company occurring after the
Effective Date and on or before the termination of this Agreement,
whether or not made or provided pursuant to this Agreement, is subject
to the excise tax imposed by Section 4999 of the Code, the Company
shall pay Executive an amount of cash (the "Additional Amount") such
that the net amount received by Executive after paying all applicable
taxes on such Additional Amount and any penalties, interest and other
reasonable costs incurred as a result of such excise tax or additional
payment, shall be equal to the amount that Executive would have
received if Section 4999 were not applicable.
12. No Mitigation or Offset. Executive shall not be required to mitigate the
amount of any Company payment provided for in this Agreement by seeking
other employment or otherwise. The amount of any payment required to be
paid to Executive by the Company pursuant to this Agreement shall not be
reduced by any amounts that are owed to the Company by Executive, provided
that Executive (i) executes and delivers to the Company a promissory note
evidencing a promise by Executive to pay the full amount of any amounts
owed to the Company within 12 months from the date of Executive's
termination of employment and (ii) provides such collateral reasonably
satisfactory to the Company to ensure payment of such promissory note.
13. Release. Notwithstanding anything in this Agreement to the contrary,
Executive shall not be entitled to receive any severance payments pursuant
to paragraphs 4. or 11. of this
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<PAGE> 17
Agreement unless Executive has executed (and not revoked) a general
release of all claims, known or unknown, Executive may have against the
Company, its subsidiaries, their directors, officers, and employees, in a
form of such release reasonably acceptable to the Company.
14. Indemnification. In the event Executive is made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, derivative,
subrogation, criminal, administrative or investigative (other than an
action by the Company against Executive and a derivative action shall not
be considered an action by the Company), by reason of the fact that he is
or was performing services for the Company or any of the AMPAM Companies or
any present or future subsidiary thereof, or as an executive officer of the
AMPAM Companies prior to the date of this Agreement, then the Company shall
indemnify Executive against all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement, as actually and reasonably
incurred by Executive in connection therewith. In the event that both
Executive and the Company are made a party to the same third-party action,
complaint, suit or proceeding, the Company agrees to engage competent legal
representation, and Executive agrees to use the same representation,
provided that if counsel selected by the Company shall have a conflict of
interest that prevents such counsel from representing Executive, Executive
may engage separate counsel and the Company shall pay as incurred all
reasonable attorneys' fees and reasonable expenses of such separate
counsel, provided further that Executive may at any time, at Executive's
sole expense, hire separate counsel to represent Executive in such matter.
Further, while Executive is expected at all times to use his best efforts
to faithfully discharge his duties under this Agreement, Executive cannot
be held liable to the Company for errors or omissions made in good faith
where Executive has not exhibited gross, willful and wanton negligence and
misconduct nor performed criminal and fraudulent acts which materially
damage the business of the Company. The Company shall indemnify Executive
against and hold Executive harmless from any costs, expenses (including
reasonable attorneys' fees as provided in this paragraph), liabilities,
losses and exposures for Executive's services as an employee, officer and
director of the Company (or any of AMPAM Companies or any successor) to the
maximum extent permitted under applicable law. The indemnification required
by this paragraph 14. shall be made by the Company by periodic payments
promptly as and when bills are received or liabilities are incurred. The
provisions of this paragraph shall survive the termination of this
Agreement.
15. Complete Agreement. This Agreement supersedes, and replaces in full, all
representations, understandings and agreements (oral or written) between
Executive and the Company or any of the AMPAM Companies or any of their
officers, directors or representatives existing as of the Effective Date
and covering the same subject matter as this Agreement. This written
Agreement is the final, complete and exclusive statement and expression of
the agreement between the Company and Executive and of all the terms of
this Agreement, and it cannot be varied, contradicted or supplemented by
evidence of any prior or contemporaneous oral or written agreements. This
written Agreement may not be modified after the Effective Date except by a
further writing signed by a duly authorized officer of the Company and
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Executive, and no term of this Agreement may be waived except by writing
signed by the party waiving the benefit of such term. Without limiting the
generality of the foregoing, either party's failure to insist on strict
compliance with this Agreement shall not be deemed a waiver thereof.
16. Notice. Whenever any notice is required hereunder, it shall be given in
writing addressed as follows:
To the Company: American Plumbing and Mechanical, Inc.
1502 Augusta, Suite 425
Houston, Texas 77057
Attn: Chief Executive Officer
To Executive: David C. Baggett
420 West 33rd Street
Houston, TX 77018
Notice shall be deemed given and effective on the earlier of three days
after the deposit in the U.S. mail of a writing addressed as above and sent
first class mail, certified, return receipt requested, or when actually
received. Either party may change the address for notice by notifying the
other party of such change in accordance with this paragraph 16.
17. Severability; Headings. If any portion of this Agreement is held invalid or
inoperative, the other portions of this Agreement shall be deemed operative
and, so far as is reasonable and possible, effect shall be given to the
intent manifested by the portion held invalid or inoperative. The paragraph
headings herein are for reference purposes only and are not intended in any
way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
18. Dispute Resolution. Except with respect to injunctive relief as provided in
paragraph 3b., neither party shall institute a proceeding in any court or
administrative agency to resolve a dispute between the parties before that
party has sought to resolve the dispute through direct negotiation with the
other party. If the dispute is not resolved within two weeks after a demand
for direct negotiation, the parties shall attempt to resolve the dispute
through mediation. If the parties do not promptly agree on a mediator, the
parties shall request the Association of Attorney Mediators in Harris
County, Texas (or if the Company's principal offices are not in Harris
County, a similar organization in the county in which the Company's
principal offices are located) to appoint a mediator certified by the
Supreme Court of Texas. If the mediator is unable to facilitate a
settlement of the dispute within a reasonable period of time, as determined
by the mediator, the mediator shall issue a written statement to the
parties to that effect and any unresolved dispute or controversy arising
under or in connection with this Agreement shall be settled exclusively by
arbitration, conducted before a single arbitrator in the city in which the
Company has its principal offices, in accordance with the
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Commercial Arbitration Rules of the American Arbitration Association then
in effect. The arbitrator shall have the authority to order back-pay,
severance compensation, vesting of options (or cash compensation in lieu of
vesting of options), reimbursement of costs and expenses, including those
incurred to enforce this Agreement, including reasonable attorneys' fees
and interest thereon in the event the arbitrator determines that Executive
was involuntarily terminated by the Company without Disability or Cause, as
defined in paragraphs 4b. and 4c., respectively, or that the Company has
otherwise materially breached this Agreement. A decision by the arbitrator
shall be final and binding. Judgment may be entered on the arbitrator's
award in any court having jurisdiction. The costs and expenses, including
reasonable attorneys' fees, of the prevailing party in any dispute arising
under this Agreement will be promptly paid by the other party.
19. Governing Law. This Agreement shall in all respects be construed according
to the laws of the State of Texas without regard to its conflicts of law
provisions.
20. Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
21. Additional Provisions. The additional provisions set forth in Annex A
hereto shall apply.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective for all purposes as of the Effective Date.
Date: July 16, 1999
AMERICAN PLUMBING AND MECHANICAL, INC.
/s/ ROBERT A. CHRISTIANSON
-----------------------------------------
[Printed Name and Title]
Date: July 14, 1999
EXECUTIVE
/s/ DAVID C. BAGGETT
-----------------------------------------
David C. Baggett
-----------------------------------------
[Printed Name]
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EXHIBIT 10.18
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and between J.A. Croson
Company and Franklin Fire Sprinkler Company (the "Company"), both Ohio
corporations, American Plumbing & Mechanical, Inc., a Delaware corporation
("AmPaM"), and David Croson ("Executive") is hereby entered into effective as of
the date of the closing date of the transactions contemplated in the Acquisition
Agreement between the Company, AmPaM and others dated February 11, 1999 (the
"Effective Date").
RECITALS
The following statements are true and correct:
As of the Effective Date, the Company, AmPaM and the other subsidiaries
of AmPaM (collectively, the "AmPaM Companies") are engaged primarily in the
providing of plumbing and mechanical contracting services.
Executive is employed hereunder by the Company in a confidential
relationship wherein Executive, in the course of his employment with the
Company, has and will continue to become familiar with and aware of information
as to the Company's and AmPaM's customers and specific manner of doing business,
including the processes, techniques and trade secrets utilized by the Company
and AmPaM, and future plans with respect thereto, all of which has been and will
be established and maintained at great expense to the Company and AmPaM. This
information is a trade secret and constitutes the valuable goodwill of the
Company and AmPaM.
Therefore, in consideration of the mutual promises, terms, covenants
and conditions set forth herein and the performance of each, it is hereby agreed
as follows:
AGREEMENTS
1. Employment and Duties.
(a) The Company hereby employs Executive as President of the
Company. As such, Executive shall have the responsibilities, duties and
authority reasonably accorded to, expected of and consistent with
Executive's position as President of the Company. Executive hereby
accepts this employment upon the terms and conditions herein contained
and, subject to paragraph 1(c), agrees to devote substantially all of
his time, attention and efforts during normal business hours to promote
and further the business and interests of the Company and its
affiliates.
(b) Executive shall faithfully adhere to, execute and fulfill
all reasonable and lawful policies established by the Company, to the
extent such policies have been
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communicated to Executive in writing and are not inconsistent with any
of the terms of this Agreement.
(c) Except as set forth on Schedule 1(c) hereto, Executive
shall not, during the term of his employment hereunder, engage in any
other business activity pursued for gain, profit or other pecuniary
advantage if such activity interferes in any material respect with
Executive's duties and responsibilities hereunder. The foregoing
limitations shall not be construed as prohibiting Executive from making
personal investments in such form or manner as will not require a
substantial portion of such Executive's time during normal business
hours in the operation or affairs of the companies or enterprises in
which such investments are made.
(d) Executive shall be entitled to vacation in accordance with
the policies of the Company.
2. Compensation. For all services rendered by Executive, the Company
shall compensate Executive as follows:
(a) Base Salary. The base salary payable to Executive during
the term shall be $150,000 per year, payable in accordance with the
Company's payroll procedures for officers, but not less frequently than
monthly. On an annual basis such base salary shall be reviewed by the
Board of Directors of AmPaM (the "AmPaM Board") and may be adjusted at
its discretion, in light of the Executive's position, responsibilities,
performance and such other reasonable, job related factors that the
AmPaM Board deems appropriate; provided, however, any adjusted Base
Salary may not be less than that amount in effect on the Effective
Date.
(b) Annual Bonus. AmPaM will consider adopting an incentive
bonus plan under which Executive and other key employees of the AmPaM
Companies will be eligible to receive annual bonus awards in amounts
that are competitive with those provided to similarly situated
executives, as determined by the AmPaM Board.
(c) Executive Perquisites, Benefits and Other Compensation.
Executive shall be entitled to receive additional benefits and
compensation from the Company in such form and to such extent as
specified below:
(i) Executive shall be reimbursed for all business
travel and other out-of-pocket expenses (including those costs
to maintain any professional certifications held or obtained
by Executive) reasonably incurred by Executive in the
performance of his duties pursuant to this Agreement and in
accordance with AmPaM's policy for its similarly situated
executives. All such expenses shall be appropriately
documented in reasonable detail by Executive upon submission
of any request for
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reimbursement, and in a format and manner consistent with
AmPaM's expense reporting policy.
(ii) Executive shall be entitled to participate in
all incentive compensation plans and to receive all fringe
benefits and prerequisites offered by the Company or AmPaM to
any of the Company's or the AmPaM Companies' similarly
situated executives, including, without limitation,
participation in the various employee benefit plans or
programs provided to the employees of the Company or the AmPaM
Companies in general, subject to the regular eligibility
requirements with respect to each such benefit plans or
programs.
(iii) The Company shall provide Executive with such
other perquisites as may be deemed appropriate for Executive
by the AmPaM Board during the term of this Agreement, all on a
basis as favorable to Executive as may be provided or offered
to other similarly situated executives of the AmPaM Companies.
3. Non-Competition Agreement.
(a) Executive acknowledges that as a consequence of his
employment with the Company, he will be furnished or have access to
Confidential Information (as defined below). Executive further
recognizes that the Company's willingness to enter into this Agreement
is based in material part on Executive's agreement to the provisions of
this paragraph 3 and that Executive's breach of the provisions of this
paragraph 3 could materially damage the Company. Subject to paragraph
4(d) and the further provisions of this Agreement, Executive will not,
during the term of his employment with the Company, and for a period of
two years immediately following the termination of such employment for
any reason, directly or indirectly, for himself or on behalf of or in
conjunction with any other person, company, partnership, corporation or
business of whatever nature:
(i) engage, as an officer, director, shareholder,
owner, partner, joint venturer, or in a managerial capacity,
whether as an employee, independent contractor, consultant or
advisor, or as a sales representative, in any plumbing,
piping, mechanical, heating, ventilation, or air conditioning
contracting, installation or services business or operation,
or any ancillary contracting, installation or services
business directly related thereto (such business and
operations referred to herein as the "Plumbing and Mechanical
Business") within 100 miles of where any AmPaM Company
conducts business, including any territory serviced by an
AmPaM Company during the term of Executive's employment (the
"Territory");
(ii) call upon any person who is, at that time, an
employee of an AmPaM Company for the purpose or with the
intent of enticing such employee away from or out of the
employ of the AmPaM Company;
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(iii) call upon any person or entity which is, at
that time, or which has been, within one year prior to that
time, a customer of an AmPaM Company within the Territory for
the purpose of soliciting customers, orders or contracts for
any Plumbing and Mechanical Business within the Territory;
(iv) call upon any prospective acquisition candidate,
on Executive's own behalf or on behalf of any competitor,
which candidate was, to Executive's knowledge after due
inquiry, either called upon by an AmPaM Company or for which
an AmPaM Company made an acquisition analysis, for the purpose
of acquiring such entity;
(v) disclose customers, whether in existence or
proposed, of the Company to any person, firm, partnership,
corporation or business for any reason or purpose whatsoever
except to the extent that the Company has in the past
disclosed such information to the public for valid business
reasons; or
(vi) testify as an expert witness in matters related
to the Plumbing and Mechanical Business for an adverse party
to an AmPaM Company in litigation; provided, that nothing
contained in this paragraph 4(a)(vi) shall interfere with
Executive's duty to testify as a witness if required by law.
Notwithstanding the above, the foregoing covenant shall not be
deemed to prohibit Executive from acquiring as an investment (i) not
more than 1% of the capital stock of a company engaged in the Plumbing
and Mechanical Business whose stock is traded on a national securities
exchange, the Nasdaq Stock Market or on an over-the-counter or similar
market or (ii) not more than 5% of the capital stock of a competing
business whose stock is not publicly traded if the AmPaM Board consents
to such acquisition.
(b) Because of the difficulty of measuring economic losses to
the Company and AmPaM as a result of a breach of the foregoing
covenant, and because of the immediate and irreparable damage that
could be caused to the Company and AmPaM for which they would have no
other adequate remedy, Executive agrees that foregoing covenant may be
enforced by the Company, in the event of breach by him, by injunctions,
restraining orders and orders of specific performance issued by a court
of competent jurisdiction. Executive further agrees to waive any
requirement for the Company's securing or posting of any bond in
connection with such remedies.
(c) It is agreed by the parties that the foregoing covenants
in this paragraph 3 impose a reasonable restraint on Executive in light
of the activities and business of the AmPaM Companies on the date of
the execution of this Agreement and the current plans of the AmPaM
Companies; but it is also the intent of the Company and Executive that,
subject to paragraph 3(g) hereof, such covenants be construed and
enforced in accordance with the
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changing activities, business and locations of the AmPaM Companies
throughout the term of this covenant, whether before or after the date
of termination of the employment of Executive, unless the Executive
was conducting such new business prior to any AmPaM Company conducting
such new business. For example, if, during the term of this Agreement,
an AmPaM Company engages in new and different activities, enters a new
business or establishes new locations for its current activities or
business in addition to or other than the activities or business
enumerated under the Recitals above or the locations currently
established therefor, then, subject to paragraph 3(g) hereof, through
the term of this covenant Executive will be precluded from soliciting
the customers or employees of such new activities or business or from
such new location and from directly competing with such new business
activities, or locations within 100 miles of where such new
activities, business or locations are conducted, unless Executive was
conducting such new activities or business prior to any AmPaM Company
conducting such new activities or business.
(d) It is further agreed by the parties hereto that, in the
event that Executive shall cease to be employed hereunder and shall
enter into a business or pursue other activities not in competition
with the Plumbing and Mechanical Business of any of the AmPaM Companies
or similar activities or business in locations the operation of which,
under such circumstances, does not violate clause (a)(i) of this
paragraph 3, and in any event such new business, activities or location
are not in violation of this paragraph 3 or of Executive's obligations
under this paragraph 3, if any, Executive shall not be chargeable with
a violation of this paragraph 3 if the AmPaM Companies shall, at any
time after the termination of Executive's employment, enter the same,
similar or a competitive (i) business, (ii) course of activities or
(iii) location, as applicable.
(e) The covenants in this paragraph 3 are severable and
separate, and the unenforceability of any specific covenant shall not
affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the
intention of the parties that such restrictions be enforced to the
fullest extent which the court deems reasonable, and the Agreement
shall thereby be reformed.
(f) All of the covenants in this paragraph 3 shall be
construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of
Executive against the Company or AmPaM, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the
enforcement by AmPaM or the Company of such covenants. It is
specifically agreed that the period of two years (subject to the
further provisions of this Agreement) following termination of
employment stated at the beginning of this paragraph 3, during which
the agreements and covenants of Executive made in this paragraph 3
shall be effective, shall be computed by excluding from such
computation any time during which Executive is in violation of any
provision of this paragraph 3.
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(g) The Company and the Executive hereby agree that this
covenant is a material and substantial part of this transaction.
4. Term; Termination; Rights on Termination. The term of this Agreement
shall begin on the Effective Date and continue for five years (the "Initial
Term") unless terminated sooner as herein provided; however, beginning on the
fifth anniversary of the Effective Date and on each anniversary thereafter the
term shall automatically continue for one year on the same terms and conditions
contained herein in effect as of the time of renewal (the "Extended Term")
unless not less than six months prior to any such anniversary either party shall
give written notice to the other party that the term shall not be so extended;
provided further, however, upon a Change in Control (as defined in paragraph
11(d)) during the Initial Term or any Extended Term the term of this Agreement
shall automatically continue following such Change in Control for a period equal
to the then remaining term or two years, whichever period is longer (such longer
period being an Extended Term), unless earlier terminated as provided in
paragraph 11. This Agreement and Executive's employment may be terminated in any
one of the followings ways:
(a) Death. The death of Executive shall immediately terminate
this Agreement with no severance compensation due to Executive's
estate; provided, however, for the 90 day period following Executive's
death, the Company, at its sole cost and expense, shall continue to
provide the Executive's then qualified beneficiaries with coverage
under the Company's group health plan in which Executive participated
immediately prior to his death or a successor plan thereto, subject to
the terms of such plan as it may be amended ("Company Health Plan").
Thereafter, the Company shall provide continuation of coverage
elections to such qualified beneficiaries as are required by law.
(b) Disability. If, Executive becomes entitled to and receives
benefits under an insured long term disability plan of an AmPaM Company
(incurs a "Disability"), the Company, with the approval of at least 51%
of the members of the AmPaM Board, may terminate this Agreement and
Executive's employment hereunder. In the event this Agreement is
terminated as a result of Executive's Disability, Executive shall have
no right to any severance compensation; provided, however, (i) for 12
months thereafter or until his death, if earlier, the Company shall
continue to pay Executive an amount equal to his monthly base salary at
the time of his termination, reduced by any monthly benefits payable to
Executive under such long term disability plan and (ii) the Company, at
its sole cost and expense, shall continue the coverage of Executive
and his qualified beneficiaries (for as long as they are qualified
beneficiaries thereunder) under the Company's Health Plan for as long
as Executive continues to qualify for and receive benefits under such
long term disability plan, but not to exceed five years. Thereafter,
the Company shall provide COBRA elections to Executive and his
qualified beneficiaries as required by law.
(c) Cause. The Company may terminate this Agreement and
Executive's employment 30 days after written notice is provided by the
Company, at the direction of the
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AmPaM Board, to Executive for "Cause", which shall be: (1) Executive's
willful and material breach of this Agreement (which remains uncured
at the end of such 30 day period); (2) Executive's gross negligence in
the performance or intentional nonperformance (in either case
continuing for 30 days after receipt of written notice by the Company,
at the direction of the AmPaM Board, of need to cure) of any of
Executive's material duties and responsibilities hereunder; (3)
Executive's dishonesty or fraud with respect to the business,
reputation or affairs of an AmPaM Company which materially and
adversely affects an AmPaM Company (monetarily or otherwise); or (4)
Executive's conviction of a felony crime involving moral turpitude.
Any termination for Cause must be approved by at least 51% of the
members of the AmPaM Board. For purposes hereof, no act, or failure to
act, on Executive's part shall be deemed "willful" unless done, or
omitted to be done, by Executive not in good faith and without
reasonable belief that Executive's action or omission was in the best
interest of the Company. Notwithstanding the foregoing, Executive
shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to Executive a copy of a resolution
duly adopted by the AmPaM Board, finding that in the good faith
opinion of the AmPaM Board Executive was guilty of conduct set forth
above and specifying the particulars thereof in detail. In the event
of a termination for Cause, Executive shall have no right to any
severance compensation.
(d) Without Cause and For Good Reason. Executive may, without
Good Reason (as hereinafter defined), terminate this Agreement and
Executive's employment, effective 30 days after written notice is
provided to the Company. Executive may only be terminated without Cause
and other than due to Disability by the Company during either the
Initial Term or Extended Term if such termination is approved by at
least 51% of the members of the AmPaM Board. Should Executive be
terminated by the Company without Cause and other than due to
Disability or should Executive terminate with Good Reason during the
Initial Term, Executive shall receive from the Company, in a lump sum
payment due on the effective date of termination, an amount equivalent
to the base salary at the rate then in effect for (i) whatever time
period is remaining under the Initial Term (but in no event more than
two years) or (ii) for one year, whichever amount is greater. Should
Executive be terminated by the Company without Cause and other than due
to Disability or should the Executive terminate with Good Reason during
the Extended Term, Executive shall receive from the Company, in a lump
sum payment due on the effective date of termination, an amount
equivalent to the base salary at the rate then in effect for one year.
Further, any termination by the Company without Cause or due to
Disability or by Executive for Good Reason (whether during the Initial
Term or any Extended Term) shall operate to shorten the period set
forth in paragraph 3(a) and during which the terms of paragraph 3 apply
to one year from the date of termination of employment. If Executive
resigns or otherwise terminates his employment without Good Reason,
rather than the Company terminating his employment pursuant to this
paragraph 4(d), Executive shall receive no severance compensation.
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Executive shall have "Good Reason" to terminate his employment
hereunder upon the occurrence of any of the following events, unless
such event is agreed to in writing by Executive: (a) Executive is
demoted by means of a material reduction in authority, title,
responsibilities or duties to a position of less stature or importance
within the Company than the position described in Section 1 hereof; (b)
Executive's annual base salary as then in effect is reduced in
accordance with paragraph 2(a) or otherwise; or (c) the relocation of
the Company's principal executive offices to a location outside the
greater Columbus, Ohio area or the Company's requiring Executive to
relocate anywhere other than the Company's principal executive offices;
(c) the assignment to Executive of any duties or responsibilities which
are materially inconsistent with Executive's title, position or
responsibilities as in effect immediately prior to such assignment; or
(d) the failure by the Company to continue in effect any employee
benefit plan in which Executive participates and/or any prerequisite
provided Executive, which is (are) material to Executive's total
compensation and benefits, unless an equitable arrangement (embodied in
an ongoing substitute or alternative plan) has been made with respect
to such plan or perquisite; provided, however, Good Reason shall exist
with respect to a matter only if such matter is not corrected within 30
days of receipt by the Company of written notice of such matter from
Executive.
If termination of Executive's employment arises out of the Company's
failure to pay Executive on a timely basis the amounts to which he is entitled
under this Agreement or as a result of any other breach of this Agreement by the
Company, as determined by a court of competent jurisdiction or pursuant to the
provisions of paragraph 18 below, the Company shall pay all amounts and damages
to which Executive may be entitled as a result of such breach, including
interest thereon and all reasonable legal fees and expenses and other costs
incurred by Executive to enforce his rights hereunder. Further, none of the
provisions of paragraph 3 shall apply in the event this Agreement is terminated
as a result of a breach by the Company.
Upon termination of this Agreement for any reason provided above, in
addition to the above payments, if any, Executive shall be entitled to receive
all compensation earned and all benefits and reimbursements due through the
effective date of termination, paid to Executive in a lump sum on the effective
date of termination. In addition, a termination of this Agreement shall not
alter or impair any of Executive's vested rights or benefits, if any, under any
(i) employee benefit plan of the AmPaM Companies or (ii) deferred compensation
plan, including, without limitation, any stock option plan, of the AmPaM
Companies. All other rights and obligations of the Company and Executive under
this Agreement shall cease as of the effective date of termination, except that
Executive's obligations under paragraphs 3, 5, 6, 7, and 8 herein and the
Company's obligations under paragraphs 4 (with respect to severance payments, if
applicable), 11(g) and 14 shall survive such termination in accordance with
their terms, unless or except as expressly provided otherwise in this Agreement.
5. Return of Company Property. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Executive by
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or on behalf of the Company, AmPaM or any AmPaM Companies or their
representatives, vendors or customers which pertain to the business of the
Company or AmPaM or any AmPaM Companies shall be and remain the property of the
Company or AmPaM or the AmPaM Company, as the case may be, and be subject at all
times to their discretion and control. Likewise, all correspondence, reports,
records, charts, advertising materials and other similar data pertaining to the
business, activities or future plans of the Company or AmPaM or the AmPaM
Company which is collected by Executive shall be delivered promptly to the
Company without request by it upon termination of Executive's employment and
Executive shall not retain any copies of the same.
6. Inventions. Executive shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by
Executive, solely or jointly with another, during the period of employment or
within one year thereafter, if conceived during employment, and which are
directly related to the business or activities of the Company and which
Executive conceives as a result of his employment by the Company, including any
predecessor (collectively, the "Intellectual Property"). Executive hereby
assigns and agrees to assign all his interests therein to the Company or its
nominee. Whenever requested to do so by the Company, Executive shall execute any
and all applications, assignments or other instruments that the Company shall
deem necessary to apply for and obtain Letters Patent of the United States or
any foreign country or to otherwise protect the Company's interest therein.
Executive must also render to the Company, at the Company's expense, assistance
in the perfection, enforcement and defense of any Intellectual Property.
7. Trade Secrets. Executive agrees that he will not, during or after
the term of this Agreement, disclose the specific terms of the Company's or
AmPaM's relationships or agreements with their respective significant vendors or
customers or any other significant and material trade secret of the Company or
AmPaM, whether in existence or proposed, to any person, firm, partnership,
corporation or business for any reason or purpose whatsoever, except as required
by law and prior to any such disclosure Executive shall give the Company prior
written notice thereof and the opportunity to contest such disclosure.
8. Confidentiality.
(a) Executive acknowledges and agrees that all Confidential
Information (as defined below) of the Company is confidential and a
valuable, special and unique asset of the Company that gives the
Company an advantage over its actual and potential, current and future
competitors. Executive further acknowledges and agrees that Executive
owes the Company a fiduciary duty to preserve and protect all
Confidential Information from unauthorized disclosure or unauthorized
use, that certain Confidential Information constitutes "trade secrets"
under applicable laws and, that unauthorized disclosure or unauthorized
use of the Confidential Information would irreparably injure the
Company.
