EXHIBIT 10.2
Execution Copy
SECURITIES PURCHASE AGREEMENT
dated as of
June 27, 2002
between
ENCOMPASS SERVICES CORPORATION
and
THE INVESTORS
IDENTIFIED HEREIN
TABLE OF CONTENTS
Page
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ARTICLE I DEFINITIONS .................................................. 1
ARTICLE II THE TRANSACTION ............................................. 7
2.1 Exercise; Sale and Purchase ........................................ 7
2.2 Closing ............................................................ 8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY .............. 8
3.1 Organization ...................................................... 8
3.2 Subsidiaries ...................................................... 8
3.3 Authority; Enforceability ......................................... 8
3.4 Capitalization .................................................... 9
3.5 Fairness Opinion .................................................. 10
3.6 Consents and Approvals; No Violations ............................. 10
3.7 Authorization of the New Securities ............................... 11
3.8 Offering Valid for the New Securities ............................. 11
3.9 SEC Documents; Financial Statements; Other Financial Information .. 11
3.10 Information Supplied .............................................. 12
3.11 Absence of Undisclosed Liabilities ................................ 12
3.12 Absence of Changes ................................................ 12
3.13 Compliance with Laws and Permits .................................. 13
3.14 Investment Company and Investment Adviser ......................... 13
3.15 Brokers ........................................................... 13
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE INVESTORS ............. 13
4.1 Organization ...................................................... 13
4.2 Authority ......................................................... 14
4.3 Consents and Approvals; No Violations ............................. 14
4.4 Brokers ........................................................... 14
4.5 Investment Representations and Warranties ......................... 15
4.6 Financial Resources ............................................... 15
4.7 Information Supplied .............................................. 15
ARTICLE V COVENANTS .................................................... 16
5.1 Other Actions; Conduct of Business ................................ 16
5.2 The Rights Offering ............................................... 16
5.3 Shareholder Meeting; Proxy Statement .............................. 18
5.4 Advice of Changes; Filings ........................................ 19
5.5 Delivery of Fairness Opinion ...................................... 19
5.6 2003 Annual Shareholder Meeting; Proxy ............................ 19
ARTICLE VI ADDITIONAL AGREEMENTS ....................................... 20
6.1 Reasonable Efforts; Notification .................................. 20
6.2 Public Announcements .............................................. 21
6.3 Communications with Governmental Entities ......................... 21
6.4 Investor Rights Agreement ......................................... 21
6.5 Bank Communications ............................................... 22
6.6 Tax Treatment ..................................................... 22
ARTICLE VII CONDITIONS ................................................. 22
7.1 Closing Conditions to Each Party's Obligations .................... 22
7.2 Conditions to the Company's Obligations ........................... 23
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7.3 Conditions to the Investors' Obligations ........................... 24
ARTICLE VIII TERMINATION AND AMENDMENT .................................. 25
8.1 Termination ........................................................ 25
8.2 Effect of Termination .............................................. 26
ARTICLE IX MISCELLANEOUS ................................................ 26
9.1 Amendment .......................................................... 26
9.2 Extension; Waiver .................................................. 26
9.3 Survival of Representations and Warranties, Limitation on Liability 26
9.4 Notices ............................................................ 27
9.5 Indemnification .................................................... 27
9.6 Fees and Expenses .................................................. 29
9.7 Interpretation ..................................................... 29
9.8 Entire Agreement; Third Party Beneficiaries ........................ 30
9.9 Governing Law ...................................................... 30
9.10 Counterparts ....................................................... 30
9.11 Assignment ......................................................... 30
9.12 Enforcement ........................................................ 30
9.13 Time ............................................................... 31
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Annexes
Annex I - Schedule of Investors
Exhibits
Exhibit A - Amendment to the Credit Agreement
Exhibit B - Series C Statement of Designation
Schedules
3.2 - Subsidiaries
3.3 - Company Required Consents and Approvals
3.4 - Company Capitalization
3.6 - Consents and Approvals; No Violations
3.11 - Absence of Undisclosed Liabilities
3.12 - Absence of Changes
4.3 - Investors Required Consents and Approvals
5.2(b) - Certain Optionholders
7.3(e) - Employees Signing Waivers
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated
as of June 27, 2002, among Encompass Services Corporation, a
Texas corporation (the "Company") and the Investors (the
"Investors") identified on Annex I attached hereto.
WHEREAS, the Company has determined that it is in the best interests of the
Company and its stockholders to effect a $50,000,000 rights offering (the
"Rights Offering") in which the Company will distribute non-transferable rights
to purchase shares of Common Stock to the holders of Common Stock and
Participating Preferred Stock (pursuant to the Participating Preferred Stock's
participation rights in accordance with the Articles) at a per share price equal
to the Subscription Price and upon the terms set forth in Section 5.2 hereof;
and
WHEREAS, the Company has requested, in order for the Company to have
guaranteed proceeds of $35,000,000, that the Investors agree to purchase
$35,000,000 of Common Stock at the Subscription Price, through the exercise of
the Investor Rights (including the Basic Subscription Privilege and, to the
extent necessary, the Oversubscription Privilege represented thereby) and
in the event that the exercise of the Investor Rights does not result in the
purchase by the Investors of $35,000,000 of Common Stock at the Subscription
Price, the purchase of additional shares of Series C Preferred Stock at the
Subscription Price (the "Additional Share Purchase"); and
WHEREAS, the Investors have agreed, subject to the terms and conditions of
this Agreement, to exercise the Investor Rights (including the Basic
Subscription Privilege and, to the extent necessary, the Oversubscription
Privilege represented thereby) and, to the extent necessary, consummate the
Additional Share Purchase in order to purchase $35,000,000 of the Shares at the
Subscription Price.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and intending to be legally bound hereby, the Investors and
the Company hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the following
respective meanings:
"Additional Share Purchase" has the meaning set forth in the recitals.
"Affiliate" means, with respect to any specified Person, any other Person
that, directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common ownership or control with, or is owned or
controlled by, such specified Person; provided that Affiliates of the Investors,
any designees of the Investors and Apollo shall exclude operating companies that
would otherwise be deemed an Affiliate of such Persons, but shall include all
investment partnerships and special purpose entities that are not operating
companies,
whether existing as of the date hereof or created hereafter, if the Persons
controlling Apollo control such entities. As used in this definition, the term
"control" (including the terms "controlling", "controlled by" and "under common
control with") of a Person means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by Contract or
otherwise.
"Agreement" has the meaning set forth in the Caption.
"Amendment to the Credit Agreement" means the amendment to the Credit
Agreement attached hereto as Exhibit A.
"Announcement Date" means the date on which the Rights Offering and the
Amendment to Credit Agreement are first disclosed to the public (through any
written, verbal or other medium or means of communication).
"Apollo" means Apollo Management IV, L.P. and its Affiliates.
"Articles" means the Company's Restated Articles of Incorporation, as in
effect as of the date hereof.
"Banks" means Bank of America, N.A. and those other entities (other than
the Company and its Affiliates) that are parties to the Credit Agreement.
"Basic Subscription Privilege" has the meaning set forth in Section 5.2(b).
"Board" means the Company's Board of Directors.
"Business Day" means any day, other than a Saturday, Sunday or a day on
which the banking institutions in the State of New York are authorized or
obligated by Law or executive order to close.
"Closing" has the meaning set forth in Section 2.2.
"Closing Date" means the later to occur of (i) the twentieth (20th)
calendar day following the Commencement Date or (ii) the date that is two (2)
Business Days following the date on which any applicable waiting period under
the HSR Act relating to the Transactions shall have expired or been terminated.
"Closing Price" means with respect to the shares of Common Stock on any
day, the last reported sales price, or in the case no such reported sale takes
place on such day, the average of the reported closing bid and asked prices, in
either case on the NYSE.
"Code" means the Internal Revenue Code of the 1986, as amended.
"Commencement Date" has the meaning set forth in Section 5.2(b).
"Commission" means the United States Securities and Exchange Commission.
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"Common Stock" means the Company's common stock, par value $0.001 per
share.
"Common Stock Purchase Right" means those rights to purchase Common Stock
issued in the Rights Offering (including the Basic Subscription Privilege and
Oversubscription Privilege represented thereby).
"Company" has the meaning set forth in the Caption.
"Contract" means any loan or credit agreement, note, bond, mortgage,
indenture, lease, sublease, purchase order or other contract, agreement,
commitment, instrument, Permit (as hereinafter defined), concession, franchise,
license, employment agreement, or benefit or option plan or similar arrangement.
"Conversion Price" has the meaning set forth in the Articles.
"Credit Agreement" means the credit agreement dated as of February 22, 2000
by and among the Company, Bank of America, N.A., as syndication agent, and the
several Banks named therein, as amended from time to time thereafter.
"Exchange Act" means the Securities Exchange Act of 1934 and the rules and
regulations promulgated thereunder, each as amended.
"GAAP" means generally accepted accounting principles, consistently
applied.
"Governmental Entity" means any national, federal, state, municipal, local,
territorial, foreign or other government, quasi-governmental entity or
organization or self-regulated organization (including, without limitation, the
NYSE and the NASDAQ National Market) or any department, commission, board,
bureau, agency, regulatory authority or instrumentality thereof, or any court,
judicial, administrative, or arbitral body or public or private tribunal.
"HSR Act" means the ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ Antitrust Improvement Act of 1976, as
amended.
"Indemnified Party" has the meaning set forth in Section 9.5(a).
"Indenture" means the Indenture dated as of April 30, 1999 by and among the
Company, as Issuer, IBJ Whitehall Bank & Trust, as Trustee, and the Guarantors
(as defined therein), as amended from time to time thereafter.
"Indenture Trustee" means The Bank of New York, or such other entity
serving as the Trustee under the Indenture.
"Intended Tax Treatment" has the meaning set forth in Section 6.6.
"Investor Rights" means the Common Stock Purchase Rights offered to the
Investors pursuant to the Rights Offering (including the Basic Subscription
Privilege and Oversubscription Privilege represented thereby).
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"Investor Rights Agreement" means the Investor Rights Agreement dated as of
February 22, 2000 by and among the Company and the Investor named therein, as
the same may be amended, modified or supplemented from time to time.
"Investors" has the meaning set forth in the Caption.
"Knowledge" has the meaning set forth in Section 9.7.
"Latest Form 10-Q" means the quarterly report on Form 10-Q filed by the
Company with the Commission on May 15, 2002 for the three (3) months ended March
31, 2002.
"Law" means all provisions of laws, statutes, ordinances, rules, bylaws,
regulations, writs, Permits or Orders of any Governmental Entity.
"▇▇▇▇▇▇ Brothers" means ▇▇▇▇▇▇ Brothers, Inc.
"▇▇▇▇▇▇ Brothers' Fairness Opinion" has the meaning set forth in Section
3.5(a).
"Liabilities" has the meaning set forth in Section 3.11.
"Losses" has the meaning set forth in Section 9.5(a).
"Material Adverse Change" has the meaning set forth in Section 9.7.
"Material Adverse Effect" has the meaning set forth in Section 9.7.
"NASDAQ National Market" means the automated quotation system of the
National Association of Securities Dealers for trading of "Nasdaq National
Market Securities" (as defined in the National Association of Securities Dealers
Manual, as amended).
"Net Authorized Shares" means the number of authorized but unissued shares
of the Company's Common Stock as of the Closing Date, but after subtracting from
such number the number of shares of Common Stock contractually required to be
reserved as of the Closing Date for issuance upon the conversion, exchange or
exercise of all securities of the Company that are convertible into, or
exchangeable or exercisable for, shares of Common Stock.
"New Securities" means the Investor Rights and the Shares.
"NYSE" means the New York Stock Exchange.
"Order" means all judgments, injunctions, orders and decrees of all
Governmental Entities in Proceedings (as hereinafter defined) in which the
Person in question is a party or by which any of its properties is bound.