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(b) Both during the term of Executive's employment and after
the termination of Executive's employment for any reason (including
wrongful termination), Executive shall hold all Confidential
Information in strict confidence, and shall not use any Confidential
Information except for the benefit of the Company, in accordance with
the duties assigned to Executive. Executive shall not, at any time
(either during or after the term of Executive's employment), disclose
any Confidential Information to any person or entity (except other
employees of the Company who have a need to know the information in
connection with the performance of their employment duties, and who
have been informed of the confidential nature of the confidential
information and have agreed to keep it confidential), or copy,
reproduce, modify, transmit, including electronic transmission,
decompile or reverse engineer any Confidential Information, or remove
any Confidential Information from the Company's premises, without the
prior written consent of the AmPaM Board, or permit any other person to
do so. Executive shall take reasonable precautions to protect the
physical security of all documents and other material containing
Confidential Information (regardless of the medium on which the
Confidential Information is stored). This Agreement applies to all
Confidential Information, whether now known or later to become known to
Executive.
(c) Upon the termination of Executive's employment with the
Company for any reason, and upon written request of the Company at any
other time, Executive shall promptly surrender and deliver to the
Company all documents and other written material of any nature
containing or pertaining to any Confidential Information and shall not
retain any such document or other material. Within five days of any
such written request, Executive shall certify to the Company in writing
that all such materials have been returned.
(d) As used in this Agreement, the term "Confidential
Information" shall mean any information or material known to or used by
or for an AmPaM Company (whether or not owned or developed by an AmPaM
Company and whether or not developed by Executive) that is not
generally known to persons in the Plumbing and Mechanical Business.
Confidential Information includes, but is not limited to, the
following: all trade secrets of the AmPaM Companies; all information
that an AmPaM Company has marked as confidential or has otherwise
described to Executive (either in writing or orally) as confidential;
all nonpublic information concerning the Company's products, services,
prospective products or services, research, product designs, prices,
discounts, costs, marketing plans, marketing techniques, market
studies, test data, customers, customer lists and records, suppliers
and contracts; all AmPaM Company business records and plans; all AmPaM
Company personnel files; all financial information of or concerning
the AmPaM Companies; all information relating to operating system
software, application software, software and system methodology,
hardware platforms, technical information, inventions, computer
programs and listings, source codes, object codes, copyrights and
other intellectual property; all technical specifications; any
proprietary information belonging to an AmPaM Company; all computer
hardware or software manuals; all training or instruction manuals; and
all data and all computer system passwords and user codes. For
purposes hereof, Confidential Information
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shall not include such information (i) which becomes or is already
known to the public through no fault of Executive; or (ii) the
disclosure of which (x) is required by law (including regulations and
rulings) or the order of any competent governmental authority or (y)
Executive reasonably believes is required in connection with the
defense of a lawsuit against Executive, provided that in either case,
prior to disclosing any information, Executive shall give prior
written notice thereof to the Company and provide the Company with the
opportunity to contest such disclosure.
9. No Prior Agreements. Executive hereby represents and warrants to the
Company that the execution of this Agreement by Executive and his employment by
the Company and the performance of his duties hereunder will not violate or be a
breach of any agreement, including any non-competition agreement, invention or
secrecy agreement, with a former employer, client or any other person or entity.
Further, Executive agrees to indemnify the Company for any loss or expense,
including, but not limited to, reasonable attorneys' fees and expenses, the
Company may incur based upon or arising out of Executive's breach of this
paragraph 9.
10. Assignment; Binding Effect. Executive understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Executive agrees, therefore, that he
cannot assign all or any portion of his performance under this Agreement.
Subject to the preceding two sentences and the express provisions of paragraph
12 below, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective heirs, legal
representatives, successors and assigns. The Company and AmPaM will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and assets of the Company
or AmPaM to expressly assume and agree in writing reasonably satisfactory to
Executive to perform this Agreement in the same manner and to the same extent
that the Company or AmPaM would be required to perform it if no such succession
had taken place. Failure of the Company or AmPaM to obtain such written
agreement prior to the effectiveness of any such secession shall be a material
breach of this Agreement.
11. Change in Control.
(a) Executive understands and acknowledges that the Company
may be merged or consolidated with or into another entity and that such
entity shall automatically succeed to the rights and obligations of the
Company hereunder or that the Company may undergo a Change in Control
(as defined below). In the event a Change in Control is initiated or
occurs during the Initial Term or any Extended Term, then the
provisions of this paragraph 11 shall be applicable.
(b) In the event of a Change in Control wherein AmPaM and
Executive have not received written notice at least ten business days
prior to the date of the event giving rise to the Change in Control
from the successor to all or a substantial portion of the AmPaM's
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business and/or assets that such successor is willing as of the closing
to assume and agrees to perform, or continue to cause the Company to
perform, the Company's obligations under this Agreement in the same
manner and to the same extent that the Company is hereby required to
perform, then Executive may, at Executive's sole discretion, elect to
terminate Executive's employment on the effective date of such Change
in Control by providing written notice to the AmPaM Board at least five
business days prior to the closing of the transaction giving rise to
the Change in Control. In such case, the applicable provisions of
paragraph 4(d) will apply as though the Company had terminated
Executive without Cause; however, the amount of the lump sum severance
payment due Executive shall be triple the amount calculated under the
terms of paragraph 4(d), but shall in no event exceed six times
Executive's annual base salary.
(c) In any Change in Control situation, Executive may, at
Executive's sole discretion, elect to terminate Executive's employment
upon the effective date of such Change in Control by providing written
notice to the AmPaM Board at least five business days prior to the
closing of the transaction giving rise to the Change in Control. In
such case, the applicable provisions of paragraph 4(d) will apply as
though the Company had terminated Executive without Cause; however, the
amount of the lump sum severance payment due Executive shall be double
the amount calculated under the terms of paragraph 4(d), but shall in
no event exceed four times Executive's annual base salary.
(d) If, on or within two years following the effective date of
a Change in Control the Company terminates Executive's employment other
than for Cause or Disability or if Executive terminates his employment
for Good Reason, or if Executive's employment with the Company is
terminated by the Company within three months before the effective date
of a Change in Control and it is reasonably demonstrated that such
termination (i) was at the request of a third party that has taken
steps reasonably calculated to effect a Change in Control, or (ii)
otherwise arose in connection with or anticipation of a Change in
Control, then Executive shall receive from Company, in a lump sum
payment due on the effective date of termination, the greater of (i)
the equivalent of three years' annual base salary at the rate in
effect on the date of Executive's termination, or (ii) the base salary
for whatever period is then remaining on the Initial Term, if any,
which payment shall be in lieu of any amounts otherwise payable
pursuant to paragraph 4(d).
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person, entity or group (as such terms are
used in Sections 13(d) and 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Act"), other than the AmPaM
Companies or an employee benefit plan of the AmPaM Companies,
acquires, directly or indirectly, the beneficial ownership (as
defined in Section 13(d) of the Act) of any voting security of
AmPaM and immediately after such acquisition such person is,
directly or indirectly, the beneficial owner of voting
securities
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representing 20% or more of the total voting power of all of
the then outstanding voting securities of AmPaM entitled to
vote generally in the election of directors;
(ii) upon the first purchase of AmPaM's common stock
pursuant to a tender or exchange offer (other than a tender or
exchange offer made by AmPaM);
(iii) the stockholders of AmPaM shall approve a
merger, consolidation, recapitalization or reorganization of
AmPaM, or a reverse stock split of outstanding voting
securities, or consummation of any such transaction if
stockholder approval is not obtained, other than any such
transaction which would result in at least 75% of the total
voting power represented by the voting securities of the
surviving entity outstanding immediately after such
transaction being beneficially owned by the holders of all of
the outstanding voting securities of AmPaM immediately prior
to the transactions with the voting power of each such
continuing holder relative to other such continuing holders
not substantially altered in the transaction;
(iv) the stockholders of AmPaM shall approve a plan
of complete liquidation or dissolution of AmPaM or an
agreement for the sale or disposition by AmPaM of all or
substantially all of AmPaM's assets; or
(v) if, at any time during any period of two
consecutive years, individuals who at the beginning of such
period constitute the Board cease for any reason to constitute
at least a majority thereof, unless the election or nomination
for the election by the Company's stockholders of each new
director was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the
beginning of the period.
(f) Notwithstanding anything in this Agreement to the
contrary, a termination pursuant to paragraph 11(b), (c), or (d) shall
operate to automatically waive in full the noncompetition restrictions
imposed on Executive pursuant to paragraph 3.
(g) If it shall be finally determined that any payment made or
benefit provided to Executive in connection with a Change in Control of
the Company or AmPaM, whether or not made or provided pursuant to this
Agreement, is subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended, or any successor thereto,
the Company shall pay Executive an amount of cash (the "Additional
Amount") such that the net amount received by Executive after paying
all applicable taxes on such Additional Amount shall be equal to the
amount that Executive would have received if Section 4999 were not
applicable.
12. No Mitigation or Offset. Executive shall not be required to
mitigate the amount of any Company payment provided for in this Agreement by
seeking other employment or otherwise.
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The amount of any payment required to be paid to Executive by the Company
pursuant to this Agreement shall not be reduced by any amounts that are owed to
the Company by Executive, or by any setoff, counterclaim, recoupment, defense or
other claim, right or action.
13. Release. Notwithstanding anything in this Agreement to the
contrary, Executive shall not be entitled to receive any severance payments
pursuant to paragraphs 4 or 11 of this Agreement unless Executive has executed
(and not revoked) a general release of all claims Executive may have against the
Company and its affiliates relating to Executive's employment hereunder in a
form of such release reasonably acceptable to the Company.
14. Indemnification. In the event Executive is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the Company
against Executive), by reason of the fact that he is or was performing services
under this Agreement or as an executive officer of the Company prior to the date
of this Agreement, then the Company shall indemnify Executive against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement, as actually and reasonably incurred by Executive in connection
therewith. In the event that both Executive and the Company are made a party to
the same third-party action, complaint, suit or proceeding, the Company agrees
to engage competent legal representation, and Executive agrees to use the same
representation, provided that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Executive,
Executive may engage separate counsel and the Company shall pay all reasonable
attorneys' fees and reasonable expenses of such separate counsel. Further, while
Executive is expected at all times to use his best efforts to faithfully
discharge his duties under this Agreement, Executive cannot be held liable to
the Company for errors or omissions made in good faith where Executive has not
exhibited gross, willful and wanton negligence and misconduct nor performed
criminal and fraudulent acts which materially damage the business of the
Company. The Company shall indemnify Executive against and hold Executive
harmless from any costs, liabilities, losses and exposures for Executive's
services as an employee, officer and director of the Company (or any successor)
to the maximum extent permitted under applicable law.
15. Complete Agreement. This Agreement supersedes, and replaces in
full, all representations, understandings and agreements (oral or written)
between Executive and the Company or any AmPaM Company, AmPaM or any of their
officers, directors or representatives existing as of the Effective Date and
covering the same subject matter as this Agreement, but excluding the
Acquisition Agreement among AmPaM, the Company, the Executive and other
stockholders of the Company, dated February 11, 1999, which shall not be
affected by this Agreement. This written Agreement is the final, complete and
exclusive statement and expression of the agreement between the Company, AmPaM
and Executive and of all the terms of this Agreement, and it cannot be varied,
contradicted or supplemented by evidence of any prior or contemporaneous oral or
written agreements. This written Agreement may not be modified after the
Effective Date except by a further writing signed by a duly authorized officer
of the Company and Executive, and no term of this Agreement may be waived except
by writing signed by the party
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<PAGE> 15
waiving the benefit of such term. Without limiting the generality of the
foregoing, either party's failure to insist on strict compliance with this
Agreement shall not be deemed a waiver thereof.
16. Notice. Whenever any notice is required hereunder, it shall be
given in writing addressed as follows:
To the Company: c/o American Plumbing & Mechanical, Inc.
1502 Augusta, Suite 425
Houston, Texas 77057
To Executive: 5705 Lithopolis Road
Lancaster, Ohio 43123
Notice shall be deemed given and effective on the earlier of three days after
the deposit in the U.S. mail of a writing addressed as above and sent first
class mail, certified, return receipt requested, or when actually received.
Either party may change the address for notice by notifying the other party of
such change in accordance with this paragraph 16.
17. Severability; Headings. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
18. Dispute Resolutions. Except with respect to injunctive relief as
provided in paragraph 3(b), neither party shall institute a proceeding in any
court or administrative agency to resolve a dispute between the parties before
that party has sought to resolve the dispute through direct negotiation with the
other party. If the dispute is not resolved within two weeks after a demand for
direct negotiation, the parties shall attempt to resolve the dispute through
mediation. If the parties do not promptly agree on a mediator, the parties shall
request the Association of Attorney Mediators in Harris County, Texas to appoint
a mediator certified by the Supreme Court of Texas. If the mediator is unable to
facilitate a settlement of the dispute within a reasonable period of time, as
determined by the mediator, the mediator shall issue a written statement to the
parties to that effect and any unresolved dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively by
arbitration, conducted before a panel of three arbitrators in Columbus, Ohio, in
accordance with the rules of the American Arbitration Association then in
effect. The arbitrators shall have the authority to order back-pay, severance
compensation, vesting of options (or cash compensation in lieu of vesting of
options), reimbursement of costs and expenses, including those incurred to
enforce this Agreement, including reasonable attorneys' fees and interest
thereon in the event the arbitrators determine that Executive was terminated
without Disability or Cause, as defined in paragraphs 4(b) and 4(c),
respectively, or that the Company has otherwise materially breached this
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<PAGE> 16
Agreement. A decision by a majority of the arbitration panel shall be final and
binding. Judgment may be entered on the arbitrators' award in any court having
jurisdiction. The costs and expenses, including reasonable attorneys' fees, of
the prevailing party in any dispute arising under this Agreement will be
promptly paid by the other party.
19. Governing Law. This Agreement shall in all respects be construed
according to the laws of the State of Texas without regard to its conflicts of
law provisions.
20. AmPaM Guaranty. AmPaM hereby irrevocably and unconditionally
guarantees to Executive the payment of all amounts and the performance of all
other obligations of the Company in accordance with the terms of this Agreement.
21. Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
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<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective for all purposes as of the Effective Date.
J.A. CROSON COMPANY
By: /s/ David C. Baggett
--------------------------------
Name: David C. Baggett
-------------------------------
Title: Vice President
------------------------------
EXECUTIVE
By: /s/ David Croson
--------------------------------
David Croson
AMERICAN PLUMBING & MECHANICAL, INC.
By: /s/ David C. Baggett
--------------------------------
Name: David C. Baggett
-------------------------------
Title: Chief Financial Officer
------------------------------
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<PAGE> 1
EXHIBIT 10.19
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and between J.A. Croson
Company of Florida (the "Company"), a Florida corporation, American Plumbing &
Mechanical, Inc., a Delaware corporation ("AmPaM"), and James Croson
("Executive") is hereby entered into effective as of the date of the closing
date of the transactions contemplated in the Acquisition Agreement between the
Company, AmPaM and others dated February 11, 1999 (the "Effective Date").
RECITALS
The following statements are true and correct:
As of the Effective Date, the Company, AmPaM and the other subsidiaries
of AmPaM (collectively, the "AmPaM Companies") are engaged primarily in the
providing of plumbing and mechanical contracting services.
Executive is employed hereunder by the Company in a confidential
relationship wherein Executive, in the course of his employment with the
Company, has and will continue to become familiar with and aware of information
as to the Company's and AmPaM's customers and specific manner of doing business,
including the processes, techniques and trade secrets utilized by the Company
and AmPaM, and future plans with respect thereto, all of which has been and will
be established and maintained at great expense to the Company and AmPaM. This
information is a trade secret and constitutes the valuable goodwill of the
Company and AmPaM.
Therefore, in consideration of the mutual promises, terms, covenants
and conditions set forth herein and the performance of each, it is hereby agreed
as follows:
AGREEMENTS
1. Employment and Duties.
(a) The Company hereby employs Executive as Chief Executive
Officer of the Company. As such, Executive shall have the
responsibilities, duties and authority reasonably accorded to, expected
of and consistent with Executive's position as Chief Executive Officer
of the Company. Executive hereby accepts this employment upon the terms
and conditions herein contained and, subject to paragraph 1(c), agrees
to devote substantially all of his time, attention and efforts during
normal business hours to promote and further the business and interests
of the Company and its affiliates.
(b) Executive shall faithfully adhere to, execute and fulfill
all reasonable and lawful policies established by the Company, to the
extent such policies have been
<PAGE> 2
communicated to Executive in writing and are not inconsistent with any
of the terms of this Agreement.
(c) Except as set forth on Schedule 1(c) hereto, Executive
shall not, during the term of his employment hereunder, engage in any
other business activity pursued for gain, profit or other pecuniary
advantage if such activity interferes in any material respect with
Executive's duties and responsibilities hereunder. The foregoing
limitations shall not be construed as prohibiting Executive from making
personal investments in such form or manner as will not require a
substantial portion of such Executive's time during normal business
hours in the operation or affairs of the companies or enterprises in
which such investments are made.
(d) Executive shall be entitled to vacation in accordance with
the policies of the Company.
2. Compensation. For all services rendered by Executive, the Company
shall compensate Executive as follows:
(a) Base Salary. The base salary payable to Executive during
the term shall be $70,000 per year, payable in accordance with the
Company's payroll procedures for officers, but not less frequently than
monthly. On an annual basis such base salary shall be reviewed by the
Board of Directors of AmPaM (the "AmPaM Board") and may be adjusted at
its discretion, in light of the Executive's position, responsibilities,
performance and such other reasonable, job related factors that the
AmPaM Board deems appropriate; provided, however, any adjusted Base
Salary may not be less than that amount in effect on the Effective
Date.
(b) Annual Bonus. AmPaM will consider adopting an incentive
bonus plan under which Executive and other key employees of the AmPaM
Companies will be eligible to receive annual bonus awards in amounts
that are competitive with those provided to similarly situated
executives, as determined by the AmPaM Board.
(c) Executive Perquisites, Benefits and Other Compensation.
Executive shall be entitled to receive additional benefits and
compensation from the Company in such form and to such extent as
specified below:
(i) Executive shall be reimbursed for all business
travel and other out-of-pocket expenses (including those costs
to maintain any professional certifications held or obtained
by Executive) reasonably incurred by Executive in the
performance of his duties pursuant to this Agreement and in
accordance with AmPaM's policy for its similarly situated
executives. All such expenses shall be appropriately
documented in reasonable detail by Executive upon submission
of any request for
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<PAGE> 3
reimbursement, and in a format and manner consistent with
AmPaM's expense reporting policy.
(ii) Executive shall be entitled to participate in
all incentive compensation plans and to receive all fringe
benefits and prerequisites offered by the Company or AmPaM to
any of the Company's or the AmPaM Companies' similarly
situated executives, including, without limitation,
participation in the various employee benefit plans or
programs provided to the employees of the Company or the AmPaM
Companies in general, subject to the regular eligibility
requirements with respect to each such benefit plans or
programs.
(iii) The Company shall provide Executive with such
other perquisites as may be deemed appropriate for Executive
by the AmPaM Board during the term of this Agreement, all on a
basis as favorable to Executive as may be provided or offered
to other similarly situated executives of the AmPaM Companies.
3. Non-Competition Agreement.
(a) Executive acknowledges that as a consequence of his
employment with the Company, he will be furnished or have access to
Confidential Information (as defined below). Executive further
recognizes that the Company's willingness to enter into this Agreement
is based in material part on Executive's agreement to the provisions of
this paragraph 3 and that Executive's breach of the provisions of this
paragraph 3 could materially damage the Company. Subject to paragraph
4(d) and the further provisions of this Agreement, Executive will not,
during the term of his employment with the Company, and for a period of
two years immediately following the termination of such employment for
any reason, directly or indirectly, for himself or on behalf of or in
conjunction with any other person, company, partnership, corporation or
business of whatever nature:
(i) engage, as an officer, director, shareholder,
owner, partner, joint venturer, or in a managerial capacity,
whether as an employee, independent contractor, consultant or
advisor, or as a sales representative, in any plumbing,
piping, mechanical, heating, ventilation, or air conditioning
contracting, installation or services business or operation,
or any ancillary contracting, installation or services
business directly related thereto (such business and
operations referred to herein as the "Plumbing and Mechanical
Business") within 100 miles of where any AmPaM Company
conducts business, including any territory serviced by an
AmPaM Company during the term of Executive's employment (the
"Territory");
(ii) call upon any person who is, at that time, an
employee of an AmPaM Company for the purpose or with the
intent of enticing such employee away from or out of the
employ of the AmPaM Company;
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<PAGE> 4
(iii) call upon any person or entity which is, at
that time, or which has been, within one year prior to that
time, a customer of an AmPaM Company within the Territory for
the purpose of soliciting customers, orders or contracts for
any Plumbing and Mechanical Business within the Territory;
(iv) call upon any prospective acquisition candidate,
on Executive's own behalf or on behalf of any competitor,
which candidate was, to Executive's knowledge after due
inquiry, either called upon by an AmPaM Company or for which
an AmPaM Company made an acquisition analysis, for the purpose
of acquiring such entity;
(v) disclose customers, whether in existence or
proposed, of the Company to any person, firm, partnership,
corporation or business for any reason or purpose whatsoever
except to the extent that the Company has in the past
disclosed such information to the public for valid business
reasons; or
(vi) testify as an expert witness in matters related
to the Plumbing and Mechanical Business for an adverse party
to an AmPaM Company in litigation; provided, that nothing
contained in this paragraph 4(a)(vi) shall interfere with
Executive's duty to testify as a witness if required by law.
Notwithstanding the above, the foregoing covenant shall not be
deemed to prohibit Executive from acquiring as an investment (i) not
more than 1% of the capital stock of a company engaged in the Plumbing
and Mechanical Business whose stock is traded on a national securities
exchange, the Nasdaq Stock Market or on an over-the-counter or similar
market or (ii) not more than 5% of the capital stock of a competing
business whose stock is not publicly traded if the AmPaM Board consents
to such acquisition.
(b) Because of the difficulty of measuring economic losses to
the Company and AmPaM as a result of a breach of the foregoing
covenant, and because of the immediate and irreparable damage that
could be caused to the Company and AmPaM for which they would have no
other adequate remedy, Executive agrees that foregoing covenant may be
enforced by the Company, in the event of breach by him, by injunctions,
restraining orders and orders of specific performance issued by a court
of competent jurisdiction. Executive further agrees to waive any
requirement for the Company's securing or posting of any bond in
connection with such remedies.
(c) It is agreed by the parties that the foregoing covenants
in this paragraph 3 impose a reasonable restraint on Executive in light
of the activities and business of the AmPaM Companies on the date of
the execution of this Agreement and the current plans of the AmPaM
Companies; but it is also the intent of the Company and Executive that,
subject to paragraph 3(g) hereof, such covenants be construed and
enforced in accordance with the
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<PAGE> 5
changing activities, business and locations of the AmPaM Companies
throughout the term of this covenant, whether before or after the date
of termination of the employment of Executive, unless the Executive was
conducting such new business prior to any AmPaM Company conducting such
new business. For example, if, during the term of this Agreement, an
AmPaM Company engages in new and different activities, enters a new
business or establishes new locations for its current activities or
business in addition to or other than the activities or business
enumerated under the Recitals above or the locations currently
established therefor, then, subject to paragraph 3(g) hereof, through
the term of this covenant Executive will be precluded from soliciting
the customers or employees of such new activities or business or from
such new location and from directly competing with such new business
activities, or locations within 100 miles of where such new activities,
business or locations are conducted, unless Executive was conducting
such new activities or business prior to any AmPaM Company conducting
such new activities or business.
(d) It is further agreed by the parties hereto that, in the
event that Executive shall cease to be employed hereunder and shall
enter into a business or pursue other activities not in competition
with the Plumbing and Mechanical Business of any of the AmPaM Companies
or similar activities or business in locations the operation of which,
under such circumstances, does not violate clause (a)(i) of this
paragraph 3, and in any event such new business, activities or location
are not in violation of this paragraph 3 or of Executive's obligations
under this paragraph 3, if any, Executive shall not be chargeable with
a violation of this paragraph 3 if the AmPaM Companies shall, at any
time after the termination of Executive's employment, enter the same,
similar or a competitive (i) business, (ii) course of activities or
(iii) location, as applicable.
(e) The covenants in this paragraph 3 are severable and
separate, and the unenforceability of any specific covenant shall not
affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the
intention of the parties that such restrictions be enforced to the
fullest extent which the court deems reasonable, and the Agreement
shall thereby be reformed.
(f) All of the covenants in this paragraph 3 shall be
construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of
Executive against the Company or AmPaM, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the
enforcement by AmPaM or the Company of such covenants. It is
specifically agreed that the period of two years (subject to the
further provisions of this Agreement) following termination of
employment stated at the beginning of this paragraph 3, during which
the agreements and covenants of Executive made in this paragraph 3
shall be effective, shall be computed by excluding from such
computation any time during which Executive is in violation of any
provision of this paragraph 3.
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<PAGE> 6
(g) The Company and the Executive hereby agree that this
covenant is a material and substantial part of this transaction.
4. Term; Termination; Rights on Termination. The term of this Agreement
shall begin on the Effective Date and continue for five years (the "Initial
Term") unless terminated sooner as herein provided; however, beginning on the
fifth anniversary of the Effective Date and on each anniversary thereafter the
term shall automatically continue for one year on the same terms and conditions
contained herein in effect as of the time of renewal (the "Extended Term")
unless not less than six months prior to any such anniversary either party shall
give written notice to the other party that the term shall not be so extended;
provided further, however, upon a Change in Control (as defined in paragraph
11(d)) during the Initial Term or any Extended Term the term of this Agreement
shall automatically continue following such Change in Control for a period equal
to the then remaining term or two years, whichever period is longer (such longer
period being an Extended Term), unless earlier terminated as provided in
paragraph 11. This Agreement and Executive's employment may be terminated in any
one of the followings ways:
(a) Death. The death of Executive shall immediately terminate
this Agreement with no severance compensation due to Executive's
estate; provided, however, for the 90 day period following Executive's
death, the Company, at its sole cost and expense, shall continue to
provide the Executive's then qualified beneficiaries with coverage
under the Company's group health plan in which Executive participated
immediately prior to his death or a successor plan thereto, subject to
the terms of such plan as it may be amended ("Company Health Plan").
Thereafter, the Company shall provide continuation of coverage
elections to such qualified beneficiaries as are required by law.
(b) Disability. If, Executive becomes entitled to and receives
benefits under an insured long term disability plan of an AmPaM Company
(incurs a "Disability"), the Company, with the approval of at least 51%
of the members of the AmPaM Board, may terminate this Agreement and
Executive's employment hereunder. In the event this Agreement is
terminated as a result of Executive's Disability, Executive shall have
no right to any severance compensation; provided, however, (i) for 12
months thereafter or until his death, if earlier, the Company shall
continue to pay Executive an amount equal to his monthly base salary at
the time of his termination, reduced by any monthly benefits payable to
Executive under such long term disability plan and (ii) the Company, at
its sole cost and expense, shall continue the coverage of Executive and
his qualified beneficiaries (for as long as they are qualified
beneficiaries thereunder) under the Company's Health Plan for as long
as Executive continues to qualify for and receive benefits under such
long term disability plan, but not to exceed five years. Thereafter,
the Company shall provide COBRA elections to Executive and his
qualified beneficiaries as required by law.
(c) Cause. The Company may terminate this Agreement and
Executive's employment 30 days after written notice is provided by the
Company, at the direction of the
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<PAGE> 7
AmPaM Board, to Executive for "Cause", which shall be: (1) Executive's
willful and material breach of this Agreement (which remains uncured at
the end of such 30 day period); (2) Executive's gross negligence in the
performance or intentional nonperformance (in either case continuing
for 30 days after receipt of written notice by the Company, at the
direction of the AmPaM Board, of need to cure) of any of Executive's
material duties and responsibilities hereunder; (3) Executive's
dishonesty or fraud with respect to the business, reputation or affairs
of an AmPaM Company which materially and adversely affects an AmPaM
Company (monetarily or otherwise); or (4) Executive's conviction of a
felony crime involving moral turpitude. Any termination for Cause must
be approved by at least 51% of the members of the AmPaM Board. For
purposes hereof, no act, or failure to act, on Executive's part shall
be deemed "willful" unless done, or omitted to be done, by Executive
not in good faith and without reasonable belief that Executive's action
or omission was in the best interest of the Company. Notwithstanding
the foregoing, Executive shall not be deemed to have been terminated
for Cause unless and until there shall have been delivered to Executive
a copy of a resolution duly adopted by the AmPaM Board, finding that in
the good faith opinion of the AmPaM Board Executive was guilty of
conduct set forth above and specifying the particulars thereof in
detail. In the event of a termination for Cause, Executive shall have
no right to any severance compensation.
(d) Without Cause and For Good Reason. Executive may, without
Good Reason (as hereinafter defined), terminate this Agreement and
Executive's employment, effective 30 days after written notice is
provided to the Company. Executive may only be terminated without Cause
and other than due to Disability by the Company during either the
Initial Term or Extended Term if such termination is approved by at
least 51% of the members of the AmPaM Board. Should Executive be
terminated by the Company without Cause and other than due to
Disability or should Executive terminate with Good Reason during the
Initial Term, Executive shall receive from the Company, in a lump sum
payment due on the effective date of termination, an amount equivalent
to the base salary at the rate then in effect for (i) whatever time
period is remaining under the Initial Term (but in no event more than
two years) or (ii) for one year, whichever amount is greater. Should
Executive be terminated by the Company without Cause and other than due
to Disability or should the Executive terminate with Good Reason during
the Extended Term, Executive shall receive from the Company, in a lump
sum payment due on the effective date of termination, an amount
equivalent to the base salary at the rate then in effect for one year.
Further, any termination by the Company without Cause or due to
Disability or by Executive for Good Reason (whether during the Initial
Term or any Extended Term) shall operate to shorten the period set
forth in paragraph 3(a) and during which the terms of paragraph 3 apply
to one year from the date of termination of employment. If Executive
resigns or otherwise terminates his employment without Good Reason,
rather than the Company terminating his employment pursuant to this
paragraph 4(d), Executive shall receive no severance compensation.
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<PAGE> 8
Executive shall have "Good Reason" to terminate his employment
hereunder upon the occurrence of any of the following events, unless
such event is agreed to in writing by Executive: (a) Executive is
demoted by means of a material reduction in authority, title,
responsibilities or duties to a position of less stature or importance
within the Company than the position described in Section 1 hereof; (b)
Executive's annual base salary as then in effect is reduced in
accordance with paragraph 2(a) or otherwise; or (c) the relocation of
the Company's principal executive offices to a location outside the
greater Mount Dora, Florida area or the Company's requiring Executive
to relocate anywhere other than the Company's principal executive
offices; (c) the assignment to Executive of any duties or
responsibilities which are materially inconsistent with Executive's
title, position or responsibilities as in effect immediately prior to
such assignment; or (d) the failure by the Company to continue in
effect any employee benefit plan in which Executive participates and/or
any prerequisite provided Executive, which is (are) material to
Executive's total compensation and benefits, unless an equitable
arrangement (embodied in an ongoing substitute or alternative plan) has
been made with respect to such plan or perquisite; provided, however,
Good Reason shall exist with respect to a matter only if such matter is
not corrected within 30 days of receipt by the Company of written
notice of such matter from Executive.
If termination of Executive's employment arises out of the Company's
failure to pay Executive on a timely basis the amounts to which he is entitled
under this Agreement or as a result of any other breach of this Agreement by the
Company, as determined by a court of competent jurisdiction or pursuant to the
provisions of paragraph 18 below, the Company shall pay all amounts and damages
to which Executive may be entitled as a result of such breach, including
interest thereon and all reasonable legal fees and expenses and other costs
incurred by Executive to enforce his rights hereunder. Further, none of the
provisions of paragraph 3 shall apply in the event this Agreement is terminated
as a result of a breach by the Company.
Upon termination of this Agreement for any reason provided above, in
addition to the above payments, if any, Executive shall be entitled to receive
all compensation earned and all benefits and reimbursements due through the
effective date of termination, paid to Executive in a lump sum on the effective
date of termination. In addition, a termination of this Agreement shall not
alter or impair any of Executive's vested rights or benefits, if any, under any
(i) employee benefit plan of the AmPaM Companies or (ii) deferred compensation
plan, including, without limitation, any stock option plan, of the AmPaM
Companies. All other rights and obligations of the Company and Executive under
this Agreement shall cease as of the effective date of termination, except that
Executive's obligations under paragraphs 3, 5, 6, 7, and 8 herein and the
Company's obligations under paragraphs 4 (with respect to severance payments, if
applicable), 11(g) and 14 shall survive such termination in accordance with
their terms, unless or except as expressly provided otherwise in this Agreement.
5. Return of Company Property. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Executive by
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<PAGE> 9
or on behalf of the Company, AmPaM or any AmPaM Companies or their
representatives, vendors or customers which pertain to the business of the
Company or AmPaM or any AmPaM Companies shall be and remain the property of the
Company or AmPaM or the AmPaM Company, as the case may be, and be subject at all
times to their discretion and control. Likewise, all correspondence, reports,
records, charts, advertising materials and other similar data pertaining to the
business, activities or future plans of the Company or AmPaM or the AmPaM
Company which is collected by Executive shall be delivered promptly to the
Company without request by it upon termination of Executive's employment and
Executive shall not retain any copies of the same.
6. Inventions. Executive shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by
Executive, solely or jointly with another, during the period of employment or
within one year thereafter, if conceived during employment, and which are
directly related to the business or activities of the Company and which
Executive conceives as a result of his employment by the Company, including any
predecessor (collectively, the "Intellectual Property"). Executive hereby
assigns and agrees to assign all his interests therein to the Company or its
nominee. Whenever requested to do so by the Company, Executive shall execute any
and all applications, assignments or other instruments that the Company shall
deem necessary to apply for and obtain Letters Patent of the United States or
any foreign country or to otherwise protect the Company's interest therein.
Executive must also render to the Company, at the Company's expense, assistance
in the perfection, enforcement and defense of any Intellectual Property.
7. Trade Secrets. Executive agrees that he will not, during or after
the term of this Agreement, disclose the specific terms of the Company's or
AmPaM's relationships or agreements with their respective significant vendors or
customers or any other significant and material trade secret of the Company or
AmPaM, whether in existence or proposed, to any person, firm, partnership,
corporation or business for any reason or purpose whatsoever, except as required
by law and prior to any such disclosure Executive shall give the Company prior
written notice thereof and the opportunity to contest such disclosure.
8. Confidentiality.
(a) Executive acknowledges and agrees that all Confidential
Information (as defined below) of the Company is confidential and a
valuable, special and unique asset of the Company that gives the
Company an advantage over its actual and potential, current and future
competitors. Executive further acknowledges and agrees that Executive
owes the Company a fiduciary duty to preserve and protect all
Confidential Information from unauthorized disclosure or unauthorized
use, that certain Confidential Information constitutes "trade secrets"
under applicable laws and, that unauthorized disclosure or unauthorized
use of the Confidential Information would irreparably injure the
Company.
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<PAGE> 10
(b) Both during the term of Executive's employment and after
the termination of Executive's employment for any reason (including
wrongful termination), Executive shall hold all Confidential
Information in strict confidence, and shall not use any Confidential
Information except for the benefit of the Company, in accordance with
the duties assigned to Executive. Executive shall not, at any time
(either during or after the term of Executive's employment), disclose
any Confidential Information to any person or entity (except other
employees of the Company who have a need to know the information in
connection with the performance of their employment duties, and who
have been informed of the confidential nature of the confidential
information and have agreed to keep it confidential), or copy,
reproduce, modify, transmit, including electronic transmission,
decompile or reverse engineer any Confidential Information, or remove
any Confidential Information from the Company's premises, without the
prior written consent of the AmPaM Board, or permit any other person to
do so. Executive shall take reasonable precautions to protect the
physical security of all documents and other material containing
Confidential Information (regardless of the medium on which the
Confidential Information is stored). This Agreement applies to all
Confidential Information, whether now known or later to become known to
Executive.
(c) Upon the termination of Executive's employment with the
Company for any reason, and upon written request of the Company at any
other time, Executive shall promptly surrender and deliver to the
Company all documents and other written material of any nature
containing or pertaining to any Confidential Information and shall not
retain any such document or other material. Within five days of any
such written request, Executive shall certify to the Company in writing
that all such materials have been returned.
(d) As used in this Agreement, the term "Confidential
Information" shall mean any information or material known to or used by
or for an AmPaM Company (whether or not owned or developed by an AmPaM
Company and whether or not developed by Executive) that is not
generally known to persons in the Plumbing and Mechanical Business.
Confidential Information includes, but is not limited to, the
following: all trade secrets of the AmPaM Companies; all information
that an AmPaM Company has marked as confidential or has otherwise
described to Executive (either in writing or orally) as confidential;
all nonpublic information concerning the Company's products, services,
prospective products or services, research, product designs, prices,
discounts, costs, marketing plans, marketing techniques, market
studies, test data, customers, customer lists and records, suppliers
and contracts; all AmPaM Company business records and plans; all AmPaM
Company personnel files; all financial information of or concerning the
AmPaM Companies; all information relating to operating system software,
application software, software and system methodology, hardware
platforms, technical information, inventions, computer programs and
listings, source codes, object codes, copyrights and other intellectual
property; all technical specifications; any proprietary information
belonging to an AmPaM Company; all computer hardware or software
manuals; all training or instruction manuals; and all data and all
computer system passwords and user codes. For purposes hereof,
Confidential Information
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<PAGE> 11
shall not include such information (i) which becomes or is already
known to the public through no fault of Executive; or (ii) the
disclosure of which (x) is required by law (including regulations and
rulings) or the order of any competent governmental authority or (y)
Executive reasonably believes is required in connection with the
defense of a lawsuit against Executive, provided that in either case,
prior to disclosing any information, Executive shall give prior written
notice thereof to the Company and provide the Company with the
opportunity to contest such disclosure.
9. No Prior Agreements. Executive hereby represents and warrants to the
Company that the execution of this Agreement by Executive and his employment by
the Company and the performance of his duties hereunder will not violate or be a
breach of any agreement, including any non-competition agreement, invention or
secrecy agreement, with a former employer, client or any other person or entity.
Further, Executive agrees to indemnify the Company for any loss or expense,
including, but not limited to, reasonable attorneys' fees and expenses, the
Company may incur based upon or arising out of Executive's breach of this
paragraph 9.
10. Assignment; Binding Effect. Executive understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Executive agrees, therefore, that he
cannot assign all or any portion of his performance under this Agreement.
Subject to the preceding two sentences and the express provisions of paragraph
12 below, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective heirs, legal
representatives, successors and assigns. The Company and AmPaM will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and assets of the Company
or AmPaM to expressly assume and agree in writing reasonably satisfactory to
Executive to perform this Agreement in the same manner and to the same extent
that the Company or AmPaM would be required to perform it if no such succession
had taken place. Failure of the Company or AmPaM to obtain such written
agreement prior to the effectiveness of any such secession shall be a material
breach of this Agreement.
11. Change in Control.
(a) Executive understands and acknowledges that the Company
may be merged or consolidated with or into another entity and that such
entity shall automatically succeed to the rights and obligations of the
Company hereunder or that the Company may undergo a Change in Control
(as defined below). In the event a Change in Control is initiated or
occurs during the Initial Term or any Extended Term, then the
provisions of this paragraph 11 shall be applicable.
(b) In the event of a Change in Control wherein AmPaM and
Executive have not received written notice at least ten business days
prior to the date of the event giving rise to the Change in Control
from the successor to all or a substantial portion of the AmPaM's
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<PAGE> 12
business and/or assets that such successor is willing as of the closing
to assume and agrees to perform, or continue to cause the Company to
perform, the Company's obligations under this Agreement in the same
manner and to the same extent that the Company is hereby required to
perform, then Executive may, at Executive's sole discretion, elect to
terminate Executive's employment on the effective date of such Change
in Control by providing written notice to the AmPaM Board at least five
business days prior to the closing of the transaction giving rise to
the Change in Control. In such case, the applicable provisions of
paragraph 4(d) will apply as though the Company had terminated
Executive without Cause; however, the amount of the lump sum severance
payment due Executive shall be triple the amount calculated under the
terms of paragraph 4(d), but shall in no event exceed six times
Executive's annual base salary.
(c) In any Change in Control situation, Executive may, at
Executive's sole discretion, elect to terminate Executive's employment
upon the effective date of such Change in Control by providing written
notice to the AmPaM Board at least five business days prior to the
closing of the transaction giving rise to the Change in Control. In
such case, the applicable provisions of paragraph 4(d) will apply as
though the Company had terminated Executive without Cause; however, the
amount of the lump sum severance payment due Executive shall be double
the amount calculated under the terms of paragraph 4(d), but shall in
no event exceed four times Executive's annual base salary.
(d) If, on or within two years following the effective date of
a Change in Control the Company terminates Executive's employment other
than for Cause or Disability or if Executive terminates his employment
for Good Reason, or if Executive's employment with the Company is
terminated by the Company within three months before the effective date
of a Change in Control and it is reasonably demonstrated that such
termination (i) was at the request of a third party that has taken
steps reasonably calculated to effect a Change in Control, or (ii)
otherwise arose in connection with or anticipation of a Change in
Control, then Executive shall receive from Company, in a lump sum
payment due on the effective date of termination, the greater of (i)
the equivalent of three years' annual base salary at the rate in effect
on the date of Executive's termination, or (ii) the base salary for
whatever period is then remaining on the Initial Term, if any, which
payment shall be in lieu of any amounts otherwise payable pursuant to
paragraph 4(d).
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person, entity or group (as such terms are
used in Sections 13(d) and 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Act"), other than the AmPaM
Companies or an employee benefit plan of the AmPaM Companies,
acquires, directly or indirectly, the beneficial ownership (as
defined in Section 13(d) of the Act) of any voting security of
AmPaM and immediately after such acquisition such person is,
directly or indirectly, the beneficial owner of voting
securities
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<PAGE> 13
representing 20% or more of the total voting power of all of
the then outstanding voting securities of AmPaM entitled to
vote generally in the election of directors;
(ii) upon the first purchase of AmPaM's common stock
pursuant to a tender or exchange offer (other than a tender or
exchange offer made by AmPaM);
(iii) the stockholders of AmPaM shall approve a
merger, consolidation, recapitalization or reorganization of
AmPaM, or a reverse stock split of outstanding voting
securities, or consummation of any such transaction if
stockholder approval is not obtained, other than any such
transaction which would result in at least 75% of the total
voting power represented by the voting securities of the
surviving entity outstanding immediately after such
transaction being beneficially owned by the holders of all of
the outstanding voting securities of AmPaM immediately prior
to the transactions with the voting power of each such
continuing holder relative to other such continuing holders
not substantially altered in the transaction;
(iv) the stockholders of AmPaM shall approve a plan
of complete liquidation or dissolution of AmPaM or an
agreement for the sale or disposition by AmPaM of all or
substantially all of AmPaM's assets; or
(v) if, at any time during any period of two
consecutive years, individuals who at the beginning of such
period constitute the Board cease for any reason to constitute
at least a majority thereof, unless the election or nomination
for the election by the Company's stockholders of each new
director was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the
beginning of the period.
(f) Notwithstanding anything in this Agreement to the
contrary, a termination pursuant to paragraph 11(b), (c), or (d) shall
operate to automatically waive in full the noncompetition restrictions
imposed on Executive pursuant to paragraph 3.
(g) If it shall be finally determined that any payment made or
benefit provided to Executive in connection with a Change in Control of
the Company or AmPaM, whether or not made or provided pursuant to this
Agreement, is subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended, or any successor thereto,
the Company shall pay Executive an amount of cash (the "Additional
Amount") such that the net amount received by Executive after paying
all applicable taxes on such Additional Amount shall be equal to the
amount that Executive would have received if Section 4999 were not
applicable.
12. No Mitigation or Offset. Executive shall not be required to
mitigate the amount of any Company payment provided for in this Agreement by
seeking other employment or otherwise.
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<PAGE> 14
The amount of any payment required to be paid to Executive by the Company
pursuant to this Agreement shall not be reduced by any amounts that are owed to
the Company by Executive, or by any setoff, counterclaim, recoupment, defense or
other claim, right or action.
13. Release. Notwithstanding anything in this Agreement to the
contrary, Executive shall not be entitled to receive any severance payments
pursuant to paragraphs 4 or 11 of this Agreement unless Executive has executed
(and not revoked) a general release of all claims Executive may have against the
Company and its affiliates relating to Executive's employment hereunder in a
form of such release reasonably acceptable to the Company.
14. Indemnification. In the event Executive is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the Company
against Executive), by reason of the fact that he is or was performing services
under this Agreement or as an executive officer of the Company prior to the date
of this Agreement, then the Company shall indemnify Executive against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement, as actually and reasonably incurred by Executive in connection
therewith. In the event that both Executive and the Company are made a party to
the same third-party action, complaint, suit or proceeding, the Company agrees
to engage competent legal representation, and Executive agrees to use the same
representation, provided that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Executive,
Executive may engage separate counsel and the Company shall pay all reasonable
attorneys' fees and reasonable expenses of such separate counsel. Further, while
Executive is expected at all times to use his best efforts to faithfully
discharge his duties under this Agreement, Executive cannot be held liable to
the Company for errors or omissions made in good faith where Executive has not
exhibited gross, willful and wanton negligence and misconduct nor performed
criminal and fraudulent acts which materially damage the business of the
Company. The Company shall indemnify Executive against and hold Executive
harmless from any costs, liabilities, losses and exposures for Executive's
services as an employee, officer and director of the Company (or any successor)
to the maximum extent permitted under applicable law.
15. Complete Agreement. This Agreement supersedes, and replaces in
full, all representations, understandings and agreements (oral or written)
between Executive and the Company or any AmPaM Company, AmPaM or any of their
officers, directors or representatives existing as of the Effective Date and
covering the same subject matter as this Agreement, but excluding the
Acquisition Agreement among AmPaM, the Company, the Executive and other
stockholders of the Company, dated February 11, 1999, which shall not be
affected by this Agreement. This written Agreement is the final, complete and
exclusive statement and expression of the agreement between the Company, AmPaM
and Executive and of all the terms of this Agreement, and it cannot be varied,
contradicted or supplemented by evidence of any prior or contemporaneous oral or
written agreements. This written Agreement may not be modified after the
Effective Date except by a further writing signed by a duly authorized officer
of the Company and Executive, and no term of this Agreement may be waived except
by writing signed by the party
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<PAGE> 15
waiving the benefit of such term. Without limiting the generality of the
foregoing, either party's failure to insist on strict compliance with this
Agreement shall not be deemed a waiver thereof.
16. Notice. Whenever any notice is required hereunder, it shall be
given in writing addressed as follows:
To the Company: c/o American Plumbing & Mechanical, Inc.
1502 Augusta, Suite 425
Houston, Texas 77057
To Executive: 3111 Lakeshore Dr.
Mount Dora, Florida 32757
Notice shall be deemed given and effective on the earlier of three days after
the deposit in the U.S. mail of a writing addressed as above and sent first
class mail, certified, return receipt requested, or when actually received.
Either party may change the address for notice by notifying the other party of
such change in accordance with this paragraph 16.
17. Severability; Headings. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
18. Dispute Resolutions. Except with respect to injunctive relief as
provided in paragraph 3(b), neither party shall institute a proceeding in any
court or administrative agency to resolve a dispute between the parties before
that party has sought to resolve the dispute through direct negotiation with the
other party. If the dispute is not resolved within two weeks after a demand for
direct negotiation, the parties shall attempt to resolve the dispute through
mediation. If the parties do not promptly agree on a mediator, the parties shall
request the Association of Attorney Mediators in Harris County, Texas to appoint
a mediator certified by the Supreme Court of Texas. If the mediator is unable to
facilitate a settlement of the dispute within a reasonable period of time, as
determined by the mediator, the mediator shall issue a written statement to the
parties to that effect and any unresolved dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively by
arbitration, conducted before a panel of three arbitrators in Mount Dora,
Florida, in accordance with the rules of the American Arbitration Association
then in effect. The arbitrators shall have the authority to order back-pay,
severance compensation, vesting of options (or cash compensation in lieu of
vesting of options), reimbursement of costs and expenses, including those
incurred to enforce this Agreement, including reasonable attorneys' fees and
interest thereon in the event the arbitrators determine that Executive was
terminated without Disability or Cause, as defined in paragraphs 4(b) and 4(c),
respectively, or that the Company has otherwise materially
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<PAGE> 16
breached this Agreement. A decision by a majority of the arbitration panel shall
be final and binding. Judgment may be entered on the arbitrators' award in any
court having jurisdiction. The costs and expenses, including reasonable
attorneys' fees, of the prevailing party in any dispute arising under this
Agreement will be promptly paid by the other party.
19. Governing Law. This Agreement shall in all respects be construed
according to the laws of the State of Texas without regard to its conflicts of
law provisions.
20. AmPaM Guaranty. AmPaM hereby irrevocably and unconditionally
guarantees to Executive the payment of all amounts and the performance of all
other obligations of the Company in accordance with the terms of this Agreement.
21. Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
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<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective for all purposes as of the Effective Date.
J.A. CROSON COMPANY OF FLORIDA
By: /s/ David C. Baggett
------------------------------------
Name: David C. Baggett
----------------------------------
Title: Vice President
---------------------------------
EXECUTIVE
By: /s/ James Croson
------------------------------------
James Croson
AMERICAN PLUMBING & MECHANICAL, INC.
By: /s/ David C. Baggett
------------------------------------
Name: David C. Baggett
----------------------------------
Title: Chief Financial Officer
---------------------------------
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<PAGE> 1
EXHIBIT 10.20
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and between Miller
Mechanical Contractors, Inc. (the "Company"), a Georgia corporation, American
Plumbing & Mechanical, Inc., a Delaware corporation ("AmPaM"), and Joseph E.
Miller ("Executive") is hereby entered into effective as of the date of the
closing date of the transactions contemplated in the Acquisition Agreement
between the Company, AmPaM and others dated February 11, 1999 (the "Effective
Date").
RECITALS
The following statements are true and correct:
As of the Effective Date, the Company, AmPaM and the other subsidiaries
of AmPaM (collectively, the "AmPaM Companies") are engaged primarily in the
providing of plumbing and mechanical contracting services.
Executive is employed hereunder by the Company in a confidential
relationship wherein Executive, in the course of his employment with the
Company, has and will continue to become familiar with and aware of information
as to the Company's and AmPaM's customers and specific manner of doing business,
including the processes, techniques and trade secrets utilized by the Company
and AmPaM, and future plans with respect thereto, all of which has been and will
be established and maintained at great expense to the Company and AmPaM. This
information is a trade secret and constitutes the valuable goodwill of the
Company and AmPaM.
Therefore, in consideration of the mutual promises, terms, covenants
and conditions set forth herein and the performance of each, it is hereby agreed
as follows:
AGREEMENTS
1. Employment and Duties.
(a) The Company hereby employs Executive as Vice President or
President of the Company. As such, Executive shall have the
responsibilities, duties and authority reasonably accorded to, expected
of and consistent with Executive's position as Vice President or
President of the Company. Executive hereby accepts this employment upon
the terms and conditions herein contained and, subject to paragraph
1(c), agrees to devote substantially all of his time, attention and
efforts during normal business hours to promote and further the
business and interests of the Company and its affiliates.
(b) Executive shall faithfully adhere to, execute and fulfill
all reasonable and lawful policies established by the Company, to the
extent such policies have been
<PAGE> 2
communicated to Executive in writing and are not inconsistent with any
of the terms of this Agreement.
(c) Except as set forth on Schedule 1(c) hereto, Executive
shall not, during the term of his employment hereunder, engage in any
other business activity pursued for gain, profit or other pecuniary
advantage if such activity interferes in any material respect with
Executive's duties and responsibilities hereunder. The foregoing
limitations shall not be construed as prohibiting Executive from making
personal investments in such form or manner as will not require a
substantial portion of such Executive's time during normal business
hours in the operation or affairs of the companies or enterprises in
which such investments are made.
(d) Executive shall be entitled to vacation in accordance with
the policies of the Company.
2. Compensation. For all services rendered by Executive, the Company
shall compensate Executive as follows:
(a) Base Salary. The base salary payable to Executive during
the term shall be $200,000 per year, payable in accordance with the
Company's payroll procedures for officers, but not less frequently than
monthly. On an annual basis such base salary shall be reviewed by the
Board of Directors of AmPaM (the "AmPaM Board") and may be adjusted at
its discretion, in light of the Executive's position, responsibilities,
performance and such other reasonable, job related factors that the
AmPaM Board deems appropriate; provided, however, any adjusted Base
Salary may not be less than that amount in effect on the Effective
Date.
(b) Annual Bonus. AmPaM will consider adopting an incentive
bonus plan under which Executive and other key employees of the AmPaM
Companies will be eligible to receive annual bonus awards in amounts
that are competitive with those provided to similarly situated
executives, as determined by the AmPaM Board.
(c) Executive Perquisites, Benefits and Other Compensation.
Executive shall be entitled to receive additional benefits and
compensation from the Company in such form and to such extent as
specified below:
(i) Executive shall be reimbursed for all business
travel and other out-of-pocket expenses (including those costs
to maintain any professional certifications held or obtained
by Executive) reasonably incurred by Executive in the
performance of his duties pursuant to this Agreement and in
accordance with AmPaM's policy for its similarly situated
executives. All such expenses shall be appropriately
documented in reasonable detail by Executive upon submission
of any request for
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<PAGE> 3
reimbursement, and in a format and manner consistent with
AmPaM's expense reporting policy.
(ii) Executive shall be entitled to participate in
all incentive compensation plans and to receive all fringe
benefits and prerequisites offered by the Company or AmPaM to
any of the Company's or the AmPaM Companies' similarly
situated executives, including, without limitation,
participation in the various employee benefit plans or
programs provided to the employees of the Company or the AmPaM
Companies in general, subject to the regular eligibility
requirements with respect to each such benefit plans or
programs.
(iii) The Company shall provide Executive with such
other perquisites as may be deemed appropriate for Executive
by the AmPaM Board during the term of this Agreement, all on a
basis as favorable to Executive as may be provided or offered
to other similarly situated executives of the AmPaM Companies.
3. Non-Competition Agreement.
(a) Executive acknowledges that as a consequence of his
employment with the Company, he will be furnished or have access to
Confidential Information (as defined below). Executive further
recognizes that the Company's willingness to enter into this Agreement
is based in material part on Executive's agreement to the provisions of
this paragraph 3 and that Executive's breach of the provisions of this
paragraph 3 could materially damage the Company. Subject to paragraph
4(d) and the further provisions of this Agreement, Executive will not,
during the term of his employment with the Company, and for a period of
two years immediately following the termination of such employment for
any reason, directly or indirectly, for himself or on behalf of or in
conjunction with any other person, company, partnership, corporation or
business of whatever nature:
(i) engage, as an officer, director, shareholder,
owner, partner, joint venturer, or in a managerial capacity,
whether as an employee, independent contractor, consultant or
advisor, or as a sales representative, in any plumbing,
piping, mechanical, heating, ventilation, or air conditioning
contracting, installation or services business or operation,
or any ancillary contracting, installation or services
business directly related thereto (such business and
operations referred to herein as the "Plumbing and Mechanical
Business") within 100 miles of where any AmPaM Company
conducts business, including any territory serviced by an
AmPaM Company during the term of Executive's employment (the
"Territory");
(ii) call upon any person who is, at that time, an
employee of an AmPaM Company for the purpose or with the
intent of enticing such employee away from or out of the
employ of the AmPaM Company;
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<PAGE> 4
(iii) call upon any person or entity which is, at
that time, or which has been, within one year prior to that
time, a customer of an AmPaM Company within the Territory for
the purpose of soliciting customers, orders or contracts for
any Plumbing and Mechanical Business within the Territory;
(iv) call upon any prospective acquisition candidate,
on Executive's own behalf or on behalf of any competitor,
which candidate was, to Executive's knowledge after due
inquiry, either called upon by an AmPaM Company or for which
an AmPaM Company made an acquisition analysis, for the purpose
of acquiring such entity;
(v) disclose customers, whether in existence or
proposed, of the Company to any person, firm, partnership,
corporation or business for any reason or purpose whatsoever
except to the extent that the Company has in the past
disclosed such information to the public for valid business
reasons; or
(vi) testify as an expert witness in matters related
to the Plumbing and Mechanical Business for an adverse party
to an AmPaM Company in litigation; provided, that nothing
contained in this paragraph 4(a)(vi) shall interfere with
Executive's duty to testify as a witness if required by law.