"Organizational Documents" means, with respect to any Person, each
instrument or other document that (a) defines the existence of such Person,
including its certificate of limited partnership or articles or certificate of
incorporation, as filed or recorded with an applicable
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Governmental Entity, or (b) governs the internal affairs of such Person,
including its partnership agreement or by-laws (or any equivalent thereof).
"Outside Date" has the meaning set forth in Section 8.1(b).
"Oversubscription Privilege" has the meaning set forth in Section 5.2(c).
"Participating Preferred Stock" means shares of the Company's 7.25%
Convertible Preferred Stock, $0.001 par value per share, the terms of which are
governed by the Statement of Designation.
"Permits" means, collectively, all franchises, approvals, clearances,
permits, licenses, authorizations, registrations, certificates, and variances
obtained from, or agreements with, any Governmental Entity.
"Person" has the meaning set forth in Section 9.7.
"Proceeding" means any claim, demand, suit, action, hearing, grievance,
arbitration, mediation or proceeding in any court or before any Governmental
Entity, whether at law or in equity.
"Prospectus" means the final prospectus relating to the Rights Offering
delivered pursuant to Rule 424(b) of the Securities Act to those Persons
receiving Common Stock Purchase Rights in the Rights Offering.
"Proxy Statement" has the meaning set forth in Section 5.3(b).
"Record Date" means the record date for determination of those Persons
entitled to receive Common Stock Purchase Rights in the Rights Offering, which
record date shall be determined in good faith by the Board.
"Registration Statement" has the meaning set forth in Section 5.2(a).
"Rights Offering" has the meaning set forth in the recitals.
"Rights Shares" means the shares of Common Stock issuable upon exercise of
the Common Stock Purchase Rights.
"SEC Documents" means all reports, forms, schedules, statements and other
documents required to be filed by the Company or any of its Subsidiaries with
the Commission (including, without limitation, the Registration Statement and
the Proxy Statement).
"Securities Act" means the Securities Act of 1933 and the rules and
regulations promulgated thereunder, each as amended.
"Series C Preferred Stock" means shares of the Company's Series C
Convertible Participating Preferred Stock, $0.001 par value per share, the terms
of which are governed by the Series C Statement of Designation.
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"Series C Statement of Designation" means the Statement of Designation
setting forth the preferences, privileges, limitations and relative rights of
the Series C Preferred Stock, attached as Exhibit B hereto.
"Shareholders Meeting" has the meaning set forth in Section 5.3(a).
"Shares" has the meaning set forth in Section 2.1(b).
"Shortfall Amount" has the meaning set forth in Section 2.1(c).
"Special Committee" means the special committee of the Board that has been
established for purposes of reviewing and evaluating the Transactions and all
other related or similar proposed transactions.
"Statement of Designation" means the Statement of Designation setting forth
the preferences, limitations and relative rights of the Participating Preferred
Stock.
"Subscription Price" means the lower of (i) $0.70 per share of Common Stock
(or share of Common Stock underlying the Series C Preferred Stock) and (ii) the
Ten-Day Average Trading Price.
"Subsidiary" has the meaning set forth in Section 9.7.
"Tax" means any of the Taxes and "Taxes" means with respect to any Person,
(A) all income Taxes (including any tax on or based upon net income, or gross
income, or income as specially defined, or earnings, or profits, or selected
items of income, earnings or profits) and all gross receipts, sales, use, ad
valorem, transfer, franchise, license withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property or windfall profits taxes,
alternative or add-on minimum taxes, customs duties or other taxes, fees,
assessments or charges of any kind whatsoever, together with any interest and
any penalties, additions to tax or additional amounts imposed by taxing
authority (domestic or foreign) on such Person and (B) any Liability for the
payment of any amount of the type described in the immediately preceding clause
(A) as a result of (1) being a "transferee" (within the meaning of Section 6901
of the Code or any other applicable law) of another Person, (2) being a member
of an affiliated, combined, consolidated or unitary group or (3) any contractual
Liability.
"Ten-Day Average Trading Price" shall mean the average of the Closing
Prices of the Common Stock over a period of ten (10) Business Days which
10-Business Day period shall begin on the first Business Day after the
Announcement Date and end on the tenth (10th) Business Day after such
Announcement Date; provided, that if the average of the Closing Prices of the
Common Stock over such 10-Business Day period is less than $0.55, the Ten-Day
Average Trading Price shall equal $0.55.
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"Third Party" means any Person or "group," as described in Rule 13d-5(b)
promulgated under the Exchange Act, other than the Investors or any of their
Affiliates.
"Third Party Claim" has the meaning set forth in Section 9.5(b).
"Transactions" shall mean the Rights Offering and all other transactions
related thereto, and all other transactions contemplated by this Agreement and
the other Transaction Documents.
"Transaction Documents" means this Agreement and the other certificates,
documents and instruments executed by the Company or the Investors in connection
with any of the foregoing documents and instruments or any of the transactions
contemplated thereby (including, without limitation, the Series C Statement of
Designation).
ARTICLE II
THE TRANSACTION
2.1 Exercise; Sale and Purchase.
(a) Subject to the terms and conditions hereof, the Company has authorized
(i) the issuance of the Investor Rights in the Rights Offering, (ii) the
reservation, issuance and sale of the Shares to the Investors on the Closing
Date and (iii) the reservation, issuance and sale of all other shares of Common
Stock issuable upon exercise of the Common Stock Purchase Rights.
(b) On the Closing Date, the Company shall sell to the Investors, and the
Investors shall purchase from the Company, by the exercise of the Investor
Rights, and, if necessary, the consummation of the Additional Share Purchase a
number of shares of Common Stock equal to $35,000,000 divided by the
Subscription Price (the "Shares") at a price per share equal to the Subscription
Price. For purposes of clarification, the purchase of the Shares pursuant to the
immediately preceding sentence shall be deemed to be the full exercise of the
Investor Rights in connection with the Rights Offering (including the exercise
of the Basic Subscription Privilege and the Oversubscription Privilege to the
extent necessary for the Investors to purchase $35,000,000 of Common Stock at
the Subscription Price) and, if necessary, the consummation of the Additional
Share Purchase. The Investors shall pay for the Shares by wire transfer of
immediately available funds to an account designated by the Company (against
delivery to such Investors of certificates representing such Shares).
Concurrently with the receipt of payment for such Shares, the Company shall (i)
deliver to the Investors certificates representing the Shares being purchased by
such Investors, duly endorsed in the name of the Investors or their Affiliates
or (ii) in the event such Shares are uncertificated, make the appropriate book
entries to reflect the purchase of such Shares by the Investors.
(c) Notwithstanding anything set forth in this Agreement to the contrary,
if the number of Net Authorized Shares is less than the number of shares of
Common Stock subscribed for by the Company's stockholders in the Rights
Offering, then the Company shall reduce by the Shortfall Amount the number of
Shares it would otherwise have been required to issue to the Investors pursuant
to Section 2.1(b) and shall issue to the Investors shares of Series C Preferred
Stock that are convertible (upon the approval contemplated in Section 5.6
hereof) into the
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number of shares of Common Stock equal to the Shortfall Amount, (and all
references herein to "Shares", "Rights Shares", "Common Stock", "New Securities"
and similar terms to describe the purchase of shares of Common Stock in the
Rights Offering shall be deemed to refer to such shares of Series C Preferred
Stock). The difference between the amount of shares of Common Stock subscribed
for by the Company's stockholders (including the Investors) in the Rights
Offering and the amount of Net Authorized Shares is referred to herein as the
"Shortfall Amount". For purposes of clarity, pursuant to Section 2.1(b) and this
Section 2.1(c), the Investors will buy a number of shares of Common Stock,
Common Stock issuable upon conversion of the Series C Preferred Stock, or a
combination of the two, equal to the amount obtained by dividing $35,000,000 by
the Subscription Price.
2.2 Closing.
The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of ▇'▇▇▇▇▇▇▇▇ LLP, ▇▇ ▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ on the Closing Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Investors as follows:
3.1 Organization.
Each of the Company and its Subsidiaries is duly organized, validly
existing and in good standing under the Laws of the jurisdiction of its
incorporation and has all requisite power and authority to carry on its business
as now being conducted. Each of the Company and its Subsidiaries is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualifications or licensing necessary, other than in
such jurisdictions where the failure to be so qualified, licensed or in good
standing (individually or in the aggregate) would not be reasonably expected to
either prevent or materially delay its ability to perform its obligations
hereunder. The Company has made available to the Investors complete and correct
copies of its and its Subsidiaries' Organizational Documents, each as amended to
the date hereof.
3.2 Subsidiaries.
Except as set forth on Schedule 3.2, the Company has no Subsidiaries or
controlled Affiliates and does not otherwise own or control, directly or
indirectly, any equity or voting interest in any Person, nor has the Company
made any commitment or subscribed for the purchase of any such equity or voting
interest.
3.3 Authority; Enforceability.
Except for those shareholder consents set forth on Schedule 3.3 hereto, the
Company and its Subsidiaries, as applicable, has the requisite corporate power
and authority to execute and deliver or file, as applicable, this Agreement and
each other Transaction Document to which it is a party and to consummate the
Transactions. The execution, delivery and performance of this Agreement and the
other Transaction Documents have been duly authorized by all necessary corporate
action on the part of the Company and its Subsidiaries, as applicable, and no
other corporate proceedings on the part of the Company or any of its
Subsidiaries, except for the
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shareholder approvals listed on Schedule 3.3 hereto, are necessary to authorize
this Agreement or any other Transaction Document or to consummate the
Transactions. This Agreement and the other Transaction Documents have been, or
will be, as applicable, duly executed and delivered by the Company and each of
its Subsidiaries, as applicable, and each such document constitutes, or will
constitute, a valid and binding obligation of the Company or such Subsidiary,
subject to receipt of the shareholder approvals listed on Schedule 3.3 hereto,
enforceable against the Company and each of its Subsidiaries, as applicable, in
accordance with its respective terms, except as such enforcement may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar Laws
affecting the enforcement of creditors' rights generally and by general
principles of equity (whether applied in a Proceeding at Law or in equity).
3.4 Capitalization.
The authorized capital stock of the Company consists solely of: (i) as of
the date of this Agreement and immediately prior to the Closing Date, Two
Hundred Million (200,000,000) shares of Common Stock of which: (A) 64,280,367
shares are issued and outstanding as of May 31, 2002, (B) 12,000,000 shares are
reserved, as of May 31, 2002, for issuance upon the exercise of options granted
or to be granted under the Company's stock option plans, (C) 4,500,000 shares
are reserved, as of May 31, 2002, for issuance upon the exercise of warrants
granted or to be granted pursuant to warrant agreements with ▇▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, the Investors, ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ & Jan ▇▇▇▇▇ ▇▇▇▇,
Trustees UTD, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇
▇▇▇▇▇▇▇▇, (D) 22,000,000 shares are reserved, as of May 31, 2002, for issuance
upon the conversion of the Participating Preferred Stock; and (E) 1,642,088
shares are reserved, as of June 1, 2002, for issuance pursuant to the Company's
employee stock purchase plan, and (ii) Fifty Million (50,000,000) shares of
preferred stock, par value $0.001 per share, 275,000 of which have been
designated as Participating Preferred Stock of which 256,191 shares are issued
and outstanding.
Set forth on Schedule 3.4 is a summary of the Company's capitalization, on
(i) an actual basis prior to giving effect to the Transactions and (ii) on a pro
forma basis (after giving effect to the Transactions expected to be disclosed in
the Registration Statement) setting forth the total number of votes entitled to
be cast at any meeting of the Company's Shareholders. All of the Company's and
its Subsidiaries' issued and outstanding shares of capital stock (or other
equity securities) have been duly authorized and validly issued and are fully
paid and nonassessable, with no personal Liability attaching to the ownership
thereof. Except as provided for in this Agreement and on Schedule 3.4, (i) no
subscription, warrant, option, convertible security or other right (contingent
or otherwise) to purchase or acquire any shares of capital stock of the Company
or any of its Subsidiaries is authorized or outstanding, (ii) neither the
Company nor any of its Subsidiaries has any obligation (contingent or otherwise)
to issue any subscription, warrant, option, convertible security or other such
right or to issue or distribute to holders of any shares of its capital stock or
other equity securities any evidences of indebtedness or assets of the Company
or such Subsidiary, (iii) neither the Company nor any of its Subsidiaries has
any obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any shares of its capital stock (or other equity securities) or any
interest therein or to pay any dividend or make any other distribution in
respect thereof, and (iv) there are no outstanding or authorized stock
appreciation, phantom stock or similar rights with respect to the Company or any
of its Subsidiaries. All of the issued and outstanding
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shares of the Company's and its Subsidiaries' capital stock (or other equity
securities) have been offered, issued and sold by the Company or such Subsidiary
in compliance with applicable federal and state securities Laws. Except as set
forth on Schedule 3.4, as of the date hereof, each subscription, warrant,
option, convertible security or other right (contingent or otherwise) (other
than the Common Stock Purchase Rights) to purchase or acquire any shares of
capital stock of the Company or any of its Subsidiaries is exercisable at an
exercise price or conversion price that is higher than the Fair Market Value (as
defined in the Series C Statement of Designation) of the security underlying
such subscription, warrant, option, convertible security or other right. Except
as set forth on Schedule 7.3(e), no Person will be entitled to any severance,
change of control payment, acceleration of vested or unvested options,
continuing benefit or similar payment or acceleration that would be triggered,
directly or indirectly, as a result of the Transactions. ▇▇▇▇▇▇ ▇▇▇▇ has
delivered to the Company a waiver of all severance, change of control payments,
acceleration of vested or unvested options, continuing benefits or similar
payments or acceleration that would be triggered, directly or indirectly, as a
result of the Transactions.
3.5 Fairness Opinion.
(a) The Special Committee has determined that the Transactions are fair to
the Company from a financial point of view, and has received the oral opinion of
▇▇▇▇▇▇ Brothers, financial advisor to the Special Committee, attesting to such
effect (the "▇▇▇▇▇▇ Brothers' Fairness Opinion"), and ▇▇▇▇▇▇ Brothers has
committed to deliver a written opinion to such effect as soon as practicable.
(b) The ▇▇▇▇▇▇ Brothers' Fairness Opinion satisfies the requirements of the
"affiliate transaction" covenant contained in Section 4.12 of the Indenture.
3.6 Consents and Approvals; No Violations.
Except as set forth on Schedule 3.6 hereto, neither the execution, delivery
nor performance of this Agreement or the other Transaction Documents, by each of
the Company and its Subsidiaries, as applicable, nor the consummation by each of
the Company and its Subsidiaries, as applicable, of the transactions
contemplated hereby or thereby will (i) conflict with or result in any breach of
any provision of the Company's and its Subsidiaries' respective Organizational
Documents, (ii) require any filing with, notice to, or Permit, authorization,
consent or approval of, any Governmental Entity (except for (A) any filing
requirement pursuant to the HSR Act, (B) the filing of the Registration
Statement and the Proxy Statement with (and subsequent declaration of
effectiveness by) the Commission, (C) any filing requirement of the NYSE (or the
NASDAQ National Market, if applicable) or (D) where the failure to obtain such
permits, authorizations, consents or approvals or to make such filings would not
reasonably be expected to prevent or materially delay the consummation of the
transactions contemplated by this Agreement), (iii) result in a violation or
breach of, require any notice to any party pursuant to, or constitute (with or
without due notice or lapse of time or both) a default, or give rise to any
right of termination, amendment, cancellation, acceleration (including, without
limitation, the acceleration of any unvested options), non-renewal or contingent
payment or Liability (including any severance or change-of-control Liabilities)
under, any of the terms, conditions or provisions of any Contract to which the
Company or any of its Subsidiaries is a party or by which any of them or any of
their respective properties or assets may be bound or (iv) violate any Law
10
applicable to the Company, any of its Subsidiaries or any of their respective
properties or assets, except in the case of clauses (iii) and (iv) for
violations, breaches or defaults which would not, individually or in the
aggregate, be reasonably expected to either prevent or materially delay such
Person's ability to perform its obligations hereunder.
3.7 Authorization of the New Securities.
The New Securities have been duly authorized for issuance, and when issued
and delivered, and when payment for the Shares has been received in accordance
with Section 2.1 of this Agreement, the Shares will be validly issued, fully
paid and nonassessable.
3.8 Offering Valid for the New Securities.
Assuming the accuracy of the representations and warranties of the
Investors contained in Section 4.5 hereof, the issuance of the New Securities
will have been registered or qualified (or are exempt from registration and
qualification) under the registration, permit or qualification requirements of
all applicable state securities Laws.
3.9 SEC Documents; Financial Statements; Other Financial Information.
Each of the Company and its Subsidiaries has filed with the Commission all
SEC Documents required to be filed on or prior to the date hereof. As of their
respective filing dates, (i) each SEC Document complied in all material respects
with the requirements of the Securities Act, or the Exchange Act, as the case
may be, and the rules and regulations of the Commission promulgated thereunder
applicable to such SEC Document, and (ii) none of the SEC Documents contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements included in the SEC Documents complied in
all material respects, as of their respective filing dates, as to form with
applicable accounting requirements and the published rules and regulations of
the Commission with respect thereto, were prepared in accordance with GAAP
(except, in the case of unaudited statements, as permitted by Form 10-Q of the
Commission) applied on a consistent basis during the periods involved (except as
may be indicated in the notes thereto) and fairly present, in all material
respects, the consolidated financial position of the Company and its
Subsidiaries as of the dates thereof and the results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments).
11
3.10 Information Supplied.
None of the information supplied or to be supplied by the Company or any of
its Subsidiaries specifically for inclusion or incorporation by reference in any
documents to be filed by the Company or any of its Subsidiaries with the
Commission or any other Governmental Entity in connection with the Transactions
(including, without limitation, the Registration Statement filed as contemplated
by Section 5.2 hereof and any Proxy Statement filed pursuant to Section 14 under
the Exchange Act in connection with the Transactions) contains any untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading.
3.11 Absence of Undisclosed Liabilities.
Except as set forth on Schedule 3.11 or as disclosed in the Latest Form
10-Q, neither the Company nor any of its Subsidiaries has any liability or
obligation of any nature (whether matured or unmatured, secured or unsecured,
fixed or contingent, accrued or unaccrued) ("Liabilities"), except for (a)
Liabilities discussed in the most recent annual report filed on Form 10-K under
the Exchange Act with the Commission, (b) Liabilities which have arisen in the
ordinary course of business since the date the Company filed it most recent
annual report on Form 10-K under the Exchange Act with the Commission and which
are similar in nature and amount to the Liabilities which arose during the
comparable period of time in the immediately preceding fiscal period and (c)
contractual Liabilities incurred in the ordinary course of business.
3.12 Absence of Changes.
Except as set forth on Schedule 3.12 hereto or as disclosed in the Latest
Form 10-Q, since the Company filed its most recent annual report on Form 10-K
under the Exchange Act with the Commission, there has not been (a) any Material
Adverse Change, (b) any borrowing or agreement to borrow funds or any Liability
incurred by the Company or any of its Subsidiaries, other than current
Liabilities incurred in the ordinary course of business consistent in type and
amount with past practice, (c) any asset or property of the Company or any of
its Subsidiaries made subject to any encumbrance, lien or similar restriction of
any kind, (d) any waiver of any right of the Company or any of its Subsidiaries,
or the cancellation of any debt owed to or claim held by the Company or any of
its Subsidiaries, (e) any payment of dividends on, or other distribution with
respect to, or any direct or indirect redemption, purchase or acquisition of,
any shares of the capital stock or other securities of the Company or any of its
Subsidiaries, (f) any issuance of any stock, bond or other security of the
Company or any of its Subsidiaries, (g) any disposition of any tangible or
intangible asset of the Company or any of its Subsidiaries, (h) any loan by the
Company or any of its Subsidiaries to any officer, director, employee,
consultant, agent, affiliate or stockholder of the Company or any of its
Subsidiaries (other than advances to such Persons in the ordinary course of
business consistent with past practice in connection with bona fide business
expenses), (i) any damage, destruction or loss (whether or not covered by
insurance) of any asset of the Company or any of its Subsidiaries, (j) any
extraordinary increase, direct or indirect, in the compensation paid or payable
to any officer, director, employee, consultant or agent of the Company or any of
its Subsidiaries, (k) any write-down of the value of any inventory, or any
write-off as uncollectible of any account or note receivable of the
12
Company or any of its Subsidiaries that is not consistent in type and amount
with the Company's or such Subsidiary's past practice, (l) any change in the
accounting methods, practices or policies followed by the Company or any of its
Subsidiaries or any change in depreciation or amortization policies or rates
theretofore adopted, which has not been adequately provided for or disclosed in
the Company's annual report on Form 10-K for the year ended December 31, 2001
filed pursuant to the Exchange Act, (m) any change in the executive officers of
the Company or any of its Subsidiaries, (n) any "Default" or "Event of Default"
(each as defined in the Credit Agreement), under the Credit Agreement or any
event, fact or circumstance that is reasonably likely to constitute a Default or
Event of Default under the Credit Agreement or (o) any agreement or commitment
with respect to any of the foregoing matters.
3.13 Compliance with Laws and Permits.
The Company and each of its Subsidiaries has complied in all respects with,
and is not in violation in any respect of, any Law or Permit applicable to the
business of the Company or any of its Subsidiaries as presently or previously
conducted, or as currently proposed to be conducted except where such
non-compliance or violation would not have, or be reasonably expected to have, a
Material Adverse Effect.
3.14 Investment Company and Investment Adviser.
Neither the Company nor any of its Subsidiaries is an "investment company"
or "investment adviser" as defined in the Investment Company Act of 1940, as
amended.
3.15 Brokers.
Except for customary fees payable to ▇▇▇▇▇▇ Brothers and to Bank of America
Securities for the services they have provided in connection with the
Transactions, no broker, investment banker, financial advisor, finder or other
Person is entitled to any brokerage, investment banker's, financial advisor's,
finder's or other fee or commission for investment banking or financial advisory
services for which the Company or any of its Subsidiaries has been, is, or will
be liable in connection with the execution of this Agreement by the Company or
the performance by the Company of its obligations hereunder (including, without
limitation, in connection with the Rights Offering).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
The Investors represent and warrant to the Company as follows:
4.1 Organization.
The Investors are duly organized, validly existing and in good standing
under the Laws of the jurisdiction of their organization and have all requisite
power and authority to carry on their business as now being conducted. The
Investors are duly qualified or licensed to do business and are in good standing
in each jurisdiction in which the nature of their business or the ownership or
leasing of their properties makes such qualifications or licensing necessary,
other than in such
13
jurisdictions where the failure to be so qualified or licensed (individually or
in the aggregate) could not be reasonably expected to either prevent or
materially delay their ability to perform their obligations hereunder.
4.2 Authority.
The Investors have the requisite power and authority to execute and deliver
this Agreement and each other Transaction Document to which they are a party,
and to consummate the Transactions. The execution, delivery and performance of
this Agreement and the other Transaction Documents, and the consummation of the
Transactions, have been duly authorized by all necessary action on the part of
the Investors and no other proceedings on the part of the Investors are
necessary to authorize this Agreement or any other Transaction Document or to
consummate the Transactions. This Agreement and the other Transaction Documents
have been duly executed and delivered by the Investors and each such document
constitutes a valid and binding obligation of the Investors enforceable against
the Investors in accordance with its respective terms, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar Laws affecting the enforcement of creditors' rights generally
and by general principles of equity (whether applied in a Proceeding at Law or
in equity).