Notwithstanding the above, the foregoing covenant shall not be
deemed to prohibit Executive from acquiring as an investment (i) not
more than 1% of the capital stock of a company engaged in the Plumbing
and Mechanical Business whose stock is traded on a national securities
exchange, the Nasdaq Stock Market or on an over-the-counter or similar
market or (ii) not more than 5% of the capital stock of a competing
business whose stock is not publicly traded if the AmPaM Board consents
to such acquisition.
(b) Because of the difficulty of measuring economic losses to
the Company and AmPaM as a result of a breach of the foregoing
covenant, and because of the immediate and irreparable damage that
could be caused to the Company and AmPaM for which they would have no
other adequate remedy, Executive agrees that foregoing covenant may be
enforced by the Company, in the event of breach by him, by injunctions,
restraining orders and orders of specific performance issued by a court
of competent jurisdiction. Executive further agrees to waive any
requirement for the Company's securing or posting of any bond in
connection with such remedies.
(c) It is agreed by the parties that the foregoing covenants
in this paragraph 3 impose a reasonable restraint on Executive in light
of the activities and business of the AmPaM Companies on the date of
the execution of this Agreement and the current plans of the AmPaM
Companies; but it is also the intent of the Company and Executive that,
subject to paragraph 3(g) hereof, such covenants be construed and
enforced in accordance with the
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changing activities, business and locations of the AmPaM Companies
throughout the term of this covenant, whether before or after the date
of termination of the employment of Executive, unless the Executive
was conducting such new business prior to any AmPaM Company conducting
such new business. For example, if, during the term of this Agreement,
an AmPaM Company engages in new and different activities, enters a new
business or establishes new locations for its current activities or
business in addition to or other than the activities or business
enumerated under the Recitals above or the locations currently
established therefor, then, subject to paragraph 3(g) hereof, through
the term of this covenant Executive will be precluded from soliciting
the customers or employees of such new activities or business or from
such new location and from directly competing with such new business
activities, or locations within 100 miles of where such new
activities, business or locations are conducted, unless Executive was
conducting such new activities or business prior to any AmPaM Company
conducting such new activities or business.
(d) It is further agreed by the parties hereto that, in the
event that Executive shall cease to be employed hereunder and shall
enter into a business or pursue other activities not in competition
with the Plumbing and Mechanical Business of any of the AmPaM Companies
or similar activities or business in locations the operation of which,
under such circumstances, does not violate clause (a)(i) of this
paragraph 3, and in any event such new business, activities or location
are not in violation of this paragraph 3 or of Executive's obligations
under this paragraph 3, if any, Executive shall not be chargeable with
a violation of this paragraph 3 if the AmPaM Companies shall, at any
time after the termination of Executive's employment, enter the same,
similar or a competitive (i) business, (ii) course of activities or
(iii) location, as applicable.
(e) The covenants in this paragraph 3 are severable and
separate, and the unenforceability of any specific covenant shall not
affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the
intention of the parties that such restrictions be enforced to the
fullest extent which the court deems reasonable, and the Agreement
shall thereby be reformed.
(f) All of the covenants in this paragraph 3 shall be
construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of
Executive against the Company or AmPaM, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the
enforcement by AmPaM or the Company of such covenants. It is
specifically agreed that the period of two years (subject to the
further provisions of this Agreement) following termination of
employment stated at the beginning of this paragraph 3, during which
the agreements and covenants of Executive made in this paragraph 3
shall be effective, shall be computed by excluding from such
computation any time during which Executive is in violation of any
provision of this paragraph 3.
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(g) The Company and the Executive hereby agree that this
covenant is a material and substantial part of this transaction.
4. Term; Termination; Rights on Termination. The term of this Agreement
shall begin on the Effective Date and continue for five years (the "Initial
Term") unless terminated sooner as herein provided; however, beginning on the
fifth anniversary of the Effective Date and on each anniversary thereafter the
term shall automatically continue for one year on the same terms and conditions
contained herein in effect as of the time of renewal (the "Extended Term")
unless not less than six months prior to any such anniversary either party shall
give written notice to the other party that the term shall not be so extended;
provided further, however, upon a Change in Control (as defined in paragraph
11(d)) during the Initial Term or any Extended Term the term of this Agreement
shall automatically continue following such Change in Control for a period equal
to the then remaining term or two years, whichever period is longer (such longer
period being an Extended Term), unless earlier terminated as provided in
paragraph 11. This Agreement and Executive's employment may be terminated in any
one of the followings ways:
(a) Death. The death of Executive shall immediately terminate
this Agreement with no severance compensation due to Executive's
estate; provided, however, for the 90 day period following Executive's
death, the Company, at its sole cost and expense, shall continue to
provide the Executive's then qualified beneficiaries with coverage
under the Company's group health plan in which Executive participated
immediately prior to his death or a successor plan thereto, subject to
the terms of such plan as it may be amended ("Company Health Plan").
Thereafter, the Company shall provide continuation of coverage
elections to such qualified beneficiaries as are required by law.
(b) Disability. If, Executive becomes entitled to and receives
benefits under an insured long term disability plan of an AmPaM Company
(incurs a "Disability"), the Company, with the approval of at least 51%
of the members of the AmPaM Board, may terminate this Agreement and
Executive's employment hereunder. In the event this Agreement is
terminated as a result of Executive's Disability, Executive shall have
no right to any severance compensation; provided, however, (i) for 12
months thereafter or until his death, if earlier, the Company shall
continue to pay Executive an amount equal to his monthly base salary at
the time of his termination, reduced by any monthly benefits payable to
Executive under such long term disability plan and (ii) the Company, at
its sole cost and expense, shall continue the coverage of Executive
and his qualified beneficiaries (for as long as they are qualified
beneficiaries thereunder) under the Company's Health Plan for as long
as Executive continues to qualify for and receive benefits under such
long term disability plan, but not to exceed five years. Thereafter,
the Company shall provide COBRA elections to Executive and his
qualified beneficiaries as required by law.
(c) Cause. The Company may terminate this Agreement and
Executive's employment 30 days after written notice is provided by the
Company, at the direction of the
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<PAGE> 7
AmPaM Board, to Executive for "Cause", which shall be: (1) Executive's
willful and material breach of this Agreement (which remains uncured
at the end of such 30 day period); (2) Executive's gross negligence in
the performance or intentional nonperformance (in either case
continuing for 30 days after receipt of written notice by the Company,
at the direction of the AmPaM Board, of need to cure) of any of
Executive's material duties and responsibilities hereunder; (3)
Executive's dishonesty or fraud with respect to the business,
reputation or affairs of an AmPaM Company which materially and
adversely affects an AmPaM Company (monetarily or otherwise); or (4)
Executive's conviction of a felony crime involving moral turpitude.
Any termination for Cause must be approved by at least 51% of the
members of the AmPaM Board. For purposes hereof, no act, or failure to
act, on Executive's part shall be deemed "willful" unless done, or
omitted to be done, by Executive not in good faith and without
reasonable belief that Executive's action or omission was in the best
interest of the Company. Notwithstanding the foregoing, Executive
shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to Executive a copy of a resolution
duly adopted by the AmPaM Board, finding that in the good faith
opinion of the AmPaM Board Executive was guilty of conduct set forth
above and specifying the particulars thereof in detail. In the event
of a termination for Cause, Executive shall have no right to any
severance compensation.
(d) Without Cause and For Good Reason. Executive may, without
Good Reason (as hereinafter defined), terminate this Agreement and
Executive's employment, effective 30 days after written notice is
provided to the Company. Executive may only be terminated without Cause
and other than due to Disability by the Company during either the
Initial Term or Extended Term if such termination is approved by at
least 51% of the members of the AmPaM Board. Should Executive be
terminated by the Company without Cause and other than due to
Disability or should Executive terminate with Good Reason during the
Initial Term, Executive shall receive from the Company, in a lump sum
payment due on the effective date of termination, an amount equivalent
to the base salary at the rate then in effect for (i) whatever time
period is remaining under the Initial Term (but in no event more than
two years) or (ii) for one year, whichever amount is greater. Should
Executive be terminated by the Company without Cause and other than due
to Disability or should the Executive terminate with Good Reason during
the Extended Term, Executive shall receive from the Company, in a lump
sum payment due on the effective date of termination, an amount
equivalent to the base salary at the rate then in effect for one year.
Further, any termination by the Company without Cause or due to
Disability or by Executive for Good Reason (whether during the Initial
Term or any Extended Term) shall operate to shorten the period set
forth in paragraph 3(a) and during which the terms of paragraph 3 apply
to one year from the date of termination of employment. If Executive
resigns or otherwise terminates his employment without Good Reason,
rather than the Company terminating his employment pursuant to this
paragraph 4(d), Executive shall receive no severance compensation.
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Executive shall have "Good Reason" to terminate his employment
hereunder upon the occurrence of any of the following events, unless
such event is agreed to in writing by Executive: (a) Executive is
demoted by means of a material reduction in authority, title,
responsibilities or duties to a position of less stature or importance
within the Company than the position described in Section 1 hereof; (b)
Executive's annual base salary as then in effect is reduced in
accordance with paragraph 2(a) or otherwise; or (c) the relocation of
the Company's principal executive offices to a location outside the
greater Atlanta, Georgia area or the Company's requiring Executive to
relocate anywhere other than the Company's principal executive offices;
(c) the assignment to Executive of any duties or responsibilities which
are materially inconsistent with Executive's title, position or
responsibilities as in effect immediately prior to such assignment; or
(d) the failure by the Company to continue in effect any employee
benefit plan in which Executive participates and/or any prerequisite
provided Executive, which is (are) material to Executive's total
compensation and benefits, unless an equitable arrangement (embodied in
an ongoing substitute or alternative plan) has been made with respect
to such plan or perquisite; provided, however, Good Reason shall exist
with respect to a matter only if such matter is not corrected within 30
days of receipt by the Company of written notice of such matter from
Executive.
If termination of Executive's employment arises out of the Company's
failure to pay Executive on a timely basis the amounts to which he is entitled
under this Agreement or as a result of any other breach of this Agreement by the
Company, as determined by a court of competent jurisdiction or pursuant to the
provisions of paragraph 18 below, the Company shall pay all amounts and damages
to which Executive may be entitled as a result of such breach, including
interest thereon and all reasonable legal fees and expenses and other costs
incurred by Executive to enforce his rights hereunder. Further, none of the
provisions of paragraph 3 shall apply in the event this Agreement is terminated
as a result of a breach by the Company.
Upon termination of this Agreement for any reason provided above, in
addition to the above payments, if any, Executive shall be entitled to receive
all compensation earned and all benefits and reimbursements due through the
effective date of termination, paid to Executive in a lump sum on the effective
date of termination. In addition, a termination of this Agreement shall not
alter or impair any of Executive's vested rights or benefits, if any, under any
(i) employee benefit plan of the AmPaM Companies or (ii) deferred compensation
plan, including, without limitation, any stock option plan, of the AmPaM
Companies. All other rights and obligations of the Company and Executive under
this Agreement shall cease as of the effective date of termination, except that
Executive's obligations under paragraphs 3, 5, 6, 7, and 8 herein and the
Company's obligations under paragraphs 4 (with respect to severance payments, if
applicable), 11(g) and 14 shall survive such termination in accordance with
their terms, unless or except as expressly provided otherwise in this Agreement.
5. Return of Company Property. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Executive by
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or on behalf of the Company, AmPaM or any AmPaM Companies or their
representatives, vendors or customers which pertain to the business of the
Company or AmPaM or any AmPaM Companies shall be and remain the property of the
Company or AmPaM or the AmPaM Company, as the case may be, and be subject at all
times to their discretion and control. Likewise, all correspondence, reports,
records, charts, advertising materials and other similar data pertaining to the
business, activities or future plans of the Company or AmPaM or the AmPaM
Company which is collected by Executive shall be delivered promptly to the
Company without request by it upon termination of Executive's employment and
Executive shall not retain any copies of the same.
6. Inventions. Executive shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by
Executive, solely or jointly with another, during the period of employment or
within one year thereafter, if conceived during employment, and which are
directly related to the business or activities of the Company and which
Executive conceives as a result of his employment by the Company, including any
predecessor (collectively, the "Intellectual Property"). Executive hereby
assigns and agrees to assign all his interests therein to the Company or its
nominee. Whenever requested to do so by the Company, Executive shall execute any
and all applications, assignments or other instruments that the Company shall
deem necessary to apply for and obtain Letters Patent of the United States or
any foreign country or to otherwise protect the Company's interest therein.
Executive must also render to the Company, at the Company's expense, assistance
in the perfection, enforcement and defense of any Intellectual Property.
7. Trade Secrets. Executive agrees that he will not, during or after
the term of this Agreement, disclose the specific terms of the Company's or
AmPaM's relationships or agreements with their respective significant vendors or
customers or any other significant and material trade secret of the Company or
AmPaM, whether in existence or proposed, to any person, firm, partnership,
corporation or business for any reason or purpose whatsoever, except as required
by law and prior to any such disclosure Executive shall give the Company prior
written notice thereof and the opportunity to contest such disclosure.
8. Confidentiality.
(a) Executive acknowledges and agrees that all Confidential
Information (as defined below) of the Company is confidential and a
valuable, special and unique asset of the Company that gives the
Company an advantage over its actual and potential, current and future
competitors. Executive further acknowledges and agrees that Executive
owes the Company a fiduciary duty to preserve and protect all
Confidential Information from unauthorized disclosure or unauthorized
use, that certain Confidential Information constitutes "trade secrets"
under applicable laws and, that unauthorized disclosure or unauthorized
use of the Confidential Information would irreparably injure the
Company.
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<PAGE> 10
(b) Both during the term of Executive's employment and after
the termination of Executive's employment for any reason (including
wrongful termination), Executive shall hold all Confidential
Information in strict confidence, and shall not use any Confidential
Information except for the benefit of the Company, in accordance with
the duties assigned to Executive. Executive shall not, at any time
(either during or after the term of Executive's employment), disclose
any Confidential Information to any person or entity (except other
employees of the Company who have a need to know the information in
connection with the performance of their employment duties, and who
have been informed of the confidential nature of the confidential
information and have agreed to keep it confidential), or copy,
reproduce, modify, transmit, including electronic transmission,
decompile or reverse engineer any Confidential Information, or remove
any Confidential Information from the Company's premises, without the
prior written consent of the AmPaM Board, or permit any other person to
do so. Executive shall take reasonable precautions to protect the
physical security of all documents and other material containing
Confidential Information (regardless of the medium on which the
Confidential Information is stored). This Agreement applies to all
Confidential Information, whether now known or later to become known to
Executive.
(c) Upon the termination of Executive's employment with the
Company for any reason, and upon written request of the Company at any
other time, Executive shall promptly surrender and deliver to the
Company all documents and other written material of any nature
containing or pertaining to any Confidential Information and shall not
retain any such document or other material. Within five days of any
such written request, Executive shall certify to the Company in writing
that all such materials have been returned.
(d) As used in this Agreement, the term "Confidential
Information" shall mean any information or material known to or used by
or for an AmPaM Company (whether or not owned or developed by an AmPaM
Company and whether or not developed by Executive) that is not
generally known to persons in the Plumbing and Mechanical Business.
Confidential Information includes, but is not limited to, the
following: all trade secrets of the AmPaM Companies; all information
that an AmPaM Company has marked as confidential or has otherwise
described to Executive (either in writing or orally) as confidential;
all nonpublic information concerning the Company's products, services,
prospective products or services, research, product designs, prices,
discounts, costs, marketing plans, marketing techniques, market
studies, test data, customers, customer lists and records, suppliers
and contracts; all AmPaM Company business records and plans; all AmPaM
Company personnel files; all financial information of or concerning
the AmPaM Companies; all information relating to operating system
software, application software, software and system methodology,
hardware platforms, technical information, inventions, computer
programs and listings, source codes, object codes, copyrights and
other intellectual property; all technical specifications; any
proprietary information belonging to an AmPaM Company; all computer
hardware or software manuals; all training or instruction manuals; and
all data and all computer system passwords and user codes. For
purposes hereof, Confidential Information
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<PAGE> 11
shall not include such information (i) which becomes or is already
known to the public through no fault of Executive; or (ii) the
disclosure of which (x) is required by law (including regulations and
rulings) or the order of any competent governmental authority or (y)
Executive reasonably believes is required in connection with the
defense of a lawsuit against Executive, provided that in either case,
prior to disclosing any information, Executive shall give prior
written notice thereof to the Company and provide the Company with the
opportunity to contest such disclosure.
9. No Prior Agreements. Executive hereby represents and warrants to the
Company that the execution of this Agreement by Executive and his employment by
the Company and the performance of his duties hereunder will not violate or be a
breach of any agreement, including any non-competition agreement, invention or
secrecy agreement, with a former employer, client or any other person or entity.
Further, Executive agrees to indemnify the Company for any loss or expense,
including, but not limited to, reasonable attorneys' fees and expenses, the
Company may incur based upon or arising out of Executive's breach of this
paragraph 9.
10. Assignment; Binding Effect. Executive understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Executive agrees, therefore, that he
cannot assign all or any portion of his performance under this Agreement.
Subject to the preceding two sentences and the express provisions of paragraph
12 below, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective heirs, legal
representatives, successors and assigns. The Company and AmPaM will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and assets of the Company
or AmPaM to expressly assume and agree in writing reasonably satisfactory to
Executive to perform this Agreement in the same manner and to the same extent
that the Company or AmPaM would be required to perform it if no such succession
had taken place. Failure of the Company or AmPaM to obtain such written
agreement prior to the effectiveness of any such secession shall be a material
breach of this Agreement.
11. Change in Control.
(a) Executive understands and acknowledges that the Company
may be merged or consolidated with or into another entity and that such
entity shall automatically succeed to the rights and obligations of the
Company hereunder or that the Company may undergo a Change in Control
(as defined below). In the event a Change in Control is initiated or
occurs during the Initial Term or any Extended Term, then the
provisions of this paragraph 11 shall be applicable.
(b) In the event of a Change in Control wherein AmPaM and
Executive have not received written notice at least ten business days
prior to the date of the event giving rise to the Change in Control
from the successor to all or a substantial portion of the AmPaM's
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<PAGE> 12
business and/or assets that such successor is willing as of the closing
to assume and agrees to perform, or continue to cause the Company to
perform, the Company's obligations under this Agreement in the same
manner and to the same extent that the Company is hereby required to
perform, then Executive may, at Executive's sole discretion, elect to
terminate Executive's employment on the effective date of such Change
in Control by providing written notice to the AmPaM Board at least five
business days prior to the closing of the transaction giving rise to
the Change in Control. In such case, the applicable provisions of
paragraph 4(d) will apply as though the Company had terminated
Executive without Cause; however, the amount of the lump sum severance
payment due Executive shall be triple the amount calculated under the
terms of paragraph 4(d), but shall in no event exceed six times
Executive's annual base salary.
(c) In any Change in Control situation, Executive may, at
Executive's sole discretion, elect to terminate Executive's employment
upon the effective date of such Change in Control by providing written
notice to the AmPaM Board at least five business days prior to the
closing of the transaction giving rise to the Change in Control. In
such case, the applicable provisions of paragraph 4(d) will apply as
though the Company had terminated Executive without Cause; however, the
amount of the lump sum severance payment due Executive shall be double
the amount calculated under the terms of paragraph 4(d), but shall in
no event exceed four times Executive's annual base salary.
(d) If, on or within two years following the effective date of
a Change in Control the Company terminates Executive's employment other
than for Cause or Disability or if Executive terminates his employment
for Good Reason, or if Executive's employment with the Company is
terminated by the Company within three months before the effective date
of a Change in Control and it is reasonably demonstrated that such
termination (i) was at the request of a third party that has taken
steps reasonably calculated to effect a Change in Control, or (ii)
otherwise arose in connection with or anticipation of a Change in
Control, then Executive shall receive from Company, in a lump sum
payment due on the effective date of termination, the greater of (i)
the equivalent of three years' annual base salary at the rate in
effect on the date of Executive's termination, or (ii) the base salary
for whatever period is then remaining on the Initial Term, if any,
which payment shall be in lieu of any amounts otherwise payable
pursuant to paragraph 4(d).
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person, entity or group (as such terms are
used in Sections 13(d) and 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Act"), other than the AmPaM
Companies or an employee benefit plan of the AmPaM Companies,
acquires, directly or indirectly, the beneficial ownership (as
defined in Section 13(d) of the Act) of any voting security of
AmPaM and immediately after such acquisition such person is,
directly or indirectly, the beneficial owner of voting
securities
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representing 20% or more of the total voting power of all of
the then outstanding voting securities of AmPaM entitled to
vote generally in the election of directors;
(ii) upon the first purchase of AmPaM's common stock
pursuant to a tender or exchange offer (other than a tender or
exchange offer made by AmPaM);
(iii) the stockholders of AmPaM shall approve a
merger, consolidation, recapitalization or reorganization of
AmPaM, or a reverse stock split of outstanding voting
securities, or consummation of any such transaction if
stockholder approval is not obtained, other than any such
transaction which would result in at least 75% of the total
voting power represented by the voting securities of the
surviving entity outstanding immediately after such
transaction being beneficially owned by the holders of all of
the outstanding voting securities of AmPaM immediately prior
to the transactions with the voting power of each such
continuing holder relative to other such continuing holders
not substantially altered in the transaction;
(iv) the stockholders of AmPaM shall approve a plan
of complete liquidation or dissolution of AmPaM or an
agreement for the sale or disposition by AmPaM of all or
substantially all of AmPaM's assets; or
(v) if, at any time during any period of two
consecutive years, individuals who at the beginning of such
period constitute the Board cease for any reason to constitute
at least a majority thereof, unless the election or nomination
for the election by the Company's stockholders of each new
director was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the
beginning of the period.
(f) Notwithstanding anything in this Agreement to the
contrary, a termination pursuant to paragraph 11(b), (c), or (d) shall
operate to automatically waive in full the noncompetition restrictions
imposed on Executive pursuant to paragraph 3.
(g) If it shall be finally determined that any payment made or
benefit provided to Executive in connection with a Change in Control of
the Company or AmPaM, whether or not made or provided pursuant to this
Agreement, is subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended, or any successor thereto,
the Company shall pay Executive an amount of cash (the "Additional
Amount") such that the net amount received by Executive after paying
all applicable taxes on such Additional Amount shall be equal to the
amount that Executive would have received if Section 4999 were not
applicable.
12. No Mitigation or Offset. Executive shall not be required to
mitigate the amount of any Company payment provided for in this Agreement by
seeking other employment or otherwise.
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The amount of any payment required to be paid to Executive by the Company
pursuant to this Agreement shall not be reduced by any amounts that are owed to
the Company by Executive, or by any setoff, counterclaim, recoupment, defense or
other claim, right or action.
13. Release. Notwithstanding anything in this Agreement to the
contrary, Executive shall not be entitled to receive any severance payments
pursuant to paragraphs 4 or 11 of this Agreement unless Executive has executed
(and not revoked) a general release of all claims Executive may have against the
Company and its affiliates relating to Executive's employment hereunder in a
form of such release reasonably acceptable to the Company.
14. Indemnification. In the event Executive is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the Company
against Executive), by reason of the fact that he is or was performing services
under this Agreement or as an executive officer of the Company prior to the date
of this Agreement, then the Company shall indemnify Executive against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement, as actually and reasonably incurred by Executive in connection
therewith. In the event that both Executive and the Company are made a party to
the same third-party action, complaint, suit or proceeding, the Company agrees
to engage competent legal representation, and Executive agrees to use the same
representation, provided that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Executive,
Executive may engage separate counsel and the Company shall pay all reasonable
attorneys' fees and reasonable expenses of such separate counsel. Further, while
Executive is expected at all times to use his best efforts to faithfully
discharge his duties under this Agreement, Executive cannot be held liable to
the Company for errors or omissions made in good faith where Executive has not
exhibited gross, willful and wanton negligence and misconduct nor performed
criminal and fraudulent acts which materially damage the business of the
Company. The Company shall indemnify Executive against and hold Executive
harmless from any costs, liabilities, losses and exposures for Executive's
services as an employee, officer and director of the Company (or any successor)
to the maximum extent permitted under applicable law.
15. Complete Agreement. This Agreement supersedes, and replaces in
full, all representations, understandings and agreements (oral or written)
between Executive and the Company or any AmPaM Company, AmPaM or any of their
officers, directors or representatives existing as of the Effective Date and
covering the same subject matter as this Agreement, but excluding the
Acquisition Agreement among AmPaM, the Company, the Executive and other
stockholders of the Company, dated February 11, 1999, which shall not be
affected by this Agreement. This written Agreement is the final, complete and
exclusive statement and expression of the agreement between the Company, AmPaM
and Executive and of all the terms of this Agreement, and it cannot be varied,
contradicted or supplemented by evidence of any prior or contemporaneous oral or
written agreements. This written Agreement may not be modified after the
Effective Date except by a further writing signed by a duly authorized officer
of the Company and Executive, and no term of this Agreement may be waived except
by writing signed by the party
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<PAGE> 15
waiving the benefit of such term. Without limiting the generality of the
foregoing, either party's failure to insist on strict compliance with this
Agreement shall not be deemed a waiver thereof.
16. Notice. Whenever any notice is required hereunder, it shall be
given in writing addressed as follows:
To the Company: c/o American Plumbing & Mechanical, Inc.
1502 Augusta, Suite 425
Houston, Texas 77057
To Executive: 4450 Club Lake Circle
Marietta, Georgia 30067
Notice shall be deemed given and effective on the earlier of three days after
the deposit in the U.S. mail of a writing addressed as above and sent first
class mail, certified, return receipt requested, or when actually received.
Either party may change the address for notice by notifying the other party of
such change in accordance with this paragraph 16.
17. Severability; Headings. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
18. Dispute Resolutions. Except with respect to injunctive relief as
provided in paragraph 3(b), neither party shall institute a proceeding in any
court or administrative agency to resolve a dispute between the parties before
that party has sought to resolve the dispute through direct negotiation with the
other party. If the dispute is not resolved within two weeks after a demand for
direct negotiation, the parties shall attempt to resolve the dispute through
mediation. If the parties do not promptly agree on a mediator, the parties shall
request the Association of Attorney Mediators in Harris County, Texas to appoint
a mediator certified by the Supreme Court of Texas. If the mediator is unable to
facilitate a settlement of the dispute within a reasonable period of time, as
determined by the mediator, the mediator shall issue a written statement to the
parties to that effect and any unresolved dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively by
arbitration, conducted before a panel of three arbitrators in Atlanta, Georgia,
in accordance with the rules of the American Arbitration Association then in
effect. The arbitrators shall have the authority to order back-pay, severance
compensation, vesting of options (or cash compensation in lieu of vesting of
options), reimbursement of costs and expenses, including those incurred to
enforce this Agreement, including reasonable attorneys' fees and interest
thereon in the event the arbitrators determine that Executive was terminated
without Disability or Cause, as defined in paragraphs 4(b) and 4(c),
respectively, or that the Company has otherwise materially
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breached this Agreement. A decision by a majority of the arbitration panel shall
be final and binding. Judgment may be entered on the arbitrators' award in any
court having jurisdiction. The costs and expenses, including reasonable
attorneys' fees, of the prevailing party in any dispute arising under this
Agreement will be promptly paid by the other party.
19. Governing Law. This Agreement shall in all respects be construed
according to the laws of the State of Texas without regard to its conflicts of
law provisions.
20. AmPaM Guaranty. AmPaM hereby irrevocably and unconditionally
guarantees to Executive the payment of all amounts and the performance of all
other obligations of the Company in accordance with the terms of this Agreement.
21. Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective for all purposes as of the Effective Date.
MILLER MECHANICAL CONTRACTORS, INC.
By: /s/ David C. Baggett
-------------------------------
Name: David C. Baggett
-----------------------------
Title: Vice President
-----------------------------
EXECUTIVE
By: /s/ Joseph E. Miller
-------------------------------
Joseph E. Miller
AMERICAN PLUMBING & MECHANICAL, INC.
By: /s/ David C. Baggett
-------------------------------
Name: David C. Baggett
-----------------------------
Title: Chief Financial Officer
-----------------------------
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EXHIBIT 10.21
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and between Sherwood
Mechanical, Inc. (the "Company"), a California corporation, American Plumbing &
Mechanical, Inc., a Delaware corporation ("AmPaM"), and Robert Sherwood
("Executive") is hereby entered into effective as of the date of the closing
date of the transactions contemplated in the Acquisition Agreement between the
Company, AmPaM and others dated February 11, 1999 (the "Effective Date").
RECITALS
The following statements are true and correct:
As of the Effective Date, the Company, AmPaM and the other
subsidiaries of AmPaM (collectively, the "AmPaM Companies") are engaged
primarily in the providing of plumbing and mechanical contracting services.
Executive is employed hereunder by the Company in a confidential
relationship wherein Executive, in the course of his employment with the
Company, has and will continue to become familiar with and aware of information
as to the Company's and AmPaM's customers and specific manner of doing
business, including the processes, techniques and trade secrets utilized by the
Company and AmPaM, and future plans with respect thereto, all of which has been
and will be established and maintained at great expense to the Company and
AmPaM. This information is a trade secret and constitutes the valuable goodwill
of the Company and AmPaM.
Therefore, in consideration of the mutual promises, terms, covenants
and conditions set forth herein and the performance of each, it is hereby
agreed as follows:
AGREEMENTS
1. Employment and Duties.
(a) The Company hereby employs Executive as President of the
Company. As such, Executive shall have the responsibilities, duties
and authority reasonably accorded to, expected of and consistent with
Executive's position as President of the Company. Executive hereby
accepts this employment upon the terms and conditions herein contained
and, subject to paragraph 1(c), agrees to devote substantially all of
his time, attention and efforts during normal business hours to
promote and further the business and interests of the Company and its
affiliates.
(b) Executive shall faithfully adhere to, execute and fulfill
all reasonable and lawful policies established by the Company, to the
extent such policies have been
<PAGE> 2
communicated to Executive in writing and are not inconsistent with any
of the terms of this Agreement.
(c) Except as set forth on Schedule 1(c) hereto, Executive
shall not, during the term of his employment hereunder, engage in any
other business activity pursued for gain, profit or other pecuniary
advantage if such activity interferes in any material respect with
Executive's duties and responsibilities hereunder. The foregoing
limitations shall not be construed as prohibiting Executive from
making personal investments in such form or manner as will not require
a substantial portion of such Executive's time during normal business
hours in the operation or affairs of the companies or enterprises in
which such investments are made.
(d) Executive shall be entitled to vacation in accordance
with the policies of the Company.
2. Compensation. For all services rendered by Executive, the Company
shall compensate Executive as follows:
(a) Base Salary. The base salary payable to Executive during
the term shall be $162,000 per year, payable in accordance with the
Company's payroll procedures for officers, but not less frequently
than monthly. On an annual basis such base salary shall be reviewed by
the Board of Directors of AmPaM (the "AmPaM Board") and may be
adjusted at its discretion, in light of the Executive's position,
responsibilities, performance and such other reasonable, job related
factors that the AmPaM Board deems appropriate; provided, however, any
adjusted Base Salary may not be less than that amount in effect on the
Effective Date.
(b) Annual Bonus. AmPaM will consider adopting an incentive
bonus plan under which Executive and other key employees of the AmPaM
Companies will be eligible to receive annual bonus awards in amounts
that are competitive with those provided to similarly situated
executives, as determined by the AmPaM Board.
(c) Executive Perquisites, Benefits and Other Compensation.
Executive shall be entitled to receive additional benefits and
compensation from the Company in such form and to such extent as
specified below:
(i) Executive shall be reimbursed for all business
travel and other out-of-pocket expenses (including those
costs to maintain any professional certifications held or
obtained by Executive) reasonably incurred by Executive in
the performance of his duties pursuant to this Agreement and
in accordance with AmPaM's policy for its similarly situated
executives. All such expenses shall be appropriately
documented in reasonable detail by Executive upon submission
of any request for
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reimbursement, and in a format and manner consistent with
AmPaM's expense reporting policy.
(ii) Executive shall be entitled to participate in
all incentive compensation plans and to receive all fringe
benefits and prerequisites offered by the Company or AmPaM to
any of the Company's or the AmPaM Companies' similarly
situated executives, including, without limitation,
participation in the various employee benefit plans or
programs provided to the employees of the Company or the
AmPaM Companies in general, subject to the regular
eligibility requirements with respect to each such benefit
plans or programs.
(iii) The Company shall provide Executive with such
other perquisites as may be deemed appropriate for Executive
by the AmPaM Board during the term of this Agreement, all on
a basis as favorable to Executive as may be provided or
offered to other similarly situated executives of the AmPaM
Companies.
3. Non-Competition Agreement.
(a) Executive acknowledges that as a consequence of his
employment with the Company, he will be furnished or have access to
Confidential Information (as defined below). Executive further
recognizes that the Company's willingness to enter into this Agreement
is based in material part on Executive's agreement to the provisions
of this paragraph 3 and that Executive's breach of the provisions of
this paragraph 3 could materially damage the Company. Subject to
paragraph 4(d) and the further provisions of this Agreement, Executive
will not, during the term of his employment with the Company, and for
a period of two years immediately following the termination of such
employment for any reason, directly or indirectly, for himself or on
behalf of or in conjunction with any other person, company,
partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder,
owner, partner, joint venturer, or in a managerial capacity,
whether as an employee, independent contractor, consultant or
advisor, or as a sales representative, in any plumbing,
piping, mechanical, heating, ventilation, or air conditioning
contracting, installation or services business or operation,
or any ancillary contracting, installation or services
business directly related thereto (such business and
operations referred to herein as the "Plumbing and Mechanical
Business") within 100 miles of where any AmPaM Company
conducts business, including any territory serviced by an
AmPaM Company during the term of Executive's employment (the
"Territory");
(ii) call upon any person who is, at that time, an
employee of an AmPaM Company for the purpose or with the
intent of enticing such employee away from or out of the
employ of the AmPaM Company;
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<PAGE> 4
(iii) call upon any person or entity which is, at
that time, or which has been, within one year prior to that
time, a customer of an AmPaM Company within the Territory for
the purpose of soliciting customers, orders or contracts for
any Plumbing and Mechanical Business within the Territory;
(iv) call upon any prospective acquisition
candidate, on Executive's own behalf or on behalf of any
competitor, which candidate was, to Executive's knowledge
after due inquiry, either called upon by an AmPaM Company or
for which an AmPaM Company made an acquisition analysis, for
the purpose of acquiring such entity;
(v) disclose customers, whether in existence or
proposed, of the Company to any person, firm, partnership,
corporation or business for any reason or purpose whatsoever
except to the extent that the Company has in the past
disclosed such information to the public for valid business
reasons; or
(vi) testify as an expert witness in matters related
to the Plumbing and Mechanical Business for an adverse party
to an AmPaM Company in litigation; provided, that nothing
contained in this paragraph 4(a)(vi) shall interfere with
Executive's duty to testify as a witness if required by law.
Notwithstanding the above, the foregoing covenant shall not
be deemed to prohibit Executive from acquiring as an investment (i)
not more than 1% of the capital stock of a company engaged in the
Plumbing and Mechanical Business whose stock is traded on a national
securities exchange, the Nasdaq Stock Market or on an over-the-counter
or similar market or (ii) not more than 5% of the capital stock of a
competing business whose stock is not publicly traded if the AmPaM
Board consents to such acquisition.
(b) Because of the difficulty of measuring economic losses to
the Company and AmPaM as a result of a breach of the foregoing
covenant, and because of the immediate and irreparable damage that
could be caused to the Company and AmPaM for which they would have no
other adequate remedy, Executive agrees that foregoing covenant may be
enforced by the Company, in the event of breach by him, by
injunctions, restraining orders and orders of specific performance
issued by a court of competent jurisdiction. Executive further agrees
to waive any requirement for the Company's securing or posting of any
bond in connection with such remedies.
(c) It is agreed by the parties that the foregoing covenants
in this paragraph 3 impose a reasonable restraint on Executive in
light of the activities and business of the AmPaM Companies on the
date of the execution of this Agreement and the current plans of the
AmPaM Companies; but it is also the intent of the Company and
Executive that, subject to paragraph 3(g) hereof, such covenants be
construed and enforced in accordance with the
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<PAGE> 5
changing activities, business and locations of the AmPaM Companies
throughout the term of this covenant, whether before or after the date
of termination of the employment of Executive, unless the Executive
was conducting such new business prior to any AmPaM Company conducting
such new business. For example, if, during the term of this Agreement,
an AmPaM Company engages in new and different activities, enters a new
business or establishes new locations for its current activities or
business in addition to or other than the activities or business
enumerated under the Recitals above or the locations currently
established therefor, then, subject to paragraph 3(g) hereof, through
the term of this covenant Executive will be precluded from soliciting
the customers or employees of such new activities or business or from
such new location and from directly competing with such new business
activities, or locations within 100 miles of where such new
activities, business or locations are conducted, unless Executive was
conducting such new activities or business prior to any AmPaM Company
conducting such new activities or business.
(d) It is further agreed by the parties hereto that, in the
event that Executive shall cease to be employed hereunder and shall
enter into a business or pursue other activities not in competition
with the Plumbing and Mechanical Business of any of the AmPaM
Companies or similar activities or business in locations the operation
of which, under such circumstances, does not violate clause (a)(i) of
this paragraph 3, and in any event such new business, activities or
location are not in violation of this paragraph 3 or of Executive's
obligations under this paragraph 3, if any, Executive shall not be
chargeable with a violation of this paragraph 3 if the AmPaM Companies
shall, at any time after the termination of Executive's employment,
enter the same, similar or a competitive (i) business, (ii) course of
activities or (iii) location, as applicable.
(e) The covenants in this paragraph 3 are severable and
separate, and the unenforceability of any specific covenant shall not
affect the provisions of any other covenant. Moreover, in the event
any court of competent jurisdiction shall determine that the scope,
time or territorial restrictions set forth are unreasonable, then it
is the intention of the parties that such restrictions be enforced to
the fullest extent which the court deems reasonable, and the Agreement
shall thereby be reformed.
(f) All of the covenants in this paragraph 3 shall be
construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of
Executive against the Company or AmPaM, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the
enforcement by AmPaM or the Company of such covenants. It is
specifically agreed that the period of two years (subject to the
further provisions of this Agreement) following termination of
employment stated at the beginning of this paragraph 3, during which
the agreements and covenants of Executive made in this paragraph 3
shall be effective, shall be computed by excluding from such
computation any time during which Executive is in violation of any
provision of this paragraph 3.
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<PAGE> 6
(g) The Company and the Executive hereby agree that this
covenant is a material and substantial part of this transaction.
4. Term; Termination; Rights on Termination. The term of this
Agreement shall begin on the Effective Date and continue for five years (the
"Initial Term") unless terminated sooner as herein provided; however, beginning
on the fifth anniversary of the Effective Date and on each anniversary
thereafter the term shall automatically continue for one year on the same terms
and conditions contained herein in effect as of the time of renewal (the
"Extended Term") unless not less than six months prior to any such anniversary
either party shall give written notice to the other party that the term shall
not be so extended; provided further, however, upon a Change in Control (as
defined in paragraph 11(d)) during the Initial Term or any Extended Term the
term of this Agreement shall automatically continue following such Change in
Control for a period equal to the then remaining term or two years, whichever
period is longer (such longer period being an Extended Term), unless earlier
terminated as provided in paragraph 11. This Agreement and Executive's
employment may be terminated in any one of the followings ways:
(a) Death. The death of Executive shall immediately terminate
this Agreement with no severance compensation due to Executive's
estate; provided, however, for the 90 day period following Executive's
death, the Company, at its sole cost and expense, shall continue to
provide the Executive's then qualified beneficiaries with coverage
under the Company's group health plan in which Executive participated
immediately prior to his death or a successor plan thereto, subject to
the terms of such plan as it may be amended ("Company Health Plan").
Thereafter, the Company shall provide continuation of coverage
elections to such qualified beneficiaries as are required by law.
(b) Disability. If, Executive becomes entitled to and
receives benefits under an insured long term disability plan of an
AmPaM Company (incurs a "Disability"), the Company, with the approval
of at least 51% of the members of the AmPaM Board, may terminate this
Agreement and Executive's employment hereunder. In the event this
Agreement is terminated as a result of Executive's Disability,
Executive shall have no right to any severance compensation; provided,
however, (i) for 12 months thereafter or until his death, if earlier,
the Company shall continue to pay Executive an amount equal to his
monthly base salary at the time of his termination, reduced by any
monthly benefits payable to Executive under such long term disability
plan and (ii) the Company, at its sole cost and expense, shall
continue the coverage of Executive and his qualified beneficiaries
(for as long as they are qualified beneficiaries thereunder) under the
Company's Health Plan for as long as Executive continues to qualify
for and receive benefits under such long term disability plan, but not
to exceed five years. Thereafter, the Company shall provide COBRA
elections to Executive and his qualified beneficiaries as required by
law.
(c) Cause. The Company may terminate this Agreement and
Executive's employment 30 days after written notice is provided by the
Company, at the direction of the
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<PAGE> 7
AmPaM Board, to Executive for "Cause", which shall be: (1) Executive's
willful and material breach of this Agreement (which remains uncured
at the end of such 30 day period); (2) Executive's gross negligence in
the performance or intentional nonperformance (in either case
continuing for 30 days after receipt of written notice by the Company,
at the direction of the AmPaM Board, of need to cure) of any of
Executive's material duties and responsibilities hereunder; (3)
Executive's dishonesty or fraud with respect to the business,
reputation or affairs of an AmPaM Company which materially and
adversely affects an AmPaM Company (monetarily or otherwise); or (4)
Executive's conviction of a felony crime involving moral turpitude.
Any termination for Cause must be approved by at least 51% of the
members of the AmPaM Board. For purposes hereof, no act, or failure to
act, on Executive's part shall be deemed "willful" unless done, or
omitted to be done, by Executive not in good faith and without
reasonable belief that Executive's action or omission was in the best
interest of the Company. Notwithstanding the foregoing, Executive
shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to Executive a copy of a resolution
duly adopted by the AmPaM Board, finding that in the good faith
opinion of the AmPaM Board Executive was guilty of conduct set forth
above and specifying the particulars thereof in detail. In the event
of a termination for Cause, Executive shall have no right to any
severance compensation.
(d) Without Cause and For Good Reason. Executive may, without
Good Reason (as hereinafter defined), terminate this Agreement and
Executive's employment, effective 30 days after written notice is
provided to the Company. Executive may only be terminated without
Cause and other than due to Disability by the Company during either
the Initial Term or Extended Term if such termination is approved by
at least 51% of the members of the AmPaM Board. Should Executive be
terminated by the Company without Cause and other than due to
Disability or should Executive terminate with Good Reason during the
Initial Term, Executive shall receive from the Company, in a lump sum
payment due on the effective date of termination, an amount equivalent
to the base salary at the rate then in effect for (i) whatever time
period is remaining under the Initial Term (but in no event more than
two years) or (ii) for one year, whichever amount is greater. Should
Executive be terminated by the Company without Cause and other than
due to Disability or should the Executive terminate with Good Reason
during the Extended Term, Executive shall receive from the Company, in
a lump sum payment due on the effective date of termination, an amount
equivalent to the base salary at the rate then in effect for one year.
Further, any termination by the Company without Cause or due to
Disability or by Executive for Good Reason (whether during the Initial
Term or any Extended Term) shall operate to shorten the period set
forth in paragraph 3(a) and during which the terms of paragraph 3
apply to one year from the date of termination of employment. If
Executive resigns or otherwise terminates his employment without Good
Reason, rather than the Company terminating his employment pursuant to
this paragraph 4(d), Executive shall receive no severance
compensation.
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Executive shall have "Good Reason" to terminate his
employment hereunder upon the occurrence of any of the following
events, unless such event is agreed to in writing by Executive: (a)
Executive is demoted by means of a material reduction in authority,
title, responsibilities or duties to a position of less stature or
importance within the Company than the position described in Section 1
hereof; (b) Executive's annual base salary as then in effect is
reduced in accordance with paragraph 2(a) or otherwise; or (c) the
relocation of the Company's principal executive offices to a location
outside the greater San Diego, California area or the Company's
requiring Executive to relocate anywhere other than the Company's
principal executive offices; (c) the assignment to Executive of any
duties or responsibilities which are materially inconsistent with
Executive's title, position or responsibilities as in effect
immediately prior to such assignment; or (d) the failure by the
Company to continue in effect any employee benefit plan in which
Executive participates and/or any prerequisite provided Executive,
which is (are) material to Executive's total compensation and
benefits, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to such
plan or perquisite; provided, however, Good Reason shall exist with
respect to a matter only if such matter is not corrected within 30
days of receipt by the Company of written notice of such matter from
Executive.
If termination of Executive's employment arises out of the Company's
failure to pay Executive on a timely basis the amounts to which he is entitled
under this Agreement or as a result of any other breach of this Agreement by
the Company, as determined by a court of competent jurisdiction or pursuant to
the provisions of paragraph 18 below, the Company shall pay all amounts and
damages to which Executive may be entitled as a result of such breach,
including interest thereon and all reasonable legal fees and expenses and other
costs incurred by Executive to enforce his rights hereunder. Further, none of
the provisions of paragraph 3 shall apply in the event this Agreement is
terminated as a result of a breach by the Company.
Upon termination of this Agreement for any reason provided above, in
addition to the above payments, if any, Executive shall be entitled to receive
all compensation earned and all benefits and reimbursements due through the
effective date of termination, paid to Executive in a lump sum on the effective
date of termination. In addition, a termination of this Agreement shall not
alter or impair any of Executive's vested rights or benefits, if any, under any
(i) employee benefit plan of the AmPaM Companies or (ii) deferred compensation
plan, including, without limitation, any stock option plan, of the AmPaM
Companies. All other rights and obligations of the Company and Executive under
this Agreement shall cease as of the effective date of termination, except that
Executive's obligations under paragraphs 3, 5, 6, 7, and 8 herein and the
Company's obligations under paragraphs 4 (with respect to severance payments,
if applicable), 11(g) and 14 shall survive such termination in accordance with
their terms, unless or except as expressly provided otherwise in this
Agreement.
5. Return of Company Property. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Executive by
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or on behalf of the Company, AmPaM or any AmPaM Companies or their
representatives, vendors or customers which pertain to the business of the
Company or AmPaM or any AmPaM Companies shall be and remain the property of the
Company or AmPaM or the AmPaM Company, as the case may be, and be subject at
all times to their discretion and control. Likewise, all correspondence,
reports, records, charts, advertising materials and other similar data
pertaining to the business, activities or future plans of the Company or AmPaM
or the AmPaM Company which is collected by Executive shall be delivered
promptly to the Company without request by it upon termination of Executive's
employment and Executive shall not retain any copies of the same.
6. Inventions. Executive shall disclose promptly to the Company any
and all significant conceptions and ideas for inventions, improvements and
valuable discoveries, whether patentable or not, which are conceived or made by
Executive, solely or jointly with another, during the period of employment or
within one year thereafter, if conceived during employment, and which are
directly related to the business or activities of the Company and which
Executive conceives as a result of his employment by the Company, including any
predecessor (collectively, the "Intellectual Property"). Executive hereby
assigns and agrees to assign all his interests therein to the Company or its
nominee. Whenever requested to do so by the Company, Executive shall execute
any and all applications, assignments or other instruments that the Company
shall deem necessary to apply for and obtain Letters Patent of the United
States or any foreign country or to otherwise protect the Company's interest
therein. Executive must also render to the Company, at the Company's expense,
assistance in the perfection, enforcement and defense of any Intellectual
Property.
7. Trade Secrets. Executive agrees that he will not, during or after
the term of this Agreement, disclose the specific terms of the Company's or
AmPaM's relationships or agreements with their respective significant vendors
or customers or any other significant and material trade secret of the Company
or AmPaM, whether in existence or proposed, to any person, firm, partnership,
corporation or business for any reason or purpose whatsoever, except as
required by law and prior to any such disclosure Executive shall give the
Company prior written notice thereof and the opportunity to contest such
disclosure.
8. Confidentiality.
(a) Executive acknowledges and agrees that all Confidential
Information (as defined below) of the Company is confidential and a
valuable, special and unique asset of the Company that gives the
Company an advantage over its actual and potential, current and future
competitors. Executive further acknowledges and agrees that Executive
owes the Company a fiduciary duty to preserve and protect all
Confidential Information from unauthorized disclosure or unauthorized
use, that certain Confidential Information constitutes "trade secrets"
under applicable laws and, that unauthorized disclosure or
unauthorized use of the Confidential Information would irreparably
injure the Company.
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(b) Both during the term of Executive's employment and after
the termination of Executive's employment for any reason (including
wrongful termination), Executive shall hold all Confidential
Information in strict confidence, and shall not use any Confidential
Information except for the benefit of the Company, in accordance with
the duties assigned to Executive. Executive shall not, at any time
(either during or after the term of Executive's employment), disclose
any Confidential Information to any person or entity (except other
employees of the Company who have a need to know the information in
connection with the performance of their employment duties, and who
have been informed of the confidential nature of the confidential
information and have agreed to keep it confidential), or copy,
reproduce, modify, transmit, including electronic transmission,
decompile or reverse engineer any Confidential Information, or remove
any Confidential Information from the Company's premises, without the
prior written consent of the AmPaM Board, or permit any other person
to do so. Executive shall take reasonable precautions to protect the
physical security of all documents and other material containing
Confidential Information (regardless of the medium on which the
Confidential Information is stored). This Agreement applies to all
Confidential Information, whether now known or later to become known
to Executive.
(c) Upon the termination of Executive's employment with the
Company for any reason, and upon written request of the Company at any
other time, Executive shall promptly surrender and deliver to the
Company all documents and other written material of any nature
containing or pertaining to any Confidential Information and shall not
retain any such document or other material. Within five days of any
such written request, Executive shall certify to the Company in
writing that all such materials have been returned.
(d) As used in this Agreement, the term "Confidential
Information" shall mean any information or material known to or used
by or for an AmPaM Company (whether or not owned or developed by an
AmPaM Company and whether or not developed by Executive) that is not
generally known to persons in the Plumbing and Mechanical Business.
Confidential Information includes, but is not limited to, the
following: all trade secrets of the AmPaM Companies; all information
that an AmPaM Company has marked as confidential or has otherwise
described to Executive (either in writing or orally) as confidential;
all nonpublic information concerning the Company's products, services,
prospective products or services, research, product designs, prices,
discounts, costs, marketing plans, marketing techniques, market
studies, test data, customers, customer lists and records, suppliers
and contracts; all AmPaM Company business records and plans; all AmPaM
Company personnel files; all financial information of or concerning
the AmPaM Companies; all information relating to operating system
software, application software, software and system methodology,
hardware platforms, technical information, inventions, computer
programs and listings, source codes, object codes, copyrights and
other intellectual property; all technical specifications; any
proprietary information belonging to an AmPaM Company; all computer
hardware or software manuals; all training or instruction manuals; and
all data and all computer system passwords and user codes. For
purposes hereof, Confidential Information
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shall not include such information (i) which becomes or is already
known to the public through no fault of Executive; or (ii) the
disclosure of which (x) is required by law (including regulations and
rulings) or the order of any competent governmental authority or (y)
Executive reasonably believes is required in connection with the
defense of a lawsuit against Executive, provided that in either case,
prior to disclosing any information, Executive shall give prior
written notice thereof to the Company and provide the Company with the
opportunity to contest such disclosure.
9. No Prior Agreements. Executive hereby represents and warrants to
the Company that the execution of this Agreement by Executive and his
employment by the Company and the performance of his duties hereunder will not
violate or be a breach of any agreement, including any non-competition
agreement, invention or secrecy agreement, with a former employer, client or
any other person or entity. Further, Executive agrees to indemnify the Company
for any loss or expense, including, but not limited to, reasonable attorneys'
fees and expenses, the Company may incur based upon or arising out of
Executive's breach of this paragraph 9.
10. Assignment; Binding Effect. Executive understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Executive agrees, therefore, that he
cannot assign all or any portion of his performance under this Agreement.
Subject to the preceding two sentences and the express provisions of paragraph
12 below, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective heirs, legal
representatives, successors and assigns. The Company and AmPaM will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and assets of the
Company or AmPaM to expressly assume and agree in writing reasonably
satisfactory to Executive to perform this Agreement in the same manner and to
the same extent that the Company or AmPaM would be required to perform it if no
such succession had taken place. Failure of the Company or AmPaM to obtain such
written agreement prior to the effectiveness of any such secession shall be a
material breach of this Agreement.
11. Change in Control.
(a) Executive understands and acknowledges that the Company
may be merged or consolidated with or into another entity and that
such entity shall automatically succeed to the rights and obligations
of the Company hereunder or that the Company may undergo a Change in
Control (as defined below). In the event a Change in Control is
initiated or occurs during the Initial Term or any Extended Term, then
the provisions of this paragraph 11 shall be applicable.
(b) In the event of a Change in Control wherein AmPaM and
Executive have not received written notice at least ten business days
prior to the date of the event giving rise to the Change in Control
from the successor to all or a substantial portion of the AmPaM's
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<PAGE> 12
business and/or assets that such successor is willing as of the
closing to assume and agrees to perform, or continue to cause the
Company to perform, the Company's obligations under this Agreement in
the same manner and to the same extent that the Company is hereby
required to perform, then Executive may, at Executive's sole
discretion, elect to terminate Executive's employment on the effective
date of such Change in Control by providing written notice to the
AmPaM Board at least five business days prior to the closing of the
transaction giving rise to the Change in Control. In such case, the
applicable provisions of paragraph 4(d) will apply as though the
Company had terminated Executive without Cause; however, the amount of
the lump sum severance payment due Executive shall be triple the
amount calculated under the terms of paragraph 4(d), but shall in no
event exceed six times Executive's annual base salary.
(c) In any Change in Control situation, Executive may, at
Executive's sole discretion, elect to terminate Executive's employment
upon the effective date of such Change in Control by providing written
notice to the AmPaM Board at least five business days prior to the
closing of the transaction giving rise to the Change in Control. In
such case, the applicable provisions of paragraph 4(d) will apply as
though the Company had terminated Executive without Cause; however,
the amount of the lump sum severance payment due Executive shall be
double the amount calculated under the terms of paragraph 4(d), but
shall in no event exceed four times Executive's annual base salary.
(d) If, on or within two years following the effective date
of a Change in Control the Company terminates Executive's employment
other than for Cause or Disability or if Executive terminates his
employment for Good Reason, or if Executive's employment with the
Company is terminated by the Company within three months before the
effective date of a Change in Control and it is reasonably
demonstrated that such termination (i) was at the request of a third
party that has taken steps reasonably calculated to effect a Change in
Control, or (ii) otherwise arose in connection with or anticipation of
a Change in Control, then Executive shall receive from Company, in a
lump sum payment due on the effective date of termination, the greater
of (i) the equivalent of three years' annual base salary at the rate
in effect on the date of Executive's termination, or (ii) the base
salary for whatever period is then remaining on the Initial Term, if
any, which payment shall be in lieu of any amounts otherwise payable
pursuant to paragraph 4(d).