4.3 Consents and Approvals; No Violations.
Except as set forth on Schedule 4.3 hereto, neither the execution, delivery
nor performance of this Agreement or the other Transaction Documents by the
Investors, nor the consummation by the Investors of the transactions
contemplated hereby or thereby, will (i) conflict with or result in any breach
of any provision of their Organizational Documents, (ii) require any filing
with, notice to, or Permit, authorization, consent or approval of, any
Governmental Entity (except for (A) any filing requirement pursuant to the HSR
Act, (B) the filing of the Registration Statement and the Proxy Statement with
(and subsequent declaration of effectiveness by) the Commission, (C) any filing
requirement of the NYSE (or the NASDAQ National Market, if applicable) or (D)
where the failure to obtain such permits, authorizations, consents or approvals
or to make such filings would not reasonably be expected to prevent or
materially delay the consummation of the transactions contemplated by this
Agreement), (iii) result in a violation or breach of, require any notice to any
party pursuant to, or constitute (with or without due notice or lapse of time or
both) a default, or give rise to any right of termination, amendment,
cancellation or acceleration, non-renewal or contingent payment or Liability
under, any of the terms, conditions or provisions of any Contract to which any
of the Investors is a party or by which any of them or any of their respective
properties or assets may be bound or (iv) violate any Law applicable to the
Investors or any of their properties or assets, except in the case of clauses
(iii) and (iv) for violations, breaches or defaults which would not,
individually or in the aggregate, be reasonably expected to either prevent or
materially delay such Person's ability to perform its obligations hereunder.
4.4 Brokers.
No broker, investment banker, financial advisor, finder or other Person is
entitled to any brokerage, investment banker's, financial advisor's, finder's or
other fee or commission for which
14
the Company will be liable in connection with the execution of this Agreement by
the Investors or the performance by the Investors of their obligations
hereunder.
4.5 Investment Representations and Warranties.
(a) The Investors are acquiring, or will acquire, as applicable, the Shares
hereunder for their own account, for investment and not with a view to the
distribution thereof, and without any present intention of distributing the
same.
(b) The Investors will be "accredited investors" at the Closing within the
meaning of Rule 501(a) promulgated under the Securities Act.
(c) The Investors (i) have been furnished with or have had access to the
information that the Investors requested from the Company sufficient to enable
the Investors to evaluate the merits and risks of an investment in the Shares,
(ii) have had an opportunity to discuss with, and ask questions of, management
of the Company regarding the intended business and financial affairs of the
Company, and (iii) have generally such knowledge and experience in business and
financial matters so as to enable the Investors to understand and evaluate the
risks of and form an investment decision with respect to its investment in the
Shares.
(d) The Investors have no need for liquidity in their investment in the
Shares and are able to bear the economic risk of its investment in the Shares
and the complete loss of all of such investment.
(e) The Investors recognize that an investment in the Company involves
certain risks, and have taken full cognizance of, and understand all of, the
risk factors related to the purchase of the Shares.
4.6 Financial Resources.
The Investors have access to sufficient funds to pay the purchase price for
the Shares on the Closing Date.
4.7 Information Supplied.
None of the information supplied or to be supplied by the Investors about
the Investors specifically for inclusion or incorporation by reference in any
documents to be filed by the Company or any of its Subsidiaries with the
Commission or any other Governmental Entity in connection with the Transactions
(including, without limitation, the Registration Statement filed as contemplated
by Section 5.2 hereof and any Proxy Statement filed pursuant to Section 14 under
the Exchange Act in connection with the Transactions) contains any untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading, and the Investors
hereby agree to indemnify the Company for any losses, Liabilities or damages
(including, without limitation, the fees and expenses of the Company's legal
counsel) in connection with any breach of the representations and warranties
contained in this Article IV.
15
ARTICLE V
COVENANTS
5.1 Other Actions; Conduct of Business.
(a) Prior to the Closing, the Company shall not, and shall cause each of
its Subsidiaries not to, take or omit to take any action, the taking or omission
of which would reasonably be expected to result in (i) any of the
representations and warranties of the Company set forth in this Agreement
becoming untrue or inaccurate in any respect, (ii) a breach of any other
agreement or covenant set forth in this Agreement or (iii) any of the conditions
set forth in Article VII not being satisfied. From and after the date hereof
until the Closing Date, the Company will, and will cause each of its
Subsidiaries to, conduct its business only in the ordinary course of business
consistent with past practice and use its commercially reasonable efforts to
preserve intact its current business organizations.
(b) Prior to the Closing, no Investor shall take or omit to take any
action, the taking or omission of which would reasonably be expected to result
in (i) any of the representations and warranties of that Investor set forth in
this Agreement becoming untrue or inaccurate in any material respect, (ii) a
breach of any other agreement or covenant set forth in this Agreement or (iii)
any of the conditions set forth in Article VII not being satisfied.
5.2 The Rights Offering.
(a) As promptly as practicable after the date hereof, the Company will
prepare and file with the Commission a registration statement on Form S-3 as
adopted pursuant to the Securities Act (or, if Form S-3 is not then available to
the Company, on Form S-1 as adopted pursuant to the Securities Act) (together
with the Prospectus, the "Registration Statement") covering the issuance of the
Common Stock Purchase Rights and the Rights Shares. The Company will not permit
any securities other than the Common Stock Purchase Rights and Rights Shares to
be included in or covered by such Registration Statement. Neither the
Registration Statement nor any amendment or supplement thereto, nor request for
acceleration of effectiveness thereof, will be filed or submitted to any
Governmental Entity without the Investors' prior consent (except if, upon the
advice of legal counsel, such filing or submission is required by Law, in which
event it may be filed only at the time required by Law (and no earlier)). The
Investors and their counsel will be given the opportunity to participate in all
drafting sessions, negotiations and other discussions with respect to such
Registration Statement, and the Company will provide the Investors and their
counsel with any written comments or other written communications that the
Company or its counsel receives from time to time from the Commission or its
staff with respect to the Registration Statement promptly after such
communications are received by the Company. The Registration Statement will
comply in all material respects with the provisions of applicable federal
securities Laws. The Company promptly will correct any information provided by
it for use in the Registration Statement if and to the extent that such
information becomes false or misleading in any material respect or omits to
state any material fact, and the Company will take all steps necessary to cause
the Registration Statement, as so corrected, to be filed with the Commission and
to be disseminated to the distributees of the Common Stock Purchase Rights, in
each case as and to the extent required by
16
applicable federal securities Laws. The Company will use its best efforts to
cause the Registration Statement to be filed pursuant to this Section 5.2(a) to
be declared effective by the Commission as soon as possible after the
Registration Statement is filed with the Commission.
(b) Promptly following the effective date of the Registration Statement,
the Company will commence the Rights Offering (the date the Rights Offering is
commenced is referred to herein as the "Commencement Date"). In the Rights
Offering, the Company will distribute to each holder of Common Stock (and each
holder of options or warrants issuable for Common Stock identified on Schedule
5.2(b) hereto) as of the Record Date, at no cost to such holder, one Common
Stock Purchase Right for each share of Common Stock held as of the Record Date
(treating each share of Participating Preferred Stock, for purposes of
determining the holders of Common Stock and the number of shares of Common Stock
held on the Record Date, as if it was converted into the number of shares of
Common Stock for which it is convertible pursuant to Section 4 of the Statement
of Designation, provided that notwithstanding the foregoing, nothing herein
requires the holders of the Participating Preferred Stock to convert such
Participating Preferred Stock into Common Stock in order to obtain the rights
set forth in this Agreement). Each Common Stock Purchase Right will entitle the
holder thereof, in such holder's sole discretion (the "Basic Subscription
Privilege"), to purchase, at the Subscription Price, a number of shares of
Common Stock equal to (i) $50,000,000 divided by the Subscription Price divided
by (ii) the aggregate number of Common Stock Purchase Rights issued in the
Rights Offering. The Company shall not, without the express prior written
consent of the Investors, sell shares of Common Stock in the Rights Offering at
less than the Subscription Price. If any Person who holds a Common Stock
Purchase Right exercises more than one Common Stock Purchase Right in connection
with the Rights Offering, such Person shall receive the number of shares of
Common Stock resulting from aggregating all such exercises, rounded down to the
nearest whole share. The Rights Offering will remain open until the Closing
Date, and the Common Stock Purchase Rights will expire at 5:00 p.m., New York,
New York local time on the Closing Date, except as otherwise required by
applicable Law.
(c) Each holder of Common Stock Purchase Rights who exercises its Basic
Subscription Privilege in full will be entitled to subscribe for those Rights
Shares it did not subscribe for through its Basic Subscription Privilege at the
Subscription Price (the "Oversubscription Privilege"). If the number of Rights
Shares remaining after the exercise of all Basic Subscription Privileges is not
sufficient to satisfy the exercise of all Oversubscription Privileges, the
holders exercising such Oversubscription Privileges will be allocated such
Rights Shares pro rata and in proportion to the number of Rights Shares such
holders purchased through their respective Basic Subscription Privileges. If the
pro rata allocation referred to in the immediately preceding sentence exceeds
the number of Rights Shares requested to be purchased by such holder through the
exercise of its Oversubscription Privilege, then such holder only will receive
the number of Rights Shares so requested, and the remaining Rights Shares from
such holder's pro rata allocation will be divided among other holders of Common
Stock Purchase Rights exercising their Oversubscription Privileges. If the pro
rata allocation referred to in the second sentence of this Section 5.2(c) is
less than the number of Rights Shares requested to be purchased by such holder
through the exercise of its Oversubscription Privilege, then the excess funds
paid by such holder as the Subscription Price for the Rights Shares not issued
will be returned without interest or deduction. The closing of the exercise of
the Oversubscription Privileges will also occur on the Closing Date.
17
(d) The Company will pay all expenses associated with the Registration
Statement referred to in Section 5.2(a) and the Rights Offering and registration
of the Rights Shares and the Common Stock Purchase Rights, including, without
limitation, filing and printing fees, fees and expenses of the subscription
agent, counsel and accounting fees and expenses, costs associated with clearing
the Rights Shares and the Common Stock Purchase Rights for sale under applicable
state securities Laws, listing fees and the Investors reasonable fees in
connection with the registration including, without limitation, the reasonable
attorneys' fees of counsel to the Investors.
(e) The Company will use all reasonable efforts to ensure that all of its
outstanding shares of Common Stock will remain listed on the NYSE or, if shares
of the Common Stock are no longer listed on the NYSE for any reason, the NASDAQ
National Market, from and after the date of this Agreement. The Company will
take all reasonable steps necessary, and pay all reasonable fees required, to
list all of the Rights Shares and, when authorized and available, the shares of
Common Stock issuable upon conversion of the shares of Series C Preferred Stock
on the NYSE (or the NASDAQ National Market). Notwithstanding the foregoing, the
Company shall have no obligation to list the shares of Series C Preferred Stock
on the NYSE, the NASDAQ National Market or any other securities exchange.
(f) Notwithstanding anything to the contrary set forth in the Articles, the
Investors waive any adjustment to the Conversion Price of the Participating
Preferred Stock that would otherwise be required under Section 4(e) of the
Statement of Designation with respect to the Company's issuance of the New
Securities to the Investors. For the avoidance of doubt, the Conversion Price
will be adjusted as required pursuant to Section 4(e) of the Statement of
Designation as a result of any other issuance of Rights Shares in the Rights
Offering.
5.3 Shareholder Meeting; Proxy Statement.
(a) The Company shall, as soon as practicable following execution of this
Agreement, (i) call a special meeting of its shareholders in order to, among
other things, approve the Transactions and approve an increase in the authorized
number of shares of its Common Stock to 275,000,000 shares (the "Shareholders
Meeting") and (ii) hire a proxy solicitation firm that is reasonably
satisfactory to the Investors to solicit votes from the Company's shareholders
in favor of the Transactions. Once the Shareholders Meeting has been called, and
the Company's shareholders have been given notice thereof, the Company shall not
postpone or adjourn the Shareholders Meeting (other than for the absence of a
quorum in person or by proxy) without the written consent of the Investors. The
Board will declare that any action contemplated by any of the Transaction
Documents that would require the approval of the Company's shareholders under
applicable Law is advisable and recommend approval of the same by the Company's
shareholders, will not withdraw or modify such recommendation and shall take all
Lawful action to solicit and secure such approval; provided, however, that the
Board may fail to make, or may withdraw or modify, such recommendation, but only
to the extent that the disinterested members of the Board shall have determined
in good faith, based upon the written advice of outside counsel, that their
fiduciary duties to the Company's shareholders under applicable Law require them
to advise the Company's shareholders against approving the Transactions.