(e) A "Change in Control" shall be deemed to have occurred
if:
(i) any person, entity or group (as such terms are
used in Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Act"), other than the
AmPaM Companies or an employee benefit plan of the AmPaM
Companies, acquires, directly or indirectly, the beneficial
ownership (as defined in Section 13(d) of the Act) of any
voting security of AmPaM and immediately after such
acquisition such person is, directly or indirectly, the
beneficial owner of voting securities
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representing 20% or more of the total voting power of all of
the then outstanding voting securities of AmPaM entitled to
vote generally in the election of directors;
(ii) upon the first purchase of AmPaM's common stock
pursuant to a tender or exchange offer (other than a tender
or exchange offer made by AmPaM);
(iii) the stockholders of AmPaM shall approve a
merger, consolidation, recapitalization or reorganization of
AmPaM, or a reverse stock split of outstanding voting
securities, or consummation of any such transaction if
stockholder approval is not obtained, other than any such
transaction which would result in at least 75% of the total
voting power represented by the voting securities of the
surviving entity outstanding immediately after such
transaction being beneficially owned by the holders of all of
the outstanding voting securities of AmPaM immediately prior
to the transactions with the voting power of each such
continuing holder relative to other such continuing holders
not substantially altered in the transaction;
(iv) the stockholders of AmPaM shall approve a plan
of complete liquidation or dissolution of AmPaM or an
agreement for the sale or disposition by AmPaM of all or
substantially all of AmPaM's assets; or
(v) if, at any time during any period of two
consecutive years, individuals who at the beginning of such
period constitute the Board cease for any reason to
constitute at least a majority thereof, unless the election
or nomination for the election by the Company's stockholders
of each new director was approved by a vote of at least
two-thirds of the directors then still in office who were
directors at the beginning of the period.
(f) Notwithstanding anything in this Agreement to the
contrary, a termination pursuant to paragraph 11(b), (c), or (d) shall
operate to automatically waive in full the noncompetition restrictions
imposed on Executive pursuant to paragraph 3.
(g) If it shall be finally determined that any payment made
or benefit provided to Executive in connection with a Change in
Control of the Company or AmPaM, whether or not made or provided
pursuant to this Agreement, is subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended, or any
successor thereto, the Company shall pay Executive an amount of cash
(the "Additional Amount") such that the net amount received by
Executive after paying all applicable taxes on such Additional Amount
shall be equal to the amount that Executive would have received if
Section 4999 were not applicable.
12. No Mitigation or Offset. Executive shall not be required to
mitigate the amount of any Company payment provided for in this Agreement by
seeking other employment or otherwise.
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<PAGE> 14
The amount of any payment required to be paid to Executive by the Company
pursuant to this Agreement shall not be reduced by any amounts that are owed to
the Company by Executive, or by any setoff, counterclaim, recoupment, defense
or other claim, right or action.
13. Release. Notwithstanding anything in this Agreement to the
contrary, Executive shall not be entitled to receive any severance payments
pursuant to paragraphs 4 or 11 of this Agreement unless Executive has executed
(and not revoked) a general release of all claims Executive may have against
the Company and its affiliates relating to Executive's employment hereunder in
a form of such release reasonably acceptable to the Company.
14. Indemnification. In the event Executive is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the Company
against Executive), by reason of the fact that he is or was performing services
under this Agreement or as an executive officer of the Company prior to the
date of this Agreement, then the Company shall indemnify Executive against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement, as actually and reasonably incurred by Executive in connection
therewith. In the event that both Executive and the Company are made a party to
the same third-party action, complaint, suit or proceeding, the Company agrees
to engage competent legal representation, and Executive agrees to use the same
representation, provided that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Executive,
Executive may engage separate counsel and the Company shall pay all reasonable
attorneys' fees and reasonable expenses of such separate counsel. Further,
while Executive is expected at all times to use his best efforts to faithfully
discharge his duties under this Agreement, Executive cannot be held liable to
the Company for errors or omissions made in good faith where Executive has not
exhibited gross, willful and wanton negligence and misconduct nor performed
criminal and fraudulent acts which materially damage the business of the
Company. The Company shall indemnify Executive against and hold Executive
harmless from any costs, liabilities, losses and exposures for Executive's
services as an employee, officer and director of the Company (or any successor)
to the maximum extent permitted under applicable law.
15. Complete Agreement. This Agreement supersedes, and replaces in
full, all representations, understandings and agreements (oral or written)
between Executive and the Company or any AmPaM Company, AmPaM or any of their
officers, directors or representatives existing as of the Effective Date and
covering the same subject matter as this Agreement, but excluding the
Acquisition Agreement among AmPaM, the Company, the Executive and other
stockholders of the Company, dated February 11, 1999, which shall not be
affected by this Agreement. This written Agreement is the final, complete and
exclusive statement and expression of the agreement between the Company, AmPaM
and Executive and of all the terms of this Agreement, and it cannot be varied,
contradicted or supplemented by evidence of any prior or contemporaneous oral
or written agreements. This written Agreement may not be modified after the
Effective Date except by a further writing signed by a duly authorized officer
of the Company and Executive, and no term of this Agreement may be waived
except by writing signed by the party
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<PAGE> 15
waiving the benefit of such term. Without limiting the generality of the
foregoing, either party's failure to insist on strict compliance with this
Agreement shall not be deemed a waiver thereof.
16. Notice. Whenever any notice is required hereunder, it shall be
given in writing addressed as follows:
To the Company: c/o American Plumbing & Mechanical, Inc.
1502 Augusta, Suite 425
Houston, Texas 77057
To Executive: 11610 Scripps Lake Dr.
San Diego, California 92131
Notice shall be deemed given and effective on the earlier of three days after
the deposit in the U.S. mail of a writing addressed as above and sent first
class mail, certified, return receipt requested, or when actually received.
Either party may change the address for notice by notifying the other party of
such change in accordance with this paragraph 16.
17. Severability; Headings. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
18. Dispute Resolutions. Except with respect to injunctive relief as
provided in paragraph 3(b), neither party shall institute a proceeding in any
court or administrative agency to resolve a dispute between the parties before
that party has sought to resolve the dispute through direct negotiation with
the other party. If the dispute is not resolved within two weeks after a demand
for direct negotiation, the parties shall attempt to resolve the dispute
through mediation. If the parties do not promptly agree on a mediator, the
parties shall request the Association of Attorney Mediators in Harris County,
Texas to appoint a mediator certified by the Supreme Court of Texas. If the
mediator is unable to facilitate a settlement of the dispute within a
reasonable period of time, as determined by the mediator, the mediator shall
issue a written statement to the parties to that effect and any unresolved
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a panel of three
arbitrators in San Diego, California, in accordance with the rules of the
American Arbitration Association then in effect. The arbitrators shall have the
authority to order back-pay, severance compensation, vesting of options (or
cash compensation in lieu of vesting of options), reimbursement of costs and
expenses, including those incurred to enforce this Agreement, including
reasonable attorneys' fees and interest thereon in the event the arbitrators
determine that Executive was terminated without Disability or Cause, as defined
in paragraphs 4(b) and 4(c), respectively, or that the Company has otherwise
materially
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<PAGE> 16
breached this Agreement. A decision by a majority of the arbitration panel
shall be final and binding. Judgment may be entered on the arbitrators' award
in any court having jurisdiction. The costs and expenses, including reasonable
attorneys' fees, of the prevailing party in any dispute arising under this
Agreement will be promptly paid by the other party.
19. Governing Law. This Agreement shall in all respects be construed
according to the laws of the State of Texas without regard to its conflicts of
law provisions.
20. AmPaM Guaranty. AmPaM hereby irrevocably and unconditionally
guarantees to Executive the payment of all amounts and the performance of all
other obligations of the Company in accordance with the terms of this
Agreement.
21. Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
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<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective for all purposes as of the Effective Date.
SHERWOOD MECHANICAL, INC.
By: /s/ David C. Baggett
-----------------------------------
Name: David C. Baggett
---------------------------------
Title: Vice President
--------------------------------
EXECUTIVE
By: /s/ Robert Sherwood
-----------------------------------
Robert Sherwood
AMERICAN PLUMBING & MECHANICAL, INC.
By: /s/ David C. Baggett
-----------------------------------
Name: David C. Baggett
---------------------------------
Title: Chief Financial Officer
--------------------------------
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<PAGE> 1
EXHIBIT 10.22
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and between Keith Riggs
Plumbing, Inc. (the "Company"), an Arizona corporation, American Plumbing &
Mechanical, Inc., a Delaware corporation ("AmPaM"), and Sam Sherwood
("Executive") is hereby entered into effective as of the date of the closing
date of the transactions contemplated in the Acquisition Agreement between the
Company, AmPaM and others dated February 11, 1999 (the "Effective Date").
RECITALS
The following statements are true and correct:
As of the Effective Date, the Company, AmPaM and the other subsidiaries
of AmPaM (collectively, the "AmPaM Companies") are engaged primarily in the
providing of plumbing and mechanical contracting services.
Executive is employed hereunder by the Company in a confidential
relationship wherein Executive, in the course of his employment with the
Company, has and will continue to become familiar with and aware of information
as to the Company's and AmPaM's customers and specific manner of doing business,
including the processes, techniques and trade secrets utilized by the Company
and AmPaM, and future plans with respect thereto, all of which has been and will
be established and maintained at great expense to the Company and AmPaM. This
information is a trade secret and constitutes the valuable goodwill of the
Company and AmPaM.
Therefore, in consideration of the mutual promises, terms, covenants
and conditions set forth herein and the performance of each, it is hereby agreed
as follows:
AGREEMENTS
1. Employment and Duties.
(a) The Company hereby employs Executive as Vice President of the
Company. As such, Executive shall have the responsibilities, duties
and authority reasonably accorded to, expected of and consistent with
Executive's position as Vice President of the Company. Executive
hereby accepts this employment upon the terms and conditions herein
contained and, subject to paragraph 1(c), agrees to devote
substantially all of his time, attention and efforts during normal
business hours to promote and further the business and interests of
the Company and its affiliates.
(b) Executive shall faithfully adhere to, execute and fulfill all
reasonable and lawful policies established by the Company, to the
extent such policies have been
<PAGE> 2
communicated to Executive in writing and are not inconsistent with any
of the terms of this Agreement.
(c) Except as set forth on Schedule 1(c) hereto, Executive shall
not, during the term of his employment hereunder, engage in any other
business activity pursued for gain, profit or other pecuniary
advantage if such activity interferes in any material respect with
Executive's duties and responsibilities hereunder. The foregoing
limitations shall not be construed as prohibiting Executive from
making personal investments in such form or manner as will not require
a substantial portion of such Executive's time during normal business
hours in the operation or affairs of the companies or enterprises in
which such investments are made.
(d) Executive shall be entitled to vacation in accordance with
the policies of the Company.
2. Compensation. For all services rendered by Executive, the Company
shall compensate Executive as follows:
(a) Base Salary. The base salary payable to Executive during the
term shall be $100,000 per year, payable in accordance with the
Company's payroll procedures for officers, but not less frequently
than monthly. On an annual basis such base salary shall be reviewed by
the Board of Directors of AmPaM (the "AmPaM Board") and may be
adjusted at its discretion, in light of the Executive's position,
responsibilities, performance and such other reasonable, job related
factors that the AmPaM Board deems appropriate; provided, however, any
adjusted Base Salary may not be less than that amount in effect on the
Effective Date.
(b) Annual Bonus. AmPaM will consider adopting an incentive bonus
plan under which Executive and other key employees of the AmPaM
Companies will be eligible to receive annual bonus awards in amounts
that are competitive with those provided to similarly situated
executives, as determined by the AmPaM Board.
(c) Executive Perquisites, Benefits and Other Compensation.
Executive shall be entitled to receive additional benefits and
compensation from the Company in such form and to such extent as
specified below:
(i) Executive shall be reimbursed for all business travel
and other out-of-pocket expenses (including those costs to
maintain any professional certifications held or obtained by
Executive) reasonably incurred by Executive in the performance of
his duties pursuant to this Agreement and in accordance with
AmPaM's policy for its similarly situated executives. All such
expenses shall be appropriately documented in reasonable detail
by Executive upon submission of any request for
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<PAGE> 3
reimbursement, and in a format and manner consistent with AmPaM's
expense reporting policy.
(ii) Executive shall be entitled to participate in all
incentive compensation plans and to receive all fringe benefits
and prerequisites offered by the Company or AmPaM to any of the
Company's or the AmPaM Companies' similarly situated executives,
including, without limitation, participation in the various
employee benefit plans or programs provided to the employees of
the Company or the AmPaM Companies in general, subject to the
regular eligibility requirements with respect to each such
benefit plans or programs.
(iii) The Company shall provide Executive with such other
perquisites as may be deemed appropriate for Executive by the
AmPaM Board during the term of this Agreement, all on a basis as
favorable to Executive as may be provided or offered to other
similarly situated executives of the AmPaM Companies.
3. Non-Competition Agreement.
(a) Executive acknowledges that as a consequence of his
employment with the Company, he will be furnished or have access to
Confidential Information (as defined below). Executive further
recognizes that the Company's willingness to enter into this Agreement
is based in material part on Executive's agreement to the provisions
of this paragraph 3 and that Executive's breach of the provisions of
this paragraph 3 could materially damage the Company. Subject to
paragraph 4(d) and the further provisions of this Agreement, Executive
will not, during the term of his employment with the Company, and for
a period of two years immediately following the termination of such
employment for any reason, directly or indirectly, for himself or on
behalf of or in conjunction with any other person, company,
partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as
an employee, independent contractor, consultant or advisor, or as
a sales representative, in any plumbing, piping, mechanical,
heating, ventilation, or air conditioning contracting,
installation or services business or operation, or any ancillary
contracting, installation or services business directly related
thereto (such business and operations referred to herein as the
"Plumbing and Mechanical Business") within 100 miles of where any
AmPaM Company conducts business, including any territory serviced
by an AmPaM Company during the term of Executive's employment
(the "Territory");
(ii) call upon any person who is, at that time, an employee
of an AmPaM Company for the purpose or with the intent of
enticing such employee away from or out of the employ of the
AmPaM Company;
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<PAGE> 4
(iii) call upon any person or entity which is, at that time,
or which has been, within one year prior to that time, a customer
of an AmPaM Company within the Territory for the purpose of
soliciting customers, orders or contracts for any Plumbing and
Mechanical Business within the Territory;
(iv) call upon any prospective acquisition candidate, on
Executive's own behalf or on behalf of any competitor, which
candidate was, to Executive's knowledge after due inquiry, either
called upon by an AmPaM Company or for which an AmPaM Company
made an acquisition analysis, for the purpose of acquiring such
entity;
(v) disclose customers, whether in existence or proposed, of
the Company to any person, firm, partnership, corporation or
business for any reason or purpose whatsoever except to the
extent that the Company has in the past disclosed such
information to the public for valid business reasons; or
(vi) testify as an expert witness in matters related to the
Plumbing and Mechanical Business for an adverse party to an AmPaM
Company in litigation; provided, that nothing contained in this
paragraph 4(a)(vi) shall interfere with Executive's duty to
testify as a witness if required by law.
Notwithstanding the above, the foregoing covenant shall not
be deemed to prohibit Executive from acquiring as an investment (i)
not more than 1% of the capital stock of a company engaged in the
Plumbing and Mechanical Business whose stock is traded on a national
securities exchange, the Nasdaq Stock Market or on an over-the-counter
or similar market or (ii) not more than 5% of the capital stock of a
competing business whose stock is not publicly traded if the AmPaM
Board consents to such acquisition.
(b) Because of the difficulty of measuring economic losses to the
Company and AmPaM as a result of a breach of the foregoing covenant,
and because of the immediate and irreparable damage that could be
caused to the Company and AmPaM for which they would have no other
adequate remedy, Executive agrees that foregoing covenant may be
enforced by the Company, in the event of breach by him, by
injunctions, restraining orders and orders of specific performance
issued by a court of competent jurisdiction. Executive further agrees
to waive any requirement for the Company's securing or posting of any
bond in connection with such remedies.
(c) It is agreed by the parties that the foregoing covenants in
this paragraph 3 impose a reasonable restraint on Executive in light
of the activities and business of the AmPaM Companies on the date of
the execution of this Agreement and the current plans of the AmPaM
Companies; but it is also the intent of the Company and Executive
that, subject to paragraph 3(g) hereof, such covenants be construed
and enforced in accordance with the
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<PAGE> 5
changing activities, business and locations of the AmPaM Companies
throughout the term of this covenant, whether before or after the date
of termination of the employment of Executive, unless the Executive
was conducting such new business prior to any AmPaM Company conducting
such new business. For example, if, during the term of this Agreement,
an AmPaM Company engages in new and different activities, enters a new
business or establishes new locations for its current activities or
business in addition to or other than the activities or business
enumerated under the Recitals above or the locations currently
established therefor, then, subject to paragraph 3(g) hereof, through
the term of this covenant Executive will be precluded from soliciting
the customers or employees of such new activities or business or from
such new location and from directly competing with such new business
activities, or locations within 100 miles of where such new
activities, business or locations are conducted, unless Executive was
conducting such new activities or business prior to any AmPaM Company
conducting such new activities or business.
(d) It is further agreed by the parties hereto that, in the event
that Executive shall cease to be employed hereunder and shall enter
into a business or pursue other activities not in competition with the
Plumbing and Mechanical Business of any of the AmPaM Companies or
similar activities or business in locations the operation of which,
under such circumstances, does not violate clause (a)(i) of this
paragraph 3, and in any event such new business, activities or
location are not in violation of this paragraph 3 or of Executive's
obligations under this paragraph 3, if any, Executive shall not be
chargeable with a violation of this paragraph 3 if the AmPaM Companies
shall, at any time after the termination of Executive's employment,
enter the same, similar or a competitive (i) business, (ii) course of
activities or (iii) location, as applicable.
(e) The covenants in this paragraph 3 are severable and separate,
and the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. Moreover, in the event any court of
competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the
intention of the parties that such restrictions be enforced to the
fullest extent which the court deems reasonable, and the Agreement
shall thereby be reformed.
(f) All of the covenants in this paragraph 3 shall be construed
as an agreement independent of any other provision in this Agreement,
and the existence of any claim or cause of action of Executive against
the Company or AmPaM, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by AmPaM
or the Company of such covenants. It is specifically agreed that the
period of two years (subject to the further provisions of this
Agreement) following termination of employment stated at the beginning
of this paragraph 3, during which the agreements and covenants of
Executive made in this paragraph 3 shall be effective, shall be
computed by excluding from such computation any time during which
Executive is in violation of any provision of this paragraph 3.
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<PAGE> 6
(g) The Company and the Executive hereby agree that this covenant
is a material and substantial part of this transaction.
4. Term; Termination; Rights on Termination. The term of this
Agreement shall begin on the Effective Date and continue for five years (the
"Initial Term") unless terminated sooner as herein provided; however, beginning
on the fifth anniversary of the Effective Date and on each anniversary
thereafter the term shall automatically continue for one year on the same terms
and conditions contained herein in effect as of the time of renewal (the
"Extended Term") unless not less than six months prior to any such anniversary
either party shall give written notice to the other party that the term shall
not be so extended; provided further, however, upon a Change in Control (as
defined in paragraph 11(d)) during the Initial Term or any Extended Term the
term of this Agreement shall automatically continue following such Change in
Control for a period equal to the then remaining term or two years, whichever
period is longer (such longer period being an Extended Term), unless earlier
terminated as provided in paragraph 11. This Agreement and Executive's
employment may be terminated in any one of the followings ways:
(a) Death. The death of Executive shall immediately terminate
this Agreement with no severance compensation due to Executive's
estate; provided, however, for the 90 day period following Executive's
death, the Company, at its sole cost and expense, shall continue to
provide the Executive's then qualified beneficiaries with coverage
under the Company's group health plan in which Executive participated
immediately prior to his death or a successor plan thereto, subject to
the terms of such plan as it may be amended ("Company Health Plan").
Thereafter, the Company shall provide continuation of coverage
elections to such qualified beneficiaries as are required by law.
(b) Disability. If, Executive becomes entitled to and receives
benefits under an insured long term disability plan of an AmPaM
Company (incurs a "Disability"), the Company, with the approval of at
least 51% of the members of the AmPaM Board, may terminate this
Agreement and Executive's employment hereunder. In the event this
Agreement is terminated as a result of Executive's Disability,
Executive shall have no right to any severance compensation; provided,
however, (i) for 12 months thereafter or until his death, if earlier,
the Company shall continue to pay Executive an amount equal to his
monthly base salary at the time of his termination, reduced by any
monthly benefits payable to Executive under such long term disability
plan and (ii) the Company, at its sole cost and expense, shall
continue the coverage of Executive and his qualified beneficiaries
(for as long as they are qualified beneficiaries thereunder) under the
Company's Health Plan for as long as Executive continues to qualify
for and receive benefits under such long term disability plan, but not
to exceed five years. Thereafter, the Company shall provide COBRA
elections to Executive and his qualified beneficiaries as required by
law.
(c) Cause. The Company may terminate this Agreement and
Executive's employment 30 days after written notice is provided by the
Company, at the direction of the
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<PAGE> 7
AmPaM Board, to Executive for "Cause", which shall be: (1) Executive's
willful and material breach of this Agreement (which remains uncured
at the end of such 30 day period); (2) Executive's gross negligence in
the performance or intentional nonperformance (in either case
continuing for 30 days after receipt of written notice by the Company,
at the direction of the AmPaM Board, of need to cure) of any of
Executive's material duties and responsibilities hereunder; (3)
Executive's dishonesty or fraud with respect to the business,
reputation or affairs of an AmPaM Company which materially and
adversely affects an AmPaM Company (monetarily or otherwise); or (4)
Executive's conviction of a felony crime involving moral turpitude.
Any termination for Cause must be approved by at least 51% of the
members of the AmPaM Board. For purposes hereof, no act, or failure to
act, on Executive's part shall be deemed "willful" unless done, or
omitted to be done, by Executive not in good faith and without
reasonable belief that Executive's action or omission was in the best
interest of the Company. Notwithstanding the foregoing, Executive
shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to Executive a copy of a resolution
duly adopted by the AmPaM Board, finding that in the good faith
opinion of the AmPaM Board Executive was guilty of conduct set forth
above and specifying the particulars thereof in detail. In the event
of a termination for Cause, Executive shall have no right to any
severance compensation.
(d) Without Cause and For Good Reason. Executive may, without
Good Reason (as hereinafter defined), terminate this Agreement and
Executive's employment, effective 30 days after written notice is
provided to the Company. Executive may only be terminated without
Cause and other than due to Disability by the Company during either
the Initial Term or Extended Term if such termination is approved by
at least 51% of the members of the AmPaM Board. Should Executive be
terminated by the Company without Cause and other than due to
Disability or should Executive terminate with Good Reason during the
Initial Term, Executive shall receive from the Company, in a lump sum
payment due on the effective date of termination, an amount equivalent
to the base salary at the rate then in effect for (i) whatever time
period is remaining under the Initial Term (but in no event more than
two years) or (ii) for one year, whichever amount is greater. Should
Executive be terminated by the Company without Cause and other than
due to Disability or should the Executive terminate with Good Reason
during the Extended Term, Executive shall receive from the Company, in
a lump sum payment due on the effective date of termination, an amount
equivalent to the base salary at the rate then in effect for one year.
Further, any termination by the Company without Cause or due to
Disability or by Executive for Good Reason (whether during the Initial
Term or any Extended Term) shall operate to shorten the period set
forth in paragraph 3(a) and during which the terms of paragraph 3
apply to one year from the date of termination of employment. If
Executive resigns or otherwise terminates his employment without Good
Reason, rather than the Company terminating his employment pursuant to
this paragraph 4(d), Executive shall receive no severance
compensation.
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<PAGE> 8
Executive shall have "Good Reason" to terminate his employment
hereunder upon the occurrence of any of the following events, unless
such event is agreed to in writing by Executive: (a) Executive is
demoted by means of a material reduction in authority, title,
responsibilities or duties to a position of less stature or importance
within the Company than the position described in Section 1 hereof;
(b) Executive's annual base salary as then in effect is reduced in
accordance with paragraph 2(a) or otherwise; or (c) the relocation of
the Company's principal executive offices to a location outside the
greater Phoenix, Arizona area or the Company's requiring Executive to
relocate anywhere other than the Company's principal executive
offices; (c) the assignment to Executive of any duties or
responsibilities which are materially inconsistent with Executive's
title, position or responsibilities as in effect immediately prior to
such assignment; or (d) the failure by the Company to continue in
effect any employee benefit plan in which Executive participates
and/or any prerequisite provided Executive, which is (are) material to
Executive's total compensation and benefits, unless an equitable
arrangement (embodied in an ongoing substitute or alternative plan)
has been made with respect to such plan or perquisite; provided,
however, Good Reason shall exist with respect to a matter only if such
matter is not corrected within 30 days of receipt by the Company of
written notice of such matter from Executive.
If termination of Executive's employment arises out of the Company's
failure to pay Executive on a timely basis the amounts to which he is entitled
under this Agreement or as a result of any other breach of this Agreement by the
Company, as determined by a court of competent jurisdiction or pursuant to the
provisions of paragraph 18 below, the Company shall pay all amounts and damages
to which Executive may be entitled as a result of such breach, including
interest thereon and all reasonable legal fees and expenses and other costs
incurred by Executive to enforce his rights hereunder. Further, none of the
provisions of paragraph 3 shall apply in the event this Agreement is terminated
as a result of a breach by the Company.
Upon termination of this Agreement for any reason provided above, in
addition to the above payments, if any, Executive shall be entitled to receive
all compensation earned and all benefits and reimbursements due through the
effective date of termination, paid to Executive in a lump sum on the effective
date of termination. In addition, a termination of this Agreement shall not
alter or impair any of Executive's vested rights or benefits, if any, under any
(i) employee benefit plan of the AmPaM Companies or (ii) deferred compensation
plan, including, without limitation, any stock option plan, of the AmPaM
Companies. All other rights and obligations of the Company and Executive under
this Agreement shall cease as of the effective date of termination, except that
Executive's obligations under paragraphs 3, 5, 6, 7, and 8 herein and the
Company's obligations under paragraphs 4 (with respect to severance payments, if
applicable), 11(g) and 14 shall survive such termination in accordance with
their terms, unless or except as expressly provided otherwise in this Agreement.
5. Return of Company Property. All records, designs, patents,
business plans, financial statements, manuals, memoranda, lists and other
property delivered to or compiled by Executive by
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<PAGE> 9
or on behalf of the Company, AmPaM or any AmPaM Companies or their
representatives, vendors or customers which pertain to the business of the
Company or AmPaM or any AmPaM Companies shall be and remain the property of the
Company or AmPaM or the AmPaM Company, as the case may be, and be subject at all
times to their discretion and control. Likewise, all correspondence, reports,
records, charts, advertising materials and other similar data pertaining to the
business, activities or future plans of the Company or AmPaM or the AmPaM
Company which is collected by Executive shall be delivered promptly to the
Company without request by it upon termination of Executive's employment and
Executive shall not retain any copies of the same.
6. Inventions. Executive shall disclose promptly to the Company any
and all significant conceptions and ideas for inventions, improvements and
valuable discoveries, whether patentable or not, which are conceived or made by
Executive, solely or jointly with another, during the period of employment or
within one year thereafter, if conceived during employment, and which are
directly related to the business or activities of the Company and which
Executive conceives as a result of his employment by the Company, including any
predecessor (collectively, the "Intellectual Property"). Executive hereby
assigns and agrees to assign all his interests therein to the Company or its
nominee. Whenever requested to do so by the Company, Executive shall execute any
and all applications, assignments or other instruments that the Company shall
deem necessary to apply for and obtain Letters Patent of the United States or
any foreign country or to otherwise protect the Company's interest therein.
Executive must also render to the Company, at the Company's expense, assistance
in the perfection, enforcement and defense of any Intellectual Property.
7. Trade Secrets. Executive agrees that he will not, during or after
the term of this Agreement, disclose the specific terms of the Company's or
AmPaM's relationships or agreements with their respective significant vendors or
customers or any other significant and material trade secret of the Company or
AmPaM, whether in existence or proposed, to any person, firm, partnership,
corporation or business for any reason or purpose whatsoever, except as required
by law and prior to any such disclosure Executive shall give the Company prior
written notice thereof and the opportunity to contest such disclosure.