18
(b) In connection with the Shareholders Meeting, the Company shall prepare
and deliver to each Investor, as promptly as reasonably practicable after the
date hereof, a draft of a proxy statement (the "Proxy Statement"). Thereafter,
the Investors and the Company each shall use their reasonable best efforts to
cooperate fully to make such changes to the Proxy Statement as are reasonably
requested by the Investors or otherwise appropriate, file the Proxy Statement
with the Commission as soon as practicable and respond promptly to any
Commission comments; provided, that the Company shall not file the Proxy
Statement with the Commission, respond to any Commission comments or have any
communications with the Commission concerning the Proxy Statement without the
prior consent of the Investors. Upon filing the final, definitive Proxy
Statement with the Commission, the Company shall promptly mail such Proxy
Statement to its shareholders.
(c) At the Shareholders Meeting, the Investors shall vote all of their
shares of Participating Preferred Stock in favor of the Transactions having all
the terms and conditions set forth herein.
5.4 Advice of Changes; Filings.
From the date hereof until the earlier to occur of the Closing Date and the
date this Agreement is terminated in accordance with Article VIII, the Company
shall confer with the Investors on a regular basis as reasonably requested by
the Investors, report on operational matters and promptly advise the Investors
orally and, if requested by the Investors, in writing, of any material change
with respect to the Company or any Subsidiary. From the date hereof until the
Closing Date, (i) the Company will provide the Investors with a reasonable
opportunity to review, consult with counsel regarding, and comment upon any
filing, report or communication (including, without limitation, the Registration
Statement) with any Governmental Entity in connection with the Transactions,
(ii) neither the Company nor any Subsidiary shall make any such filing, report
or communication (including, without limitation, the Registration Statement)
with any Governmental Entity in connection with the Transactions without first
obtaining the consent of the Investors (except if, upon the advice of legal
counsel, such filing, report or communication is required by Law, in which event
it shall be made only at the time required by Law (and no earlier)), and (iii)
the Company shall, promptly after filing, provide to the Investors (or their
counsel) copies of all filings, reports or communications made by the Company or
any Subsidiary with any Governmental Entity in connection with this Agreement,
the Transaction Documents or the Transactions.
5.5 Delivery of Fairness Opinion.
The Company shall promptly upon its receipt thereof deliver a copy of the
▇▇▇▇▇▇ Brothers Fairness Opinion to the Investors and to the Indenture Trustee
and promptly respond to any supplementary requests or inquiries of the Indenture
Trustee regarding the Transactions.
5.6 2003 Annual Shareholder Meeting; Proxy.
(a) In connection with each of the Company's meetings of shareholders after
December 31, 2002, the Company shall, if any of the Series C Preferred Stock has
not been
19
mandatorily converted into Common Stock pursuant to the Series C Statement of
Designation, (i) submit for the approval of its shareholders a proposal to amend
the Articles to increase the authorized number of shares of its Common Stock to
a number sufficient to permit the conversion of all then outstanding shares of
Series C Preferred Stock into Common Stock (assuming, for purposes of
determining the number sufficient to allow such conversion, the reservation of
the number of shares of Common Stock contractually required to be reserved for
issuance upon the conversion, exchange or exercise of all securities of the
Company that are convertible into, or exchangeable or exercisable for, shares of
Common Stock and (ii) hire a proxy solicitation firm that is reasonably
satisfactory to the Investors to solicit votes from the Company's shareholders
in favor of such amendment to the Articles. The Company shall include such
proposal in the proxy statement delivered to its stockholders in connection with
such annual meeting, and the Board will declare that such approval is advisable
and recommend the same to the Company's shareholders.
(b) At such meeting, the Investors shall vote all of their shares entitled
to vote thereon in favor of such proposal.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Reasonable Efforts; Notification.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use all commercially reasonable efforts
(including, without limitation, payment by the Company of all reasonable fees
and expenses (including fees and expenses of the Investors and their counsel and
any fees and expenses in connection with any filing required to be made by the
Investors or their Affiliates pursuant to the HSR Act)) to take, or cause to be
taken, all actions, and to do, or cause to be done, and to assist and cooperate
with the other parties in doing, all things necessary, proper or advisable to
consummate and make effective the Transactions in the most expeditious manner
practicable, including (i) the obtaining of all necessary actions or
non-actions, waivers, consents and approvals from Governmental Entities and the
making of all necessary registrations and filings, including, without
limitation, all filings under the Securities Act, Exchange Act and the HSR Act,
and the taking of all reasonable steps as may be necessary to obtain an approval
or waiver from, or to avoid an action or proceeding by, any Governmental Entity,
(ii) the obtaining of all necessary consents, approvals or waivers from Third
Parties (including, without limitation, necessary waivers and consents under the
Credit Agreement), (iii) the defending of any lawsuits or other Proceedings,
whether judicial or administrative, challenging this Agreement or any of the
other Transaction Documents or the consummation of any of the Transactions,
including seeking to have any stay or temporary restraining order entered by any
court or other Governmental Entity vacated or reversed and (iv) the execution
and delivery of any additional instruments necessary to consummate the
transactions contemplated by, and to fully carry out the purposes of, this
Agreement and the other Transaction Documents (including, without limitation,
obtaining an amendment to the Credit Agreement).
20
(b) The Company shall give prompt notice to the Investors of (i) any
representation or warranty made by it contained in this Agreement or any of the
other Transaction Documents becoming untrue or inaccurate in any respect or (ii)
the failure by it, including its failure to cause a Subsidiary, to comply with
or satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it or any Subsidiary under this Agreement or any
of the other Transaction Documents; provided, however, that no such notification
shall affect the representations, warranties, covenants or agreements of the
parties or the conditions to the obligations of the parties under this
Agreement.
(c) The Investors shall give prompt notice to the Company of (i) any
representation or warranty made by it contained in this Agreement becoming
untrue or inaccurate in any respect or (ii) the failure by it to comply with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement; provided, however, that
no such notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement.
6.2 Public Announcements.
The Investors, on the one hand, and the Company, on the other hand, will
consult with each other before issuing, and provide each other a reasonable
opportunity to review, consult with their advisors regarding, and comment upon,
any press release or other public statements with respect to the Transactions
and shall not issue any such press release or make any such public statement
without the prior consent of the other party, except on the advice of legal
counsel that such press release or public statement is required under applicable
Law or by obligations pursuant to any listing agreement with NYSE or, if shares
of the Common Stock are no longer listed on the NYSE for any reason, the NASDAQ
National Market. The Company (or its Affiliates) shall make its initial press
release or other initial public statement with respect to the Rights Offering
and the Amendment to the Credit Agreement on the same date.
6.3 Communications with Governmental Entities.
The Company, its Subsidiaries and their respective advisors will not engage
in any discussions or otherwise communicate in writing with the NYSE (or, if
applicable, the NASDAQ National Market), the Commission or any other
Governmental Entity, or any of their respective agents or representatives
concerning the Transactions without the consent of the Investors and without
allowing for the participation by each Investor in such discussions or
communications if such Investor desires, in its sole discretion, to participate.
The Investors agree to use commercially reasonable efforts (which shall not
include making any expenditures unless the same are reimbursed by the Company)
to cooperate and assist the Company in connection with the foregoing.
6.4 Investor Rights Agreement.
(a) The Investors hereby agree that in the event that the Investors vote
any of the Shares in favor of any merger, consolidation or amalgamation that
requires the Investors' or their Affiliates' consent pursuant to Section
15(a)(i) or Section 15(b)(i) of the Investor Rights
21
Agreement (as applicable), then such vote shall constitute the Investors'
consent for purposes of Section 15(a)(i) or Section 15(b)(i) of the Investor
Rights Agreement (as applicable).
(b) For avoidance of doubt, the Company and the Investors agree and
acknowledge that the Shares shall constitute "Restricted Shares" as defined in,
and for purposes of, the Investor Rights Agreement, and shall have all of the
benefits of, and be subject to all of the limitations on, "Restricted Shares"
set forth in the Investor Rights Agreement.
(c) The Investors hereby agree, for purposes of the Investor Rights
Agreement, that their participation in the Rights Offering is limited to the
agreements set forth herein.
(d) The Investors consent to the Company entering into the Amendment to the
Credit Agreement; for purpose of clarity, nothing in this consent shall affect
the Investors' (or their Affiliates') rights in any way with respect to the
increase in the dividend rate or board representation following an Event of
Non-Compliance under the Statement of Designation and/or the Investor Rights
Agreement.
6.5 Bank Communications.
The Company, its Subsidiaries and their respective advisors will consult
with the Investors, on a good faith basis, during any discussions or other
communications with the Banks or any of their respective agents or
representatives with respect to the Transactions. The Investors agree to use
commercially reasonable efforts (which shall not include making any expenditures
unless the same are reimbursed by the Company) to cooperate and assist the
Company in connection with the foregoing.
6.6 Tax Treatment.
The Company and the Investors intend that the distribution of Common Stock
Purchase Rights in the Rights Offering to all recipients shall be treated for
all Tax purposes as a Tax-free distribution on shares of common stock pursuant
to Section 305 of the Code. The foregoing intended tax treatment shall be
referred to herein as the "Intended Tax Treatment", and none of the parties
hereto will take any position in their respective Tax or other financial and
accounting filings that is contrary to or inconsistent with the Intended Tax
Treatment, unless such position, in the written opinion of such parties' tax
counsel, is otherwise required by Law. The Investors hereby acknowledge that
they have relied on their own tax advisors and have not relied on the tax advice
of the Company or the Company's tax advisors for purposes of entering into this
Agreement.
ARTICLE VII
CONDITIONS
7.1 Closing Conditions to Each Party's Obligations.
The respective obligations of each party to consummate the Transactions are
subject to the prior satisfaction or waiver, where permissible, of the following
conditions:
22
(a) No Law shall have been enacted, entered, promulgated or enforced
by any court or Governmental Entity that prohibits or materially restricts
the consummation of the Transactions or makes such consummation illegal
(each party agreeing to use commercially reasonable efforts to have any
such prohibition lifted).
(b) No preliminary or permanent injunction or other Order issued by
any Governmental Entity that restrains, enjoins or otherwise prohibits the
Transactions shall be in effect (each party agreeing to use commercially
reasonable efforts to have any such prohibition lifted).
(c) The Registration Statement shall have become effective, and no
stop order suspending the effectiveness of the Registration Statement shall
have been issued under the Securities Act or Proceedings therefor initiated
or threatened by the Commission.
(d) The Banks shall have executed and delivered to the Company the
Amendment to the Credit Agreement, such Amendment to the Credit Agreement
shall be in full force and effect, and there shall have been no subsequent
amendments, waivers, or other modifications to the Credit Agreement except
for those amendments, waivers or modifications which, prior to their
effectiveness, have been consented to by the Investors in writing.
(e) The requisite percentage or number of Company's shareholders shall
have approved all matters relating to the Transactions required to be
approved by them pursuant to applicable Law.
7.2 Conditions to the Company's Obligations.
The obligation of the Company to consummate the Transactions is subject to
the prior satisfaction or waiver by the Company of the following conditions:
(a) All of the representations and warranties of the Investors set
forth in this Agreement shall be true and correct in all material respects
as of the Closing Date as though made on and as of such time (ignoring, for
this purpose, all materiality qualifiers set forth therein), and the
Investors shall have paid for the Shares pursuant to Section 2.1(b) and
performed in all material respects all other covenants and agreements
required to be performed by them under this Agreement at or prior to the
Closing Date.