8. Confidentiality.
(a) Executive acknowledges and agrees that all Confidential
Information (as defined below) of the Company is confidential and a
valuable, special and unique asset of the Company that gives the
Company an advantage over its actual and potential, current and future
competitors. Executive further acknowledges and agrees that Executive
owes the Company a fiduciary duty to preserve and protect all
Confidential Information from unauthorized disclosure or unauthorized
use, that certain Confidential Information constitutes "trade secrets"
under applicable laws and, that unauthorized disclosure or
unauthorized use of the Confidential Information would irreparably
injure the Company.
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<PAGE> 10
(b) Both during the term of Executive's employment and after the
termination of Executive's employment for any reason (including
wrongful termination), Executive shall hold all Confidential
Information in strict confidence, and shall not use any Confidential
Information except for the benefit of the Company, in accordance with
the duties assigned to Executive. Executive shall not, at any time
(either during or after the term of Executive's employment), disclose
any Confidential Information to any person or entity (except other
employees of the Company who have a need to know the information in
connection with the performance of their employment duties, and who
have been informed of the confidential nature of the confidential
information and have agreed to keep it confidential), or copy,
reproduce, modify, transmit, including electronic transmission,
decompile or reverse engineer any Confidential Information, or remove
any Confidential Information from the Company's premises, without the
prior written consent of the AmPaM Board, or permit any other person
to do so. Executive shall take reasonable precautions to protect the
physical security of all documents and other material containing
Confidential Information (regardless of the medium on which the
Confidential Information is stored). This Agreement applies to all
Confidential Information, whether now known or later to become known
to Executive.
(c) Upon the termination of Executive's employment with the
Company for any reason, and upon written request of the Company at any
other time, Executive shall promptly surrender and deliver to the
Company all documents and other written material of any nature
containing or pertaining to any Confidential Information and shall not
retain any such document or other material. Within five days of any
such written request, Executive shall certify to the Company in
writing that all such materials have been returned.
(d) As used in this Agreement, the term "Confidential
Information" shall mean any information or material known to or used
by or for an AmPaM Company (whether or not owned or developed by an
AmPaM Company and whether or not developed by Executive) that is not
generally known to persons in the Plumbing and Mechanical Business.
Confidential Information includes, but is not limited to, the
following: all trade secrets of the AmPaM Companies; all information
that an AmPaM Company has marked as confidential or has otherwise
described to Executive (either in writing or orally) as confidential;
all nonpublic information concerning the Company's products, services,
prospective products or services, research, product designs, prices,
discounts, costs, marketing plans, marketing techniques, market
studies, test data, customers, customer lists and records, suppliers
and contracts; all AmPaM Company business records and plans; all AmPaM
Company personnel files; all financial information of or concerning
the AmPaM Companies; all information relating to operating system
software, application software, software and system methodology,
hardware platforms, technical information, inventions, computer
programs and listings, source codes, object codes, copyrights and
other intellectual property; all technical specifications; any
proprietary information belonging to an AmPaM Company; all computer
hardware or software manuals; all training or instruction manuals; and
all data and all computer system passwords and user codes. For
purposes hereof, Confidential Information
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<PAGE> 11
shall not include such information (i) which becomes or is already
known to the public through no fault of Executive; or (ii) the
disclosure of which (x) is required by law (including regulations and
rulings) or the order of any competent governmental authority or (y)
Executive reasonably believes is required in connection with the
defense of a lawsuit against Executive, provided that in either case,
prior to disclosing any information, Executive shall give prior
written notice thereof to the Company and provide the Company with the
opportunity to contest such disclosure.
9. No Prior Agreements. Executive hereby represents and warrants to
the Company that the execution of this Agreement by Executive and his employment
by the Company and the performance of his duties hereunder will not violate or
be a breach of any agreement, including any non-competition agreement, invention
or secrecy agreement, with a former employer, client or any other person or
entity. Further, Executive agrees to indemnify the Company for any loss or
expense, including, but not limited to, reasonable attorneys' fees and expenses,
the Company may incur based upon or arising out of Executive's breach of this
paragraph 9.
10. Assignment; Binding Effect. Executive understands that he has
been selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Executive agrees, therefore, that he
cannot assign all or any portion of his performance under this Agreement.
Subject to the preceding two sentences and the express provisions of paragraph
12 below, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective heirs, legal
representatives, successors and assigns. The Company and AmPaM will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and assets of the Company
or AmPaM to expressly assume and agree in writing reasonably satisfactory to
Executive to perform this Agreement in the same manner and to the same extent
that the Company or AmPaM would be required to perform it if no such succession
had taken place. Failure of the Company or AmPaM to obtain such written
agreement prior to the effectiveness of any such secession shall be a material
breach of this Agreement.
11. Change in Control.
(a) Executive understands and acknowledges that the Company may
be merged or consolidated with or into another entity and that such
entity shall automatically succeed to the rights and obligations of
the Company hereunder or that the Company may undergo a Change in
Control (as defined below). In the event a Change in Control is
initiated or occurs during the Initial Term or any Extended Term, then
the provisions of this paragraph 11 shall be applicable.
(b) In the event of a Change in Control wherein AmPaM and
Executive have not received written notice at least ten business days
prior to the date of the event giving rise to the Change in Control
from the successor to all or a substantial portion of the AmPaM's
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<PAGE> 12
business and/or assets that such successor is willing as of the
closing to assume and agrees to perform, or continue to cause the
Company to perform, the Company's obligations under this Agreement in
the same manner and to the same extent that the Company is hereby
required to perform, then Executive may, at Executive's sole
discretion, elect to terminate Executive's employment on the effective
date of such Change in Control by providing written notice to the
AmPaM Board at least five business days prior to the closing of the
transaction giving rise to the Change in Control. In such case, the
applicable provisions of paragraph 4(d) will apply as though the
Company had terminated Executive without Cause; however, the amount of
the lump sum severance payment due Executive shall be triple the
amount calculated under the terms of paragraph 4(d), but shall in no
event exceed six times Executive's annual base salary.
(c) In any Change in Control situation, Executive may, at
Executive's sole discretion, elect to terminate Executive's employment
upon the effective date of such Change in Control by providing written
notice to the AmPaM Board at least five business days prior to the
closing of the transaction giving rise to the Change in Control. In
such case, the applicable provisions of paragraph 4(d) will apply as
though the Company had terminated Executive without Cause; however,
the amount of the lump sum severance payment due Executive shall be
double the amount calculated under the terms of paragraph 4(d), but
shall in no event exceed four times Executive's annual base salary.
(d) If, on or within two years following the effective date of a
Change in Control the Company terminates Executive's employment other
than for Cause or Disability or if Executive terminates his employment
for Good Reason, or if Executive's employment with the Company is
terminated by the Company within three months before the effective
date of a Change in Control and it is reasonably demonstrated that
such termination (i) was at the request of a third party that has
taken steps reasonably calculated to effect a Change in Control, or
(ii) otherwise arose in connection with or anticipation of a Change in
Control, then Executive shall receive from Company, in a lump sum
payment due on the effective date of termination, the greater of (i)
the equivalent of three years' annual base salary at the rate in
effect on the date of Executive's termination, or (ii) the base salary
for whatever period is then remaining on the Initial Term, if any,
which payment shall be in lieu of any amounts otherwise payable
pursuant to paragraph 4(d).
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person, entity or group (as such terms are used in
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Act"), other than the AmPaM Companies or
an employee benefit plan of the AmPaM Companies, acquires,
directly or indirectly, the beneficial ownership (as defined in
Section 13(d) of the Act) of any voting security of AmPaM and
immediately after such acquisition such person is, directly or
indirectly, the beneficial owner of voting securities
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<PAGE> 13
representing 20% or more of the total voting power of all of the
then outstanding voting securities of AmPaM entitled to vote
generally in the election of directors;
(ii) upon the first purchase of AmPaM's common stock
pursuant to a tender or exchange offer (other than a tender or
exchange offer made by AmPaM);
(iii) the stockholders of AmPaM shall approve a merger,
consolidation, recapitalization or reorganization of AmPaM, or a
reverse stock split of outstanding voting securities, or
consummation of any such transaction if stockholder approval is
not obtained, other than any such transaction which would result
in at least 75% of the total voting power represented by the
voting securities of the surviving entity outstanding immediately
after such transaction being beneficially owned by the holders of
all of the outstanding voting securities of AmPaM immediately
prior to the transactions with the voting power of each such
continuing holder relative to other such continuing holders not
substantially altered in the transaction;
(iv) the stockholders of AmPaM shall approve a plan of
complete liquidation or dissolution of AmPaM or an agreement for
the sale or disposition by AmPaM of all or substantially all of
AmPaM's assets; or
(v) if, at any time during any period of two consecutive
years, individuals who at the beginning of such period constitute
the Board cease for any reason to constitute at least a majority
thereof, unless the election or nomination for the election by
the Company's stockholders of each new director was approved by a
vote of at least two-thirds of the directors then still in office
who were directors at the beginning of the period.
(f) Notwithstanding anything in this Agreement to the contrary, a
termination pursuant to paragraph 11(b), (c), or (d) shall operate to
automatically waive in full the noncompetition restrictions imposed on
Executive pursuant to paragraph 3.
(g) If it shall be finally determined that any payment made or
benefit provided to Executive in connection with a Change in Control
of the Company or AmPaM, whether or not made or provided pursuant to
this Agreement, is subject to the excise tax imposed by Section 4999
of the Internal Revenue Code of 1986, as amended, or any successor
thereto, the Company shall pay Executive an amount of cash (the
"Additional Amount") such that the net amount received by Executive
after paying all applicable taxes on such Additional Amount shall be
equal to the amount that Executive would have received if Section 4999
were not applicable.
12. No Mitigation or Offset. Executive shall not be required to
mitigate the amount of any Company payment provided for in this Agreement by
seeking other employment or otherwise.
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<PAGE> 14
The amount of any payment required to be paid to Executive by the Company
pursuant to this Agreement shall not be reduced by any amounts that are owed to
the Company by Executive, or by any setoff, counterclaim, recoupment, defense or
other claim, right or action.
13. Release. Notwithstanding anything in this Agreement to the
contrary, Executive shall not be entitled to receive any severance payments
pursuant to paragraphs 4 or 11 of this Agreement unless Executive has executed
(and not revoked) a general release of all claims Executive may have against the
Company and its affiliates relating to Executive's employment hereunder in a
form of such release reasonably acceptable to the Company.
14. Indemnification. In the event Executive is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the Company
against Executive), by reason of the fact that he is or was performing services
under this Agreement or as an executive officer of the Company prior to the date
of this Agreement, then the Company shall indemnify Executive against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement, as actually and reasonably incurred by Executive in connection
therewith. In the event that both Executive and the Company are made a party to
the same third-party action, complaint, suit or proceeding, the Company agrees
to engage competent legal representation, and Executive agrees to use the same
representation, provided that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Executive,
Executive may engage separate counsel and the Company shall pay all reasonable
attorneys' fees and reasonable expenses of such separate counsel. Further, while
Executive is expected at all times to use his best efforts to faithfully
discharge his duties under this Agreement, Executive cannot be held liable to
the Company for errors or omissions made in good faith where Executive has not
exhibited gross, willful and wanton negligence and misconduct nor performed
criminal and fraudulent acts which materially damage the business of the
Company. The Company shall indemnify Executive against and hold Executive
harmless from any costs, liabilities, losses and exposures for Executive's
services as an employee, officer and director of the Company (or any successor)
to the maximum extent permitted under applicable law.
15. Complete Agreement. This Agreement supersedes, and replaces in
full, all representations, understandings and agreements (oral or written)
between Executive and the Company or any AmPaM Company, AmPaM or any of their
officers, directors or representatives existing as of the Effective Date and
covering the same subject matter as this Agreement, but excluding the
Acquisition Agreement among AmPaM, the Company, the Executive and other
stockholders of the Company, dated February 11, 1999, which shall not be
affected by this Agreement. This written Agreement is the final, complete and
exclusive statement and expression of the agreement between the Company, AmPaM
and Executive and of all the terms of this Agreement, and it cannot be varied,
contradicted or supplemented by evidence of any prior or contemporaneous oral or
written agreements. This written Agreement may not be modified after the
Effective Date except by a further writing signed by a duly authorized officer
of the Company and Executive, and no term of this Agreement may be waived except
by writing signed by the party
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<PAGE> 15
waiving the benefit of such term. Without limiting the generality of the
foregoing, either party's failure to insist on strict compliance with this
Agreement shall not be deemed a waiver thereof.
16. Notice. Whenever any notice is required hereunder, it shall be
given in writing addressed as follows:
To the Company: c/o American Plumbing & Mechanical, Inc.
1502 Augusta, Suite 425
Houston, Texas 77057
To Executive: 3057 E. Harmony Avenue
Mesa, Arizona 85204
Notice shall be deemed given and effective on the earlier of three days after
the deposit in the U.S. mail of a writing addressed as above and sent first
class mail, certified, return receipt requested, or when actually received.
Either party may change the address for notice by notifying the other party of
such change in accordance with this paragraph 16.
17. Severability; Headings. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
18. Dispute Resolutions. Except with respect to injunctive relief as
provided in paragraph 3(b), neither party shall institute a proceeding in any
court or administrative agency to resolve a dispute between the parties before
that party has sought to resolve the dispute through direct negotiation with the
other party. If the dispute is not resolved within two weeks after a demand for
direct negotiation, the parties shall attempt to resolve the dispute through
mediation. If the parties do not promptly agree on a mediator, the parties shall
request the Association of Attorney Mediators in Harris County, Texas to appoint
a mediator certified by the Supreme Court of Texas. If the mediator is unable to
facilitate a settlement of the dispute within a reasonable period of time, as
determined by the mediator, the mediator shall issue a written statement to the
parties to that effect and any unresolved dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively by
arbitration, conducted before a panel of three arbitrators in Phoenix, Arizona,
in accordance with the rules of the American Arbitration Association then in
effect. The arbitrators shall have the authority to order back-pay, severance
compensation, vesting of options (or cash compensation in lieu of vesting of
options), reimbursement of costs and expenses, including those incurred to
enforce this Agreement, including reasonable attorneys' fees and interest
thereon in the event the arbitrators determine that Executive was terminated
without Disability or Cause, as defined in paragraphs 4(b) and 4(c),
respectively, or that the Company has otherwise materially
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<PAGE> 16
breached this Agreement. A decision by a majority of the arbitration panel shall
be final and binding. Judgment may be entered on the arbitrators' award in any
court having jurisdiction. The costs and expenses, including reasonable
attorneys' fees, of the prevailing party in any dispute arising under this
Agreement will be promptly paid by the other party.
19. Governing Law. This Agreement shall in all respects be construed
according to the laws of the State of Texas without regard to its conflicts of
law provisions.
20. AmPaM Guaranty. AmPaM hereby irrevocably and unconditionally
guarantees to Executive the payment of all amounts and the performance of all
other obligations of the Company in accordance with the terms of this Agreement.
21. Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
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<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective for all purposes as of the Effective Date.
KEITH RIGGS PLUMBING, INC.
By: /s/ DAVID C. BAGGETT
------------------------------------
Name: David C. Baggett
----------------------------------
Title: Vice President
---------------------------------
EXECUTIVE
By: /s/ SAM SHERWOOD
------------------------------------
Sam Sherwood
AMERICAN PLUMBING & MECHANICAL, INC.
By: /s/ DAVID C. BAGGETT
------------------------------------
Name: David C. Baggett
----------------------------------
Title: Chief Financial Officer
---------------------------------
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<PAGE> 1
EXHIBIT 10.23
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and between Teepe's
River City Mechanical, Inc. (the "Company"), an Ohio corporation, American
Plumbing & Mechanical, Inc., a Delaware corporation ("AmPaM"), and Scott W.
Teepe, Sr. ("Executive") is hereby entered into effective as of the date of the
closing date of the transactions contemplated in the Acquisition Agreement
between the Company, AmPaM and others dated February 11, 1999 (the "Effective
Date").
RECITALS
The following statements are true and correct:
As of the Effective Date, the Company, AmPaM and the other subsidiaries
of AmPaM (collectively, the "AmPaM Companies") are engaged primarily in the
providing of plumbing and mechanical contracting services.
Executive is employed hereunder by the Company in a confidential
relationship wherein Executive, in the course of his employment with the
Company, has and will continue to become familiar with and aware of information
as to the Company's and AmPaM's customers and specific manner of doing business,
including the processes, techniques and trade secrets utilized by the Company
and AmPaM, and future plans with respect thereto, all of which has been and will
be established and maintained at great expense to the Company and AmPaM. This
information is a trade secret and constitutes the valuable goodwill of the
Company and AmPaM.
Therefore, in consideration of the mutual promises, terms, covenants
and conditions set forth herein and the performance of each, it is hereby agreed
as follows:
AGREEMENTS
1. Employment and Duties.
(a) The Company hereby employs Executive as President of the
Company. As such, Executive shall have the responsibilities, duties and
authority reasonably accorded to, expected of and consistent with
Executive's position as President of the Company. Executive hereby
accepts this employment upon the terms and conditions herein contained
and, subject to paragraph 1(c), agrees to devote substantially all of
his time, attention and efforts during normal business hours to promote
and further the business and interests of the Company and its
affiliates. Executive shall perform his duties under this Agreement
from the Company's principal place of business in Cincinnati, Ohio.
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<PAGE> 2
(b) Executive shall faithfully adhere to, execute and fulfill
all reasonable and lawful policies established by the Company, to the
extent such policies have been communicated to Executive in writing and
are not inconsistent with any of the terms of this Agreement.
(c) Except as set forth on Schedule 1(c) hereto, Executive
shall not, during the term of his employment hereunder, engage in any
other business activity pursued for gain, profit or other pecuniary
advantage if such activity interferes in any material respect with
Executive's duties and responsibilities hereunder. The foregoing
limitations shall not be construed as prohibiting Executive from making
personal investments in such form or manner as will not require a
substantial portion of such Executive's time during normal business
hours in the operation or affairs of the companies or enterprises in
which such investments are made.
(d) Executive shall be entitled to vacation in accordance with
the policies of the Company.
2. Compensation. For all services rendered by Executive, the Company
shall compensate Executive as follows:
(a) Base Salary. The base salary payable to Executive during
the term shall be $150,000 per year, payable in accordance with the
Company's payroll procedures for officers, but not less frequently than
monthly. On an annual basis such base salary shall be reviewed by the
Board of Directors of AmPaM (the "AmPaM Board") and may be adjusted at
its discretion, in light of the Executive's position, responsibilities,
performance and such other reasonable, job related factors that the
AmPaM Board deems appropriate; provided, however, any adjusted Base
Salary may not be less than that amount in effect on the Effective
Date.
(b) Annual Bonus. AmPaM will consider adopting an incentive
bonus plan under which Executive and other key employees of the AmPaM
Companies will be eligible to receive annual bonus awards in amounts
that are competitive with those provided to similarly situated
executives, as determined by the AmPaM Board.
(c) Executive Perquisites, Benefits and Other Compensation.
Executive shall be entitled to receive additional benefits and
compensation from the Company in such form and to such extent as
specified below:
(i) Executive shall be reimbursed for all business
travel and other out-of-pocket expenses (including those costs
to maintain any professional certifications held or obtained
by Executive) reasonably incurred by Executive in the
performance of his duties pursuant to this Agreement and in
accordance with AmPaM's policy for
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<PAGE> 3
its similarly situated executives. All such expenses shall be
appropriately documented in reasonable detail by Executive
upon submission of any request for reimbursement, and in a
format and manner consistent with AmPaM's expense reporting
policy.
(ii) Executive shall be entitled to participate in
all incentive compensation plans and to receive all fringe
benefits and prerequisites offered by the Company or AmPaM to
any of the Company's or the AmPaM Companies' similarly
situated executives, including, without limitation,
participation in the various employee benefit plans or
programs provided to the employees of the Company or the AmPaM
Companies in general, subject to the regular eligibility
requirements with respect to each such benefit plans or
programs.
(iii) The Company shall provide Executive with such
other perquisites as may be deemed appropriate for Executive
by the AmPaM Board during the term of this Agreement, all on a
basis as favorable to Executive as may be provided or offered
to other similarly situated executives of the AmPaM Companies.
3. Non-Competition Agreement.
(a) Executive acknowledges that as a consequence of his
employment with the Company, he will be furnished or have access to
Confidential Information (as defined below). Executive further
recognizes that the Company's willingness to enter into this Agreement
is based in material part on Executive's agreement to the provisions of
this paragraph 3 and that Executive's breach of the provisions of this
paragraph 3 could materially damage the Company. Subject to paragraph
4(d) and the further provisions of this Agreement, Executive will not,
during the term of his employment with the Company, and for a period of
two years immediately following the termination of such employment for
any reason, directly or indirectly, for himself or on behalf of or in
conjunction with any other person, company, partnership, corporation or
business of whatever nature:
(i) engage, as an officer, director, shareholder,
owner, partner, joint venturer, or in a managerial capacity,
whether as an employee, independent contractor, consultant or
advisor, or as a sales representative, in any plumbing,
piping, mechanical, heating, ventilation, or air conditioning
contracting, installation or services business or operation,
or any ancillary contracting, installation or services
business directly related thereto (such business and
operations referred to herein as the "Plumbing and Mechanical
Business") within 100 miles of where any AmPaM Company
conducts business, including any territory serviced by an
AmPaM Company during the term of Executive's employment (the
"Territory");
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(ii) call upon any person who is, at that time, an
employee of an AmPaM Company for the purpose or with the
intent of enticing such employee away from or out of the
employ of the AmPaM Company;
(iii) call upon any person or entity which is, at
that time, or which has been, within one year prior to that
time, a customer of an AmPaM Company within the Territory for
the purpose of soliciting customers, orders or contracts for
any Plumbing and Mechanical Business within the Territory;
(iv) call upon any prospective acquisition candidate,
on Executive's own behalf or on behalf of any competitor,
which candidate was, to Executive's knowledge after due
inquiry, either called upon by an AmPaM Company or for which
an AmPaM Company made an acquisition analysis, for the purpose
of acquiring such entity;
(v) disclose customers, whether in existence or
proposed, of the Company to any person, firm, partnership,
corporation or business for any reason or purpose whatsoever
except to the extent that the Company has in the past
disclosed such information to the public for valid business
reasons; or
(vi) testify as an expert witness in matters related
to the Plumbing and Mechanical Business for an adverse party
to an AmPaM Company in litigation; provided, that nothing
contained in this paragraph 4(a)(vi) shall interfere with
Executive's duty to testify as a witness if required by law.
Notwithstanding the above, the foregoing covenant shall not be
deemed to prohibit Executive from acquiring as an investment (i) not
more than 1% of the capital stock of a company engaged in the Plumbing
and Mechanical Business whose stock is traded on a national securities
exchange, the Nasdaq Stock Market or on an over-the-counter or similar
market or (ii) not more than 5% of the capital stock of a competing
business whose stock is not publicly traded if the AmPaM Board consents
to such acquisition.
(b) Because of the difficulty of measuring economic losses to
the Company and AmPaM as a result of a breach of the foregoing
covenant, and because of the immediate and irreparable damage that
could be caused to the Company and AmPaM for which they would have no
other adequate remedy, Executive agrees that foregoing covenant may be
enforced by the Company, in the event of breach by him, by injunctions,
restraining orders and orders of specific performance issued by a court
of competent jurisdiction. Executive further agrees to waive any
requirement for the Company's securing or posting of any bond in
connection with such remedies.
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(c) It is agreed by the parties that the foregoing covenants
in this paragraph 3 impose a reasonable restraint on Executive in light
of the activities and business of the AmPaM Companies on the date of
the execution of this Agreement and the current plans of the AmPaM
Companies; but it is also the intent of the Company and Executive that,
subject to paragraph 3(g) hereof, such covenants be construed and
enforced in accordance with the changing activities, business and
locations of the AmPaM Companies throughout the term of this covenant,
whether before or after the date of termination of the employment of
Executive, unless the Executive was conducting such new business prior
to any AmPaM Company conducting such new business. For example, if,
during the term of this Agreement, an AmPaM Company engages in new and
different activities, enters a new business or establishes new
locations for its current activities or business in addition to or
other than the activities or business enumerated under the Recitals
above or the locations currently established therefor, then, subject to
paragraph 3(g) hereof, through the term of this covenant Executive will
be precluded from soliciting the customers or employees of such new
activities or business or from such new location and from directly
competing with such new business activities, or locations within 100
miles of where such new activities, business or locations are
conducted, unless Executive was conducting such new activities or
business prior to any AmPaM Company conducting such new activities or
business.
(d) It is further agreed by the parties hereto that, in the
event that Executive shall cease to be employed hereunder and shall
enter into a business or pursue other activities not in competition
with the Plumbing and Mechanical Business of any of the AmPaM Companies
or similar activities or business in locations the operation of which,
under such circumstances, does not violate clause (a)(i) of this
paragraph 3, and in any event such new business, activities or location
are not in violation of this paragraph 3 or of Executive's obligations
under this paragraph 3, if any, Executive shall not be chargeable with
a violation of this paragraph 3 if the AmPaM Companies shall, at any
time after the termination of Executive's employment, enter the same,
similar or a competitive (i) business, (ii) course of activities or
(iii) location, as applicable.
(e) The covenants in this paragraph 3 are severable and
separate, and the unenforceability of any specific covenant shall not
affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the
intention of the parties that such restrictions be enforced to the
fullest extent which the court deems reasonable, and the Agreement
shall thereby be reformed.
(f) All of the covenants in this paragraph 3 shall be
construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of
Executive against the Company or AmPaM, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the
enforcement by AmPaM or the Company of such covenants. It is
specifically agreed that the period of two years (subject to
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the further provisions of this Agreement) following termination of
employment stated at the beginning of this paragraph 3, during which
the agreements and covenants of Executive made in this paragraph 3
shall be effective, shall be computed by excluding from such
computation any time during which Executive is in violation of any
provision of this paragraph 3.
(g) The Company and the Executive hereby agree that this
covenant is a material and substantial part of this transaction.
4. Term; Termination; Rights on Termination. The term of this Agreement
shall begin on the Effective Date and continue for five years (the "Initial
Term") unless terminated sooner as herein provided; however, beginning on the
fifth anniversary of the Effective Date and on each anniversary thereafter the
term shall automatically continue for one year on the same terms and conditions
contained herein in effect as of the time of renewal (the "Extended Term")
unless not less than six months prior to any such anniversary either party shall
give written notice to the other party that the term shall not be so extended;
provided further, however, upon a Change in Control (as defined in paragraph
11(d)) during the Initial Term or any Extended Term the term of this Agreement
shall automatically continue following such Change in Control for a period equal
to the then remaining term or two years, whichever period is longer (such longer
period being an Extended Term), unless earlier terminated as provided in
paragraph 11. This Agreement and Executive's employment may be terminated in any
one of the followings ways:
(a) Death. The death of Executive shall immediately terminate
this Agreement with no severance compensation due to Executive's
estate; provided, however, for the 90 day period following Executive's
death, the Company, at its sole cost and expense, shall continue to
provide the Executive's then qualified beneficiaries with coverage
under the Company's group health plan in which Executive participated
immediately prior to his death or a successor plan thereto, subject to
the terms of such plan as it may be amended ("Company Health Plan").
Thereafter, the Company shall provide continuation of coverage
elections to such qualified beneficiaries as are required by law.
(b) Disability. If, Executive becomes entitled to and receives
benefits under an insured long term disability plan of an AmPaM Company
(incurs a "Disability"), the Company, with the approval of at least 51%
of the members of the AmPaM Board, may terminate this Agreement and
Executive's employment hereunder. In the event this Agreement is
terminated as a result of Executive's Disability, Executive shall have
no right to any severance compensation; provided, however, (i) for 12
months thereafter or until his death, if earlier, the Company shall
continue to pay Executive an amount equal to his monthly base salary at
the time of his termination, reduced by any monthly benefits payable to
Executive under such long term disability plan and (ii) the Company, at
its sole cost and expense, shall continue the coverage of Executive and
his qualified beneficiaries (for as long as they are qualified
beneficiaries thereunder) under the Company's Health Plan for as long
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as Executive continues to qualify for and receive benefits under such
long term disability plan, but not to exceed five years. Thereafter,
the Company shall provide COBRA elections to Executive and his
qualified beneficiaries as required by law.
(c) Cause. The Company may terminate this Agreement and
Executive's employment 30 days after written notice is provided by the
Company, at the direction of the AmPaM Board, to Executive for "Cause",
which shall be: (1) Executive's willful and material breach of this
Agreement (which remains uncured at the end of such 30 day period); (2)
Executive's gross negligence in the performance or intentional
nonperformance (in either case continuing for 30 days after receipt of
written notice by the Company, at the direction of the AmPaM Board, of
need to cure) of any of Executive's material duties and
responsibilities hereunder; (3) Executive's dishonesty or fraud with
respect to the business, reputation or affairs of an AmPaM Company
which materially and adversely affects an AmPaM Company (monetarily or
otherwise); or (4) Executive's conviction of a felony crime involving
moral turpitude. Any termination for Cause must be approved by at least
51% of the members of the AmPaM Board. For purposes hereof, no act, or
failure to act, on Executive's part shall be deemed "willful" unless
done, or omitted to be done, by Executive not in good faith and without
reasonable belief that Executive's action or omission was in the best
interest of the Company. Notwithstanding the foregoing, Executive shall
not be deemed to have been terminated for Cause unless and until there
shall have been delivered to Executive a copy of a resolution duly
adopted by the AmPaM Board, finding that in the good faith opinion of
the AmPaM Board Executive was guilty of conduct set forth above and
specifying the particulars thereof in detail. In the event of a
termination for Cause, Executive shall have no right to any severance
compensation.
(d) Without Cause and For Good Reason. Executive may, without
Good Reason (as hereinafter defined), terminate this Agreement and
Executive's employment, effective 30 days after written notice is
provided to the Company. Executive may only be terminated without Cause
and other than due to Disability by the Company during either the
Initial Term or Extended Term if such termination is approved by at
least 51% of the members of the AmPaM Board. Should Executive be
terminated by the Company without Cause and other than due to
Disability or should Executive terminate with Good Reason during the
Initial Term, Executive shall receive from the Company, in a lump sum
payment due on the effective date of termination, an amount equivalent
to the base salary at the rate then in effect for (i) whatever time
period is remaining under the Initial Term (but in no event more than
two years) or (ii) for one year, whichever amount is greater. Should
Executive be terminated by the Company without Cause and other than due
to Disability or should the Executive terminate with Good Reason during
the Extended Term, Executive shall receive from the Company, in a lump
sum payment due on the effective date of termination, an amount
equivalent to the base salary at the rate then in effect for one year.
Further, any termination by the Company without Cause or due to
Disability or by Executive for Good Reason (whether during the Initial
Term or any Extended Term) shall operate to shorten the period
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set forth in paragraph 3(a) and during which the terms of paragraph 3
apply to one year from the date of termination of employment. If
Executive resigns or otherwise terminates his employment without Good
Reason, rather than the Company terminating his employment pursuant to
this paragraph 4(d), Executive shall receive no severance compensation.
Executive shall have "Good Reason" to terminate his employment
hereunder upon the occurrence of any of the following events, unless
such event is agreed to in writing by Executive: (a) Executive is
demoted by means of a material reduction in authority, title,
responsibilities or duties to a position of less stature or importance
within the Company than the position described in Section 1 hereof; (b)
Executive's annual base salary as then in effect is reduced in
accordance with paragraph 2(a) or otherwise; or (c) the relocation of
the Company's principal executive offices to a location outside the
greater Cincinnati, Ohio area or the Company's requiring Executive to
relocate anywhere other than the Company's principal executive offices;
(c) the assignment to Executive of any duties or responsibilities which
are materially inconsistent with Executive's title, position or
responsibilities as in effect immediately prior to such assignment; or
(d) the failure by the Company to continue in effect any employee
benefit plan in which Executive participates and/or any prerequisite
provided Executive, which is (are) material to Executive's total
compensation and benefits, unless an equitable arrangement (embodied in
an ongoing substitute or alternative plan) has been made with respect
to such plan or perquisite; provided, however, Good Reason shall exist
with respect to a matter only if such matter is not corrected within 30
days of receipt by the Company of written notice of such matter from
Executive.
If termination of Executive's employment arises out of the Company's
failure to pay Executive on a timely basis the amounts to which he is entitled
under this Agreement or as a result of any other breach of this Agreement by the
Company, as determined by a court of competent jurisdiction or pursuant to the
provisions of paragraph 18 below, the Company shall pay all amounts and damages
to which Executive may be entitled as a result of such breach, including
interest thereon and all reasonable legal fees and expenses and other costs
incurred by Executive to enforce his rights hereunder. Further, none of the
provisions of paragraph 3 shall apply in the event this Agreement is terminated
as a result of a breach by the Company.
Upon termination of this Agreement for any reason provided above, in
addition to the above payments, if any, Executive shall be entitled to receive
all compensation earned and all benefits and reimbursements due through the
effective date of termination, paid to Executive in a lump sum on the effective
date of termination. In addition, a termination of this Agreement shall not
alter or impair any of Executive's vested rights or benefits, if any, under any
(i) employee benefit plan of the AmPaM Companies or (ii) deferred compensation
plan, including, without limitation, any stock option plan, of the AmPaM
Companies. All other rights and obligations of the Company and Executive under
this Agreement shall cease as of the effective date of termination, except that
Executive's obligations under paragraphs 3, 5, 6, 7, and 8 herein and the
Company's obligations under paragraphs 4 (with respect to severance payments, if
applicable), 11(g) and 14 shall survive
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such termination in accordance with their terms, unless or except as expressly
provided otherwise in this Agreement.
5. Return of Company Property. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Executive by or on behalf of the Company, AmPaM or
any AmPaM Companies or their representatives, vendors or customers which pertain
to the business of the Company or AmPaM or any AmPaM Companies shall be and
remain the property of the Company or AmPaM or the AmPaM Company, as the case
may be, and be subject at all times to their discretion and control. Likewise,
all correspondence, reports, records, charts, advertising materials and other
similar data pertaining to the business, activities or future plans of the
Company or AmPaM or the AmPaM Company which is collected by Executive shall be
delivered promptly to the Company without request by it upon termination of
Executive's employment and Executive shall not retain any copies of the same.
6. Inventions. Executive shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by
Executive, solely or jointly with another, during the period of employment or
within one year thereafter, if conceived during employment, and which are
directly related to the business or activities of the Company and which
Executive conceives as a result of his employment by the Company, including any
predecessor (collectively, the "Intellectual Property"). Executive hereby
assigns and agrees to assign all his interests therein to the Company or its
nominee. Whenever requested to do so by the Company, Executive shall execute any
and all applications, assignments or other instruments that the Company shall
deem necessary to apply for and obtain Letters Patent of the United States or
any foreign country or to otherwise protect the Company's interest therein.
Executive must also render to the Company, at the Company's expense, assistance
in the perfection, enforcement and defense of any Intellectual Property.
7. Trade Secrets. Executive agrees that he will not, during or after
the term of this Agreement, disclose the specific terms of the Company's or
AmPaM's relationships or agreements with their respective significant vendors or
customers or any other significant and material trade secret of the Company or
AmPaM, whether in existence or proposed, to any person, firm, partnership,
corporation or business for any reason or purpose whatsoever, except as required
by law and prior to any such disclosure Executive shall give the Company prior
written notice thereof and the opportunity to contest such disclosure.
8. Confidentiality.
(a) Executive acknowledges and agrees that all Confidential
Information (as defined below) of the Company is confidential and a
valuable, special and unique asset of the Company that gives the
Company an advantage over its actual and potential, current and future
competitors. Executive further acknowledges and agrees that Executive
owes the Company a fiduciary duty to preserve and protect all
Confidential Information from
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unauthorized disclosure or unauthorized use, that certain Confidential
Information constitutes "trade secrets" under applicable laws and, that
unauthorized disclosure or unauthorized use of the Confidential
Information would irreparably injure the Company.
(b) Both during the term of Executive's employment and after
the termination of Executive's employment for any reason (including
wrongful termination), Executive shall hold all Confidential
Information in strict confidence, and shall not use any Confidential
Information except for the benefit of the Company, in accordance with
the duties assigned to Executive. Executive shall not, at any time
(either during or after the term of Executive's employment), disclose
any Confidential Information to any person or entity (except other
employees of the Company who have a need to know the information in
connection with the performance of their employment duties, and who
have been informed of the confidential nature of the confidential
information and have agreed to keep it confidential), or copy,
reproduce, modify, transmit, including electronic transmission,
decompile or reverse engineer any Confidential Information, or remove
any Confidential Information from the Company's premises, without the
prior written consent of the AmPaM Board, or permit any other person to
do so. Executive shall take reasonable precautions to protect the
physical security of all documents and other material containing
Confidential Information (regardless of the medium on which the
Confidential Information is stored). This Agreement applies to all
Confidential Information, whether now known or later to become known to
Executive.
(c) Upon the termination of Executive's employment with the
Company for any reason, and upon written request of the Company at any
other time, Executive shall promptly surrender and deliver to the
Company all documents and other written material of any nature
containing or pertaining to any Confidential Information and shall not
retain any such document or other material. Within five days of any
such written request, Executive shall certify to the Company in writing
that all such materials have been returned.
(d) As used in this Agreement, the term "Confidential
Information" shall mean any information or material known to or used by
or for an AmPaM Company (whether or not owned or developed by an AmPaM
Company and whether or not developed by Executive) that is not
generally known to persons in the Plumbing and Mechanical Business.
Confidential Information includes, but is not limited to, the
following: all trade secrets of the AmPaM Companies; all information
that an AmPaM Company has marked as confidential or has otherwise
described to Executive (either in writing or orally) as confidential;
all nonpublic information concerning the Company's products, services,
prospective products or services, research, product designs, prices,
discounts, costs, marketing plans, marketing techniques, market
studies, test data, customers, customer lists and records, suppliers
and contracts; all AmPaM Company business records and plans; all AmPaM
Company personnel files; all financial information of or concerning the
AmPaM Companies; all information relating to operating system software,
application software, software and system methodology, hardware
platforms, technical information, inventions, computer programs and
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listings, source codes, object codes, copyrights and other intellectual
property; all technical specifications; any proprietary information
belonging to an AmPaM Company; all computer hardware or software
manuals; all training or instruction manuals; and all data and all
computer system passwords and user codes. For purposes hereof,
Confidential Information shall not include such information (i) which
becomes or is already known to the public through no fault of
Executive; or (ii) the disclosure of which (x) is required by law
(including regulations and rulings) or the order of any competent
governmental authority or (y) Executive reasonably believes is required
in connection with the defense of a lawsuit against Executive, provided
that in either case, prior to disclosing any information, Executive
shall give prior written notice thereof to the Company and provide the
Company with the opportunity to contest such disclosure.
9. No Prior Agreements. Executive hereby represents and warrants to the
Company that the execution of this Agreement by Executive and his employment by
the Company and the performance of his duties hereunder will not violate or be a
breach of any agreement, including any non-competition agreement, invention or
secrecy agreement, with a former employer, client or any other person or entity.
Further, Executive agrees to indemnify the Company for any loss or expense,
including, but not limited to, reasonable attorneys' fees and expenses, the
Company may incur based upon or arising out of Executive's breach of this
paragraph 9.
10. Assignment; Binding Effect. Executive understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Executive agrees, therefore, that he
cannot assign all or any portion of his performance under this Agreement.
Subject to the preceding two sentences and the express provisions of paragraph
12 below, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective heirs, legal
representatives, successors and assigns. The Company and AmPaM will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and assets of the Company
or AmPaM to expressly assume and agree in writing reasonably satisfactory to
Executive to perform this Agreement in the same manner and to the same extent
that the Company or AmPaM would be required to perform it if no such succession
had taken place. Failure of the Company or AmPaM to obtain such written
agreement prior to the effectiveness of any such secession shall be a material
breach of this Agreement.
11. Change in Control.
(a) Executive understands and acknowledges that the Company
may be merged or consolidated with or into another entity and that such
entity shall automatically succeed to the rights and obligations of the
Company hereunder or that the Company may undergo a Change in Control
(as defined below). In the event a Change in Control is initiated or
occurs during the Initial Term or any Extended Term, then the
provisions of this paragraph 11 shall be applicable.
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(b) In the event of a Change in Control wherein AmPaM and
Executive have not received written notice at least ten business days
prior to the date of the event giving rise to the Change in Control
from the successor to all or a substantial portion of the AmPaM's
business and/or assets that such successor is willing as of the closing
to assume and agrees to perform, or continue to cause the Company to
perform, the Company's obligations under this Agreement in the same
manner and to the same extent that the Company is hereby required to
perform, then Executive may, at Executive's sole discretion, elect to
terminate Executive's employment on the effective date of such Change
in Control by providing written notice to the AmPaM Board at least five
business days prior to the closing of the transaction giving rise to
the Change in Control. In such case, the applicable provisions of
paragraph 4(d) will apply as though the Company had terminated
Executive without Cause; however, the amount of the lump sum severance
payment due Executive shall be triple the amount calculated under the
terms of paragraph 4(d), but shall in no event exceed six times
Executive's annual base salary.
(c) In any Change in Control situation, Executive may, at
Executive's sole discretion, elect to terminate Executive's employment
upon the effective date of such Change in Control by providing written
notice to the AmPaM Board at least five business days prior to the
closing of the transaction giving rise to the Change in Control. In
such case, the applicable provisions of paragraph 4(d) will apply as
though the Company had terminated Executive without Cause; however, the
amount of the lump sum severance payment due Executive shall be double
the amount calculated under the terms of paragraph 4(d), but shall in
no event exceed four times Executive's annual base salary.
(d) If, on or within two years following the effective date of
a Change in Control the Company terminates Executive's employment other
than for Cause or Disability or if Executive terminates his employment
for Good Reason, or if Executive's employment with the Company is
terminated by the Company within three months before the effective date
of a Change in Control and it is reasonably demonstrated that such
termination (i) was at the request of a third party that has taken
steps reasonably calculated to effect a Change in Control, or (ii)
otherwise arose in connection with or anticipation of a Change in
Control, then Executive shall receive from Company, in a lump sum
payment due on the effective date of termination, the greater of (i)
the equivalent of three years' annual base salary at the rate in effect
on the date of Executive's termination, or (ii) the base salary for
whatever period is then remaining on the Initial Term, if any, which
payment shall be in lieu of any amounts otherwise payable pursuant to
paragraph 4(d).
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person, entity or group (as such terms are
used in Sections 13(d) and 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Act"), other than the AmPaM
Companies or an employee benefit plan of the AmPaM Companies,
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acquires, directly or indirectly, the beneficial ownership (as
defined in Section 13(d) of the Act) of any voting security of
AmPaM and immediately after such acquisition such person is,
directly or indirectly, the beneficial owner of voting
securities representing 20% or more of the total voting power
of all of the then outstanding voting securities of AmPaM
entitled to vote generally in the election of directors;
(ii) upon the first purchase of AmPaM's common stock
pursuant to a tender or exchange offer (other than a tender or
exchange offer made by AmPaM);
(iii) the stockholders of AmPaM shall approve a
merger, consolidation, recapitalization or reorganization of
AmPaM, or a reverse stock split of outstanding voting
securities, or consummation of any such transaction if
stockholder approval is not obtained, other than any such
transaction which would result in at least 75% of the total
voting power represented by the voting securities of the
surviving entity outstanding immediately after such
transaction being beneficially owned by the holders of all of
the outstanding voting securities of AmPaM immediately prior
to the transactions with the voting power of each such
continuing holder relative to other such continuing holders
not substantially altered in the transaction;
(iv) the stockholders of AmPaM shall approve a plan
of complete liquidation or dissolution of AmPaM or an
agreement for the sale or disposition by AmPaM of all or
substantially all of AmPaM's assets; or
(v) if, at any time during any period of two
consecutive years, individuals who at the beginning of such
period constitute the Board cease for any reason to constitute
at least a majority thereof, unless the election or nomination
for the election by the Company's stockholders of each new
director was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the
beginning of the period.
(f) Notwithstanding anything in this Agreement to the
contrary, a termination pursuant to paragraph 11(b), (c), or (d) shall
operate to automatically waive in full the noncompetition restrictions
imposed on Executive pursuant to paragraph 3.
(g) If it shall be finally determined that any payment made or
benefit provided to Executive in connection with a Change in Control of
the Company or AmPaM, whether or not made or provided pursuant to this
Agreement, is subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended, or any successor thereto,
the Company shall pay Executive an amount of cash (the "Additional
Amount") such that the net amount received by Executive after paying
all applicable taxes on such Additional Amount shall be equal to the
amount that Executive would have received if Section 4999 were not
applicable.
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12. No Mitigation or Offset. Executive shall not be required to
mitigate the amount of any Company payment provided for in this Agreement by
seeking other employment or otherwise. The amount of any payment required to be
paid to Executive by the Company pursuant to this Agreement shall not be reduced
by any amounts that are owed to the Company by Executive, or by any setoff,
counterclaim, recoupment, defense or other claim, right or action.
13. Release. Notwithstanding anything in this Agreement to the
contrary, Executive shall not be entitled to receive any severance payments
pursuant to paragraphs 4 or 11 of this Agreement unless Executive has executed
(and not revoked) a general release of all claims Executive may have against the
Company and its affiliates relating to Executive's employment hereunder in a
form of such release reasonably acceptable to the Company.
14. Indemnification. In the event Executive is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the Company
against Executive), by reason of the fact that he is or was performing services
under this Agreement or as an executive officer of the Company prior to the date
of this Agreement, then the Company shall indemnify Executive against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement, as actually and reasonably incurred by Executive in connection
therewith. In the event that both Executive and the Company are made a party to
the same third-party action, complaint, suit or proceeding, the Company agrees
to engage competent legal representation, and Executive agrees to use the same
representation, provided that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Executive,
Executive may engage separate counsel and the Company shall pay all reasonable
attorneys' fees and reasonable expenses of such separate counsel. Further, while
Executive is expected at all times to use his best efforts to faithfully
discharge his duties under this Agreement, Executive cannot be held liable to
the Company for errors or omissions made in good faith where Executive has not
exhibited gross, willful and wanton negligence and misconduct nor performed
criminal and fraudulent acts which materially damage the business of the
Company. The Company shall indemnify Executive against and hold Executive
harmless from any costs, liabilities, losses and exposures for Executive's
services as an employee, officer and director of the Company (or any successor)
to the maximum extent permitted under applicable law.
15. Complete Agreement. This Agreement supersedes, and replaces in
full, all representations, understandings and agreements (oral or written)
between Executive and the Company or any AmPaM Company, AmPaM or any of their
officers, directors or representatives existing as of the Effective Date and
covering the same subject matter as this Agreement, but excluding the
Acquisition Agreement among AmPaM, the Company, the Executive and other
stockholders of the Company, dated February 11, 1999, which shall not be
affected by this Agreement. This written Agreement is the final, complete and
exclusive statement and expression of the agreement between the Company, AmPaM
and Executive and of all the terms of this Agreement, and it cannot be varied,
contradicted or supplemented by evidence of any prior or contemporaneous oral or
written agreements. This written Agreement may not be modified after the
-14-
<PAGE> 15
Effective Date except by a further writing signed by a duly authorized officer
of the Company and Executive, and no term of this Agreement may be waived except
by writing signed by the party waiving the benefit of such term. Without
limiting the generality of the foregoing, either party's failure to insist on
strict compliance with this Agreement shall not be deemed a waiver thereof.
16. Notice. Whenever any notice is required hereunder, it shall be
given in writing addressed as follows:
To the Company: c/o American Plumbing & Mechanical, Inc.
1502 Augusta, Suite 425
Houston, Texas 77057
To Executive: 2928 Timberview Dr.
Cincinnati, Ohio 45211
Notice shall be deemed given and effective on the earlier of three days after
the deposit in the U.S. mail of a writing addressed as above and sent first
class mail, certified, return receipt requested, or when actually received.
Either party may change the address for notice by notifying the other party of
such change in accordance with this paragraph 16.
17. Severability; Headings. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
18. Dispute Resolutions. Except with respect to injunctive relief as
provided in paragraph 3(b), neither party shall institute a proceeding in any
court or administrative agency to resolve a dispute between the parties before
that party has sought to resolve the dispute through direct negotiation with the
other party. If the dispute is not resolved within two weeks after a demand for
direct negotiation, the parties shall attempt to resolve the dispute through
mediation. If the parties do not promptly agree on a mediator, the parties shall
request the Association of Attorney Mediators in Harris County, Texas to appoint
a mediator certified by the Supreme Court of Texas. If the mediator is unable to
facilitate a settlement of the dispute within a reasonable period of time, as
determined by the mediator, the mediator shall issue a written statement to the
parties to that effect and any unresolved dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively by
arbitration, conducted before a panel of three arbitrators in Cincinnati, Ohio,
in accordance with the rules of the American Arbitration Association then in
effect. The arbitrators shall have the authority to order back-pay, severance
compensation, vesting of options (or cash compensation in lieu of vesting of
options), reimbursement of costs and expenses, including those incurred to
enforce this Agreement, including reasonable attorneys' fees and interest
thereon
-15-
<PAGE> 16
in the event the arbitrators determine that Executive was terminated without
Disability or Cause, as defined in paragraphs 4(b) and 4(c), respectively, or
that the Company has otherwise materially breached this Agreement. A decision by
a majority of the arbitration panel shall be final and binding. Judgment may be
entered on the arbitrators' award in any court having jurisdiction. The costs
and expenses, including reasonable attorneys' fees, of the prevailing party in
any dispute arising under this Agreement will be promptly paid by the other
party.
19. Governing Law. This Agreement shall in all respects be construed
according to the laws of the State of Texas without regard to its conflicts of
law provisions.
20. AmPaM Guaranty. AmPaM hereby irrevocably and unconditionally
guarantees to Executive the payment of all amounts and the performance of all
other obligations of the Company in accordance with the terms of this Agreement.
21. Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
-16-
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective for all purposes as of the Effective Date.
TEEPE'S RIVER CITY MECHANICAL, INC.
By: /s/ David C. Baggett
----------------------------------
Name: David C. Baggett
--------------------------------
Title: Vice President
-------------------------------
EXECUTIVE
By: /s/ Scott W. Teepe, Sr.
----------------------------------
Scott W. Teepe, Sr.
AMERICAN PLUMBING & MECHANICAL, INC.
By: /s/ David C. Baggett
----------------------------------
Name: David C. Baggett
--------------------------------
Title: Chief Financial Officer
-------------------------------
-17-
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement No. 333-81139.
ARTHUR ANDERSEN LLP
Houston, Texas
July 30, 1999
<PAGE> 1
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
---------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2)
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Maureen Scannell Bateman, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(Name, address and telephone number of agent for service)
AMERICAN PLUMBING & MECHANICAL, INC.
(Exact name of obligor as specified in its charter)
DELAWARE 76-0577626
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1502 AUGUSTA, SUITE 425
HOUSTON, TX 77057
(Address of principal executive offices) (Zip Code)
11 5/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2008
(Title of indenture securities)
<PAGE> 2
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO
WHICH IT IS SUBJECT.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington,
D.C., Federal Deposit Insurance Corporation, Washington, D.C.
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee or of its
parent, State Street Corporation.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN
EFFECT.
A copy of the Articles of Association of the trustee, as now
in effect, is on file with the Securities and Exchange
Commission as Exhibit 1 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form T-1) filed with
the Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the trustee
to commence business was necessary or issued is on file with
the Securities and Exchange Commission as Exhibit 2 to
Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No. 22-17940)
and is incorporated herein by reference thereto.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE
TRUST POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS
SPECIFIED IN PARAGRAPH (1) OR (2), ABOVE.
A copy of the authorization of the trustee to exercise
corporate trust powers is on file with the Securities and
Exchange Commission as Exhibit 3 to Amendment No. 1 to the
Statement of Eligibility and Qualification of Trustee (Form
T-1) filed with the Registration Statement of Morse Shoe, Inc.
(File No. 22-17940) and is incorporated herein by reference
thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in effect, is on
file with the Securities and Exchange Commission as Exhibit 4
to the Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with the Registration Statement of Eastern
Edison Company (File No. 33-37823) and is incorporated herein
by reference thereto.
1
<PAGE> 3
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS IN
DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
SECTION 321(b) OF THE ACT.
The consent of the trustee required by Section 321(b) of the
Act is annexed hereto as Exhibit 6 and made a part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING
AUTHORITY.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority is annexed hereto as
Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Hartford and The
State of Connecticut, on the 29th of July 1999.
STATE STREET BANK AND TRUST COMPANY
By:
------------------------------------------
NAME MICHAEL M. HOPKINS
TITLE VICE PRESIDENT
2
<PAGE> 4
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issuance by American
Plumbing & Mechanical, Inc. of its 11 5/8% Series B Senior Subordinated Notes
due 2008, we hereby consent that reports of examination by Federal, State,
Territorial or District authorities may be furnished by such authorities to the
Securities and Exchange Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By:
-------------------------------------
NAME MICHAEL M. HOPKINS
TITLE VICE PRESIDENT
DATED: JULY 29, 1999
3
<PAGE> 5
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business March 31, 1999,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act and in accordance
with a call made by the Commissioner of Banks under General Laws, Chapter 172,
Section 22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
<S> <C> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin ........................... 1,249,670
Interest-bearing balances .................................................... 13,236,699
Securities ............................................................................ 10,970,415
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary .......................................... 9,561,556
Loans and lease financing receivables:
Loans and leases, net of unearned income ................. 7,053,580
Allowance for loan and lease losses ...................... 85,416
Allocated transfer risk reserve .......................... 0
Loans and leases, net of unearned income and allowances ...................... 6,968,164
Assets held in trading accounts ....................................................... 1, 553,354
Premises and fixed assets ............................................................. 536,535
Other real estate owned ............................................................... 0
Investments in unconsolidated subsidiaries ............................................ 606
Customers' liability to this bank on acceptances outstanding .......................... 71,273
Intangible assets ..................................................................... 207,323
Other assets .......................................................................... 1,371,043
----------
Total assets .......................................................................... 45,726,638
==========
LIABILITIES
Deposits:
In domestic offices .......................................................... 10,101,297
Noninterest-bearing ............................. 6,932,549
Interest-bearing ................................ 3,168,748
In foreign offices and Edge subsidiary ....................................... 18,061,721
Noninterest-bearing ............................. 54,654
Interest-bearing ................................ 18,007,067
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary .......................................... 12,063,069
Demand notes issued to the U.S. Treasury .............................................. 149,322
Trading liabilities .......................................................... 1,140,080
Other borrowed money .................................................................. 285,027
Subordinated notes and debentures ..................................................... 0
Bank's liability on acceptances executed and outstanding .............................. 71,273
Other liabilities ..................................................................... 1,079,470
Total liabilities ..................................................................... 42,951,259
----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus ......................................... 0
Common stock .......................................................................... 29,931
Surplus ............................................................................... 480,330
Undivided profits and capital reserves/Net unrealized holding gains (losses) .......... 2,258,177
Net unrealized holding gains (losses) on available-for-sale securities........ 15,937
Cumulative foreign currency translation adjustments ................................... (8,996)
Total equity capital .................................................................. 2,775,379
----------
Total liabilities and equity capital .................................................. 45,726,638
==========
</TABLE>
4
<PAGE> 6
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
/s/ REX S. SCHUETTE
-----------------------------
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
/s/ DAVID A. SPINA
-----------------------------
David A. Spina
/s/ MARSHALL N. CARTER
-----------------------------
Marshall N. Carter
/s/ TRUMAN S. CASNER
-----------------------------
Truman S. Casner
5