(b) All notices required to be given prior to the Closing Date with,
and all consents, approvals, authorizations, waivers and amendments
required or reasonably requested by the Company to be obtained prior to the
Closing Date from, any Third Party in connection with the consummation by
the Company and the Investors of the Transactions (including, without
limitation, those approvals, waivers or consents required pursuant to the
HSR Act, the Credit Agreement and the Indenture) and the approval of the
Company's shareholders, as required by Law, of the Transactions have been
made and/or obtained, except in the case of a Third Party consent,
approval, authorization, waiver or amendment where the failure to give such
notice or obtain such consent, approval, authorization, waiver or amendment
is not reasonably likely to have a Material Adverse Effect on the Company;
provided, however, that failure to satisfy the listing requirements of the
NYSE with respect to the Rights Shares shall not be deemed to have a
Material Adverse Effect on the Company.
23
7.3 Conditions to the Investors' Obligations.
The obligations of the Investors to consummate the Transactions are subject
to the prior satisfaction or waiver by the Investors of the following
conditions:
(a) All of the representations and warranties of the Company set forth
in this Agreement shall be true and correct as of the Closing Date as
though made on and as of such time (ignoring, for this purpose, all
materiality qualifiers set forth therein) except to the extent that the
failure to be true and correct has not had and could not reasonably be
expected to have, in the aggregate, an adverse effect on the Company and
its Subsidiaries, taken as a whole, that a reasonably prudent investor
would consider material relative to the investment to be made by the
Investors pursuant to this Agreement and the other Transaction Documents,
and the Company shall have delivered the certificates (or, in the event the
Shares are uncertificated, made the appropriate book entries) representing
the Shares pursuant to Section 2.1(b) and performed in all material
respects all other covenants and agreements required to be performed by it
under this Agreement at or prior to the Closing Date. The Investors shall
have received a certificate signed by an executive officer of the Company
to the foregoing effect.
(b) All notices required to be given prior to the Closing Date with,
and all consents, approvals, authorizations, waivers and amendments
required or reasonably requested by the Investors to be obtained prior to
the Closing Date from, any Third Party in connection with the consummation
by the Company of the Transactions (including, without limitation, those
approvals, waivers or consents required or reasonably requested by the
Investors pursuant to the HSR Act, the Credit Agreement and the Indenture),
and the approval of the Company's shareholders, as required by Law, of the
Transactions) have been made and/or obtained, except in the case of a Third
Party consent, approval, authorization, waiver or amendment where the
failure to give such notice or obtain such consent, approval,
authorization, waiver or amendment is not reasonably likely to have a
Material Adverse Effect on the Company; provided, however, that failure to
satisfy the listing requirements of the NYSE with respect to the Rights
Shares shall not be deemed to have a Material Adverse Effect on the
Company.
(c) The Rights Offering shall have been completed in conformity with
all of the requirements related thereto provided in the Registration
Statement.
(d) The Investors shall have been provided with an opinion of
▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, counsel to the Company, in form and substance
satisfactory to the Investors.
(e) The Company shall have delivered to the Investors written waivers,
in form and substance satisfactory to the Investors and duly executed by
each employee of the Company set forth on Schedule 7.3(e), which waivers
shall state, among other things, that there are no agreements or
arrangements existing as of the Closing Date that provide for any
severance, change of control payment, acceleration of unvested options,
continuing benefit or similar payments to such employee that would be
triggered, directly or indirectly, as a result of the Transactions.
(f) Shareholder approval of the Investors' purchase of the Shares
shall have been obtained at the Shareholders Meeting.
24
(g) The Investors shall have been provided with a certificate from an
officer of the Company certifying that the conditions precedent to the
Investor's obligations set forth in this Section 7.3 have been satisfied.
(h) The Company shall have reimbursed the Investors for the fees and
expenses incurred by the Investors (including the fees and expenses of the
Investors' legal counsel and any filing fees required to be paid for
filings made under the HSR Act) as required pursuant to Section 9.6.
(i) The Series C Statement of Designation shall have been filed with
the office of the Secretary of State of the State of Texas, shall be in
full force and effect and the Company shall not have amended, modified or
altered any provision of the Series C Statement of Designation without the
prior consent of the Investors.
(j) The Company and the Investors shall have received a written copy
of the ▇▇▇▇▇▇ Brothers Fairness Opinion.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination.
This Agreement may be terminated at any time prior to the Closing Date as
follows:
(a) By mutual written consent of the Investors and the Company.
(b) By either the Investors or the Company if the Closing Date shall
not have occurred on or before October 15, 2002 (the "Outside Date");
provided that the right to terminate this Agreement under this Section
8.1(b) shall not be available to any party whose breach of any
representation, warranty or covenant under this Agreement has been the
cause of or resulted in the failure of the Closing Date to occur on or
before such date.
(c) By either the Investors or the Company if any Governmental Entity
shall have issued an Order permanently enjoining, restraining or otherwise
prohibiting the issuance of the New Securities or the consummation of the
Transactions, and such Order or other action shall have become final and
nonappealable.
(d) By the Investors, if (i) any of the representations and warranties
of the Company contained in this Agreement shall fail to be true and
correct in any respect when made or have become untrue or incorrect except
to the extent that the failure to be true and correct has not had and could
not reasonably be expected to have, in the aggregate, an adverse affect on
the Company and its Subsidiaries, taken as a whole, that a reasonably
prudent investor would consider material relative to the transactions to be
consummated by the Investors pursuant to this Agreement or (ii) the Company
shall have breached or failed to comply in any material respect with any of
its obligations under this Agreement, and such breach or failure shall
continue unremedied for 15 days after the Company has received written
notice from the Investors of the occurrence of such breach or failure;
provided, however, that in remedying any such breach or
25
failure the Company shall not have spent any money, incurred any
Liabilities or undertaken any obligations which expenditure, incurrence or
undertaking, individually or together with the breach or failure so
remedied, would itself constitute a material breach of or failure to
perform any, representation, warranty or covenant of this Agreement.
(e) By the Company if (i) any of the representations and warranties of
the Investors contained in this Agreement shall fail to be true and correct
in any material respect, in each case either as of the date hereof or have
since become, and at the time of termination remain, untrue in any material
respect or (ii) the Investors shall have breached or failed to comply in
any material respect with any of its obligations under this Agreement
(other than as a result of a breach by the Company of any of its
obligations under this Agreement) and such failure to be true and correct,
breach or failure shall continue unremedied for 15 days after the Investors
has received written notice from the Company of the occurrence of such
breach or failure.
8.2 Effect of Termination.
In the event of a termination of this Agreement by either the Company, the
Investors, or the Company and the Investors as provided in Section 8.1, this
Agreement shall forthwith become void and there shall be no Liability on the
part of the Investor or the Company, except for this Section 8.2 and Sections
9.5 and 9.6, which shall remain in effect.
ARTICLE IX
MISCELLANEOUS
9.1 Amendment.
This Agreement may not be amended except by an instrument in writing signed
by or on behalf of all of the parties.
9.2 Extension; Waiver.
At any time prior to the Closing Date, the parties hereto may, to the
extent legally allowed, (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto or (iii) waive compliance with any of the
agreements or conditions applicable to such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in a written instrument signed on behalf of such party.
The failure of any party to this Agreement to assert any of its rights under
this Agreement or otherwise shall not constitute a waiver of those rights.
9.3 Survival of Representations and Warranties, Limitation on Liability.
All of the representations and warranties contained in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the execution
and delivery of this Agreement until the later of (i) the first anniversary of
the Closing Date and (ii) 30 days after the Company publicly files with the
Commission its annual report on Form 10-K for the year ended
26
December 31, 2002, and no claim for breach may be asserted with respect to such
representations and warranties thereafter. The covenants and agreements
contained in this Agreement that are intended to be performed on and after the
Closing Date shall survive the execution and delivery of this Agreement for five
(5) years, unless otherwise stated, in accordance with their terms.
9.4 Notices.
All notices and other communications hereunder shall be in writing and
shall be deemed given if delivered personally, telecopied (which is confirmed),
sent by overnight courier (providing proof of delivery) or mailed by registered
or certified mail (return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
if to the Investors, to the addresses set forth on Annex I, hereto;
and, if to the Company, to:
Encompass Services Corporation
▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇▇ ▇▇▇▇, President and Chief Executive Officer
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Bracewell & ▇▇▇▇▇▇▇▇▇, L.L.P.
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
and
Weil, Gotshal & ▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
9.5 Indemnification.
(a) From and after the date hereof, the Company shall indemnify and hold
harmless the Investors and their Affiliates, partners, officers, directors,
employees, agents and representatives (each, an "Indemnified Party") against any
losses, Liabilities or damages
27
(including, without limitation, the fees and expenses of the Investors' legal
counsel) (collectively, "Losses") in connection with any breach of any
representation, warranty or covenant made by the Company in this Agreement or
any other Transaction Document or any Proceeding involving the Transactions
(including, without limitation, any Losses arising out of, or based upon, any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement (or any related preliminary prospectus or other
document incorporated by reference in such Registration Statement), or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading). To
the extent that any Losses are determined, by a final, nonappealable Order of a
court of competent jurisdiction, to be the direct result of fraud or crime
committed by the Investors, the indemnity set forth in the immediately preceding
sentence shall not apply to such Losses.
(b) Upon its receipt of notice of any Proceeding initiated by any Third
Party against an Indemnified Party (a "Third Party Claim"), the Indemnified
Party shall give prompt notice to the Company of the assertion of any claim, or
the commencement of any Proceeding in respect of which indemnification may be
sought under this Agreement. Any failure on the part of any Indemnified Party to
give the notice described in this Section 9.5(b) shall relieve the Company of
its obligations under this Section 9.5 only to the extent that the Company has
been prejudiced by the lack of timely and adequate notice (except that the
Company shall not be liable for any expenses incurred by the Indemnified Party
during the period in which the Indemnified Party failed to give such notice).
Thereafter, the Indemnified Party shall deliver to the Company, promptly (and in
any event within 10 days) after the Indemnified Party's receipt thereof, copies
of all notices and documents (including, without limitation, court papers)
received by the Indemnified Party relating to such claim, action, suit or
proceeding.
(c) With respect to any Third Party Claim, the Company shall have the sole
right to assume the defense or settlement of such Third Party Claim if it has
agreed irrevocably (notwithstanding any limitation on the rights of any
Indemnified Party to be indemnified for Losses hereunder, including pursuant to
the last sentence of Section 9.5(a) hereof) to indemnify the Indemnified
Parties, provided, that an Indemnified Party shall at all times have the right,
at such Indemnified Party's option, to participate fully therein at its own
expense, provided, further, that the Company shall not be entitled to assume the
defense or settlement if any of the Indemnified Parties reasonably determines it
has defenses that are inconsistent in any material respect with the Company
defenses to such claims. If the Company does not proceed diligently to defend
the Third Party Claim within 10 days after receipt of written notice by an
Indemnified Party of such Third Party Claim, the Indemnified Party shall have
the right, but not the obligation, to undertake the defense of any such Third
Party Claim and in such event the Company shall have the right to participate at
its own expense.
(d) With respect to any such Third Party Claim, the Company shall not be
required to indemnify the Indemnified Party with respect to any amounts paid in
settlement of any such Third Party Claim entered into without the written
consent of the Company (which consent shall not be unreasonably withheld or
delayed), provided, however, neither the Company nor any Indemnified Party may
enter into any settlement of a Third Party Claim if such settlement (i) has any
non-cash component that purports to apply to the other side or (ii) any cash
component that is not being paid by the party entering into such settlement.
28
(e) The parties shall cooperate in defending any such Third Party Claim,
and the defending party shall have reasonable access to the books, records, and
personnel in the possession or control of the Indemnified Party that are
pertinent to the defense. The Indemnified Party may join the Company in any
Third Party Claim, for the purpose of enforcing any right of the indemnity
granted to such Indemnified Party pursuant to this Agreement.
9.6 Fees and Expenses.
(a) Without duplication of any provision herein, irrespective of whether
the Closing occurs, the Company agrees to pay, upon demand therefor, (i) any
fees and expenses incurred by the Investors or their Affiliates in connection
with any filing required to be made by the Investors or their Affiliates
pursuant to the HSR Act and (ii) up to $1,500,000 of the other fees and expenses
incurred by the Investors or their Affiliates (including employees and
representatives) in connection with the negotiation, preparation, execution and
delivery of all documents related to the Transactions and all other potential
past or completed transactions or undertakings reviewed, or services performed,
by the Investors or their Affiliates (including employees and representatives)
(including, without limitation, the fees and expenses of the Investors'
counsel).
(b) The Company hereby acknowledges that its obligation to reimburse the
Investors for the amounts described in Section 9.6(a) may, at the Investors'
option, be fulfilled at the Closing by permitting the Investors to deduct such
fees and charges from the consideration payable by the Investors to the Company
pursuant to Section 2.1(b).
9.7 Interpretation.
When a reference is made in this Agreement to an Article or a Section, such
reference shall be to an Article or a Section of this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Unless the context otherwise requires, words
importing the singular shall include the plural, and vice versa. Whenever the
words "include", "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation". The phrase
"made available" in this Agreement shall mean that the information referred to
has been made available if requested by the party to whom such information is to
be made available. As used in this Agreement, the term "Subsidiary" of any
Person means another Person, an amount of the voting securities, other voting
ownership or voting partnership interests of which is sufficient to elect at
least a majority of its Board of Directors or other governing body (or, if there
are no such voting interests, 50% or more of the equity interests of which) is
owned directly or indirectly by such first Person. As used in this Agreement,
"Material Adverse Effect" means, when used in respect of the Company and its
Subsidiaries, any effect or condition that, individually or in the aggregate
with any other effect or condition, is materially adverse to the assets,
properties, business, financial condition, results of operations or prospects of
the Company and its Subsidiaries, taken as a whole, that a reasonably prudent
investor would consider material relative to the investment to be made by the
Investors pursuant to this Agreement and the other Transaction Documents. As
used in this Agreement, "Material Adverse Change" means, when used in respect of
the Company and its Subsidiaries, any change to the assets, properties,
business, financial condition, results of
29
operations or prospects of the Company and its Subsidiaries, taken as a whole,
that a reasonably prudent investor would consider material relative to the
investment to be made by the Investors pursuant to this Agreement and the other
Transaction Documents. As used in this Agreement, except where expressly
indicated otherwise, the phrase "Knowledge" with respect to the Company, means
to the actual knowledge, after due inquiry (i.e., the amount of inquiry that
would be undertaken by a reasonably prudent business Person given like facts and
circumstances) of each of the Company's Chief Executive Officer, Chief Operating
Officer, Chief Financial Officer, General Counsel and Treasurer (or any
successor thereto, regardless of title). As used in this Agreement, the term
"Person" shall be interpreted broadly and shall include any person, individual,
corporation, limited partnership, limited liability company, trust, association
or other entity or business organization of any kind or division thereof.
9.8 Entire Agreement; Third Party Beneficiaries.
This Agreement (a) constitutes the entire agreement and supersedes all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof and (b) other than as is expressly
provided for in Section 9.5, is not intended to confer upon any Person other
than the parties hereto any rights or remedies hereunder.
9.9 Governing Law.
This Agreement shall be governed and construed in accordance with the laws
of the State of New York without regard to the conflicts of Laws principles
thereof.
9.10 Counterparts.
This Agreement may be executed in two or more original or facsimile
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
9.11 Assignment.
Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any party hereto (whether by operation of Law or
otherwise) without the prior written consent of the other party; provided, that
an Investor may assign its rights, interests and obligations to an Affiliate
without the consent of the Company so long as such Investor remains primarily
and directly obligated hereunder. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and permitted assigns.
9.12 Enforcement.
The parties agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions of this
Agreement in the United States District Court for the Southern District of New
30
York or in a State court located in the City of New York, this being in addition
to any other remedy to which they are entitled at Law or in equity. In addition,
each of the parties hereto irrevocably and unconditionally (i) consents to
submit such party to the personal jurisdiction of any such Federal or State
court if any dispute arises out of this Agreement or any of the transactions
contemplated hereby, (ii) agrees that such party will not attempt to deny or
defeat such personal jurisdiction by motion or other request for leave from any
such court, (iii) agrees that such party will not bring any action relating to
this Agreement or any of the transactions contemplated hereby in any court other
than the United States District Court for the Southern District of New York or a
New York State court located in the City of New York and (iv) waives any right
to trial by jury with respect to any claim or Proceeding related to or arising
out of this Agreement or any of the transactions contemplated hereby.
9.13 Time.
Time is of the essence with respect to the performance of all obligations
of each party arising under this Agreement.
31
IN WITNESS WHEREOF, the parties have caused this Securities Purchase
Agreement to be signed by their respective officers thereunto duly authorized as
of the date first written above.
ENCOMPASS SERVICES CORPORATION
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇
Title: Senior Vice President
APOLLO INVESTMENT FUND IV, L.P.
By: Apollo Advisors IV, L.P.
By: Apollo Capital Management IV, Inc.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: Vice President
APOLLO OVERSEAS PARTNERS IV, L.P.
By: Apollo Advisors IV, L.P.
By: Apollo Capital Management IV, Inc.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: Vice President
Annex I
Schedule of Investors
APOLLO INVESTMENT FUND IV, L.P.
c/o Apollo Management, L.P.
1301 Avenue of the ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
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Attention: ▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
APOLLO OVERSEAS PARTNERS IV, L.P.
c/o Apollo Management, L.P.
1301 Avenue of the ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
in either case, with a copy to:
▇'▇▇▇▇▇▇▇▇ LLP
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Attention: ▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
EXHIBIT A
AMENDMENT TO CREDIT AGREEMENT
(Intentionally Omitted)
EXHIBIT B
ENCOMPASS SERVICES CORPORATION
STATEMENT OF DESIGNATION
SERIES C CONVERTIBLE PARTICIPATING PREFERRED STOCK
Pursuant to Article 2.13 of Texas Business Corporation Act
A. The name of the corporation is Encompass Services Corporation.
B. The following preamble and resolution were duly adopted by the Board of
Directors of Encompass Services Corporation, a Texas corporation (the
"Corporation"), on , 2002, pursuant to the provisions of Article
2.13 of the Texas Business Corporation Act:
WHEREAS, the Restated Articles of Incorporation of the Corporation (the
"Restated Articles of Incorporation") authorize the issuance of a class of
preferred stock, par value $0.001 per share (the "Preferred Stock"), by the
Corporation;
RESOLVED, that pursuant to the authority expressly granted to and vested in
the Board of Directors by the provisions of the Restated Articles of
Incorporation, the Board of Directors hereby authorizes the issuance of a series
of Preferred Stock, and the Board of Directors hereby fixes and determines the
designation, preferences, limitations and relative rights, including voting
rights, thereof or so much thereof as shall not be fixed and determined by the
Restated Articles of Incorporation, as follows:
1. Establishment and Designation of Series.
There is hereby established out of the authorized but unissued shares of
Preferred Stock a series of Preferred Stock to be designated Series C
Convertible Participating Preferred Stock (the "Series C Preferred Stock"), to
consist of an aggregate of shares and to have the designations,
preferences, limitations and relative rights, including voting rights, thereof,
as set forth herein.
2. Dividends.
(a) In the event that the Corporation shall declare any dividend on its
Common Stock (other than a distribution described in Section 4(e)(1) or a
dividend described in Section 4(e)(7)) (a "Common Dividend"), the holders of the
outstanding shares of Series C Preferred Stock shall participate in such Common
Dividends on a ratable basis with such Common Stock, pro rata in accordance with
the number of shares of Common Stock into which such shares of Series C
Preferred Stock are then convertible pursuant to Section 4 hereof (assuming, for
purposes of such determination, that a sufficient number of authorized shares of
Common Stock
is available to allow for such conversion at the time of such Common Dividend
declaration), and shall be entitled to receive such Common Dividends out of
funds legally available therefor.
(b) Except as otherwise provided herein, if at any time the Corporation
pays less than the total amount of dividends then accrued or accumulated with
respect to the Series C Preferred Stock, such payment shall be distributed
ratably among the holders of the shares of Series C Preferred Stock based upon
the number of shares of Series C Preferred Stock then held by each holder.
3. Liquidation.
(a) Upon a Liquidation, after payment or provision for payment of the debts
and other liabilities of the Corporation and the liquidation preference of any
class or series of capital stock of the Corporation ranking senior to the Series
C Preferred Stock (including the Series A Participating Preferred Stock), the
holders of Series C Preferred Stock shall be entitled, before any distribution
or payment is made upon any Common Stock or any other class or series of stock
of the Corporation ranking on Liquidation junior to the Series C Preferred
Stock, to an amount equal to the Liquidation Amount for each such share of
Series C Preferred Stock held on the date of such Liquidation. The Series C
Preferred Stock shall rank prior and superior to all other capital stock (other
than the Series A Participating Preferred Stock, which shall rank prior and
superior to the Series C Preferred Stock) of the Corporation with respect to
Liquidation.
(b) If upon a Liquidation of the Corporation, the assets of the Corporation
available for distribution to the holders of Series C Preferred Stock shall be
insufficient to pay the holders of Series C Preferred Stock the full amount to
which they are entitled pursuant to Section 3(a), then the holders of the Series
C Preferred Stock shall share in any distribution of assets to be so distributed
pro rata in accordance with the total amount that each such holder of Series C
Preferred Stock would otherwise be entitled to receive had their been such
sufficient assets.
(c) After all payments to the holders of the Series C Preferred Stock have
been made in full pursuant to Section 3(a), the remaining net assets of the
Corporation available for distribution shall be distributed so that the holders
of Series C Preferred Stock and the holders of Common Stock shall share the
remaining assets of the Corporation available for distribution to its
stockholders in the same proportion as the number of shares of outstanding
Common Stock (including, in the case of the holders of the Series C Preferred
Stock, the number of shares of Common Stock issuable upon the conversion of the
outstanding shares of Series C Preferred Stock in accordance with Section 4(a)
hereof (assuming, for purposes hereof, that a sufficient number of authorized
shares of Common Stock is available to allow for such conversion at the time of
the distribution)) then held by each such stockholder bears to the total number
of shares of outstanding Common Stock (including shares of Common Stock issuable
upon conversion of outstanding shares of Series C Preferred Stock in accordance
with Section 4(a) hereof (assuming, for purposes hereof, that a sufficient
number of authorized shares of Common Stock is available to allow for such
conversion at the time of the distribution)).
(d) Written notice of such Liquidation, stating a payment date, the amount
of payments due pursuant to this Section 3, and the place where said payments
shall be payable,
2
shall be delivered in person, mailed by certified or registered mail, return
receipt requested, or sent by telecopier or telex, not less than 20 days prior
to the payment date stated therein, to the holders of record of Series C
Preferred Stock. Such notice shall be addressed to each such holder at its
address as shown by the records of the Corporation.
4. Conversion.
(a) Upon the occurrence of a Shareholder Approval Event, each share of
Series C Preferred Stock then outstanding shall, by virtue of and simultaneously
with the occurrence of such Shareholder Approval Event, be automatically
converted into the number of fully paid and nonassessable shares of Common Stock
equal to the quotient obtained by dividing (A) the Accumulated Amount by (B) the
Conversion Price (as defined below), as last adjusted and then in effect. The
initial conversion price per share at which shares of Common Stock shall be
issuable upon conversion of shares of Series C Preferred Stock (the "Conversion
Price") shall be the Subscription Price, subject to adjustment as set forth
herein.
(b) Without limiting the provisions of Section 4(a) hereof in any way, at
any time from time to time, that any Net Authorized Share(s) are available, the
Series C Preferred Stock shall convert automatically into the number of fully
paid and nonassessable shares of Common Stock equal to the quotient obtained by
dividing the Accumulated Amount by the Conversion Price, as last adjusted and
then in effect. If there is more than one holder of shares of Series C Preferred
Stock at the time of any such conversion, each such holder shall have his, her
or its pro rata portion (based on the aggregate number of outstanding shares of
Series C Preferred Stock immediately prior to such conversion) of his, her or
its shares of Series C Preferred Stock converted pursuant to this Section 4(b).
(c) No fractional shares of Common Stock or scrip shall be issued upon
conversion of shares of Series C Preferred Stock. The number of full shares of
Common Stock issuable upon conversion of Series C Preferred Stock shall be
computed on the basis of the aggregate number of shares of such Series C
Preferred Stock to be converted. Instead of any fractional shares of Common
Stock that would otherwise be issuable upon conversion of any such shares, the
Corporation shall pay a cash adjustment in respect of such fractional interest
in an amount equal to the product of (i) the Fair Market Value of one share of
Common Stock and (ii) such fractional interest. The holders of fractional
interests shall not be entitled to any rights as shareholders of the Corporation
in respect of such fractional interests (other than the right to payment in
respect thereof as set forth in this Section 4(c)).
(d) The Corporation shall, for as long as any of the Series C Preferred
Stock has not been converted into Common Stock pursuant to Section 4 hereof, use
its best efforts (including without limitation, submitting an amendment to the
Restated Articles of Incorporation to the stockholders of the Corporation for
approval) to increase the authorized number of shares of its Common Stock to a
number sufficient to permit the conversion of all then outstanding shares of
Series C Preferred Stock into Common Stock (assuming, for purposes of
determining the number sufficient to allow such conversion, that all options,
warrants, convertible securities or other rights convertible, directly or
indirectly, into Common Stock have been so exercised or converted, regardless of
whether such options, warrants, convertible securities or other rights
3
have an exercise or conversion price that is less than or greater than the Fair
Market Value of its underlying security).
(e) The Conversion Price shall be subject to adjustment from time to time
as follows:
(1) If, at any time after the Original Issuance Date, the number of
shares of Common Stock outstanding is increased by a stock dividend payable
in shares of Common Stock or by a subdivision or split-up of shares of
Common Stock, then following the record date for the determination of
holders of Common Stock entitled to receive such stock dividend,
subdivision or split-up, the Conversion Price shall be appropriately
decreased so that the number of shares of Common Stock issuable on
conversion of each share of Series C Preferred Stock shall be increased in
proportion to such increase in outstanding shares.
(2) If, at any time after the Original Issuance Date, the number of
shares of Common Stock outstanding is decreased by a combination of the
outstanding shares of Common Stock, then following the record date for such
combination, the Conversion Price shall be appropriately increased so that
the number of shares of Common Stock issuable on conversion of each share
of Series C Preferred Stock shall be decreased in proportion to such
decrease in outstanding shares.
(3) In the event of any capital reorganization of the Corporation, any
reclassification of the stock of the Corporation (other than a change in
par value or from par value to no par value or from no par value to par
value or as a result of a stock dividend or subdivision, split-up or
combination of shares), or any consolidation or merger of the Corporation,
each share of Series C Preferred Stock shall after such reorganization,
reclassification, consolidation, or merger be convertible into the kind and
number of shares of stock or other securities or property of the
Corporation or of the corporation resulting from such consolidation or
surviving such merger to which the holder of the number of shares of Common
Stock deliverable (immediately prior to the time of such reorganization,
reclassification, consolidation or merger) upon conversion of such share of
Series C Preferred Stock would have been entitled upon such reorganization,
reclassification, consolidation or merger. The provisions of this clause
shall similarly apply to successive reorganizations, reclassifications,
consolidations, or mergers.
(4) In any case in which the provisions of this Section 4(e) shall
require that an adjustment shall become effective immediately after a
record date of an event, the Corporation may defer until the occurrence of
such event (1) issuing to the holder of any share of Series C Preferred
Stock converted after such record date and before the occurrence of such
event the shares of capital stock issuable upon such conversion by reason
of the adjustment required by such event in addition to the shares of
capital stock issuable upon such conversion before giving effect to such
adjustments, and (2) paying to such holder any amount in cash in lieu of a
fractional share of capital stock pursuant to Section 4(c) above; provided,
4
however, that the Corporation shall deliver to such holder an appropriate
instrument evidencing such holder's right to receive such additional shares
and such cash.
(5) Whenever a Conversion Price shall be adjusted as provided in this
Section 4(e), the Corporation shall make available for inspection during
regular business hours, at its principal executive offices or at such other
place as may be designated by the Corporation, a statement, signed by its
chief financial officer, showing in detail the facts requiring such
adjustment and the Conversion Price that shall be in effect after such
adjustment. The Corporation shall also cause a copy of such statement to be
sent by first class certified mail, return receipt requested and postage
prepaid, to each holder of Series C Preferred Stock affected by the
adjustment at such holder's address appearing on the Corporation's records.
Where appropriate, such copy may be given in advance and may be included,
as part of any notice required to be mailed under the provisions of this
Section 4(e) below.
(6) If the Corporation shall propose to take any action of the types
described in clauses (1), (2) or (3) of this Section 4(e), the Corporation
shall give notice to each holder of shares of Series C Preferred Stock, in
the manner set forth in clause (5) above, which notice shall specify the
record date, if any, with respect to any such action and the date on which
such action is to take place. Such notice shall also set forth such facts
with respect thereto as shall be reasonably necessary to indicate the
effect of such action (to the extent such effect may be known at the date
of such notice) on the Conversion Price and the number, kind or class of
shares or other securities or property which shall be deliverable or
purchasable upon the occurrence of such action or deliverable upon
conversion of shares of Series C Preferred Stock. In the case of any action
which would require the fixing of a record date, such notice shall be given
at least 20 days prior to the date so fixed, and in case of all other
action, such notice shall be given at least 30 days prior to the taking of
such proposed action. Failure to give such notice, or any defect therein,
shall not affect the legality or validity of any such action.
(7) Without duplication of any other adjustment provided for in this
Section 4, at any time the Corporation makes or fixes a record date for the
determination of holders of Common Stock entitled to receive a dividend or
other distribution payable in securities of the Corporation other than
shares of Common Stock, provision shall be made so that each holder of
Series C Preferred Stock shall have the option to (i) receive as part of
such dividend or distribution the number of securities of the Corporation
which such holder would have received had its shares of Series C Preferred
Stock been converted into shares of Common Stock immediately prior to the
date of such event or (ii) receive upon conversion thereof, in addition to
the shares of Common Stock receivable thereupon, the number of securities
of the Corporation which such holder would have received had its shares of
Series C Preferred Stock been converted into shares of Common Stock on the
date of such event and had such holder thereafter, during the period from
the date of such event to and including the date of conversion, retained
such
5
securities receivable by it pursuant to this paragraph during such period,
subject to the sum of all other adjustments called for during such period
under this Section 4 with respect to the rights of such holder of Series C
Preferred Stock.
(8) All calculations under this Section will be made to the nearest
one-hundredth of a cent or to the nearest whole share, as the case may be.
No adjustment to the Conversion Price will be required unless such
adjustment would result in an increase or decrease of at least one percent
(1%) of the Conversion Price; provided, however, that any adjustments which
by reason of this clause (8) are not required to be made will be carried
forward and taken into account in a subsequent adjustment, if any.
5. Mandatory Conversion.
[Intentionally Omitted.]
6. Redemption at Option of the Corporation.
The Series C Preferred Stock shall not be redeemable at the option of the
Corporation.
7. Redemption at the Option of the Holders.
The Series C Preferred Stock shall not be redeemable at the option of the
holders thereof.
8. Mandatory Redemption.
The Series C Preferred Stock shall not be mandatorily redeemable.
9. Voting Rights.
Except as otherwise expressly provided herein or required by law and so
long as any shares of the Series C Preferred Stock are outstanding, each share
of Series C Preferred Stock shall entitle the holder thereof to notice of and to
vote, in person or by proxy, at any special or annual meeting of shareholders,
on all matters entitled to be voted on by holders of Common Stock (and any other
series or class of Voting Stock also entitled to vote with the holders of Common
Stock), voting together as a single class with all other shares entitled to vote
thereon. With respect to any such vote, each share of Series C Preferred Stock
shall entitle the holder thereof to cast that number of votes as is equal to the
number of votes that such holder would be entitled to cast had such holder
converted such share of Series C Preferred Stock into shares of Common Stock in
accordance with Section 4(a) hereof as of the record date for determining the
shareholders of the Corporation entitled to vote on any such matters (assuming,
for purposes hereof, that a sufficient number of authorized shares of Common
Stock is available to allow for such conversion on such record date).
6
10. Definitions.
As used herein, the following terms shall have the following meanings:
"Accumulated Amount" means an amount equal to two (2) times the
Subscription Price.
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with such Person; provided that
Affiliates of Apollo shall exclude any operating companies that would otherwise
be deemed an Affiliate of Apollo, but shall include all investment partnerships
and special purpose entities that are not operating companies, whether existing
as of the date hereof or created hereafter, if the Persons controlling Apollo
have a dominant management role in such entities. For the purpose of the above
definition, the term "control" (including, with correlative meaning, the terms
"controlling", "controlled by", and "under common control with"), as used with
respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Apollo" means Apollo Management IV, L.P.
"Appraisal Procedure" shall mean the following procedure to determine the
fair market value, as to any security, for purposes of the definition of "Fair
Market Value" or the fair market value, as to any other property (in either
case, the "valuation amount"). The valuation amount shall be determined in good
faith jointly by the disinterested members of the Board and the Requisite
Convertible Preferred Shareholders; provided, however, that if such parties are
not able to agree on the valuation amount within a reasonable period of time
(not to exceed twenty (20) days) the valuation amount shall be determined by an
investment banking firm of national recognition, which firm shall be reasonably
acceptable to the disinterested members of the Board and the Requisite
Convertible Preferred Shareholders. If the disinterested members of the Board
and the Requisite Convertible Preferred Shareholders are unable to agree upon an
acceptable investment banking firm within ten (10) days after the date either
party proposed that one be selected, the investment banking firm will be
selected by an arbitrator located in New York City, New York, selected by the
American Arbitration Association (or if such organization ceases to exist, the
arbitrator shall be chosen by a court of competent jurisdiction). The arbitrator
shall select the investment banking firm (within ten (10) days of his
appointment) from a list, jointly prepared by the disinterested members of the
Board and the Requisite Convertible Preferred Shareholders, of not more than six
investment banking firms of national standing in the United States, of which no
more than three may be named by the disinterested members of the Board and no
more than three may be named by the Requisite Convertible Preferred
Shareholders. The arbitrator may consider, within the ten-day period allotted,
arguments from the parties regarding which investment banking firm to choose,
but the selection by the arbitrator shall be made in its sole discretion from
the list of six. The disinterested members of the Board and the Requisite
Convertible Preferred Shareholders shall submit to the investment banking firm
their respective
7
determinations of the valuation amount, and any supporting arguments and other
data as they may desire, within ten (10) days of the appointment of the
investment banking firm, and the investment banking firm shall as soon as
practicable thereafter make its own determination of the valuation amount. The
final valuation amount for purposes hereof shall be the average of the two
valuation amounts closest together, as determined by the investment banking
firm, from among the valuation amounts submitted by the Corporation and the
Requisite Convertible Preferred Shareholders and the valuation amount calculated
by the investment banking firm. The determination of the final valuation amount
by such investment-banking firm shall be final and binding upon the parties. The
party that submits the valuation amount that is not used by the investment
banking firm to calculate the final valuation amount shall pay the fees and
expenses of the investment banking firm and arbitrator (if any) used to
determine the valuation amount. If required by any such investment banking firm
or arbitrator, the Corporation shall execute a retainer and engagement letter
containing reasonable terms and conditions, including, without limitation,
customary provisions concerning the rights of indemnification and contribution
by the Corporation in favor of such investment banking firm or arbitrator and
its officers, directors, partners, employees, agents and Affiliates.
"Board" means the Board of Directors of the Corporation.
"Business Day" means any day except a Saturday, Sunday or a day on which
banking institutions are legally authorized to close in the City of New York.
"Closing Price" means with respect to the shares of Common Stock on any
day, (i) the last reported sales price, or in the case no such reported sale
takes place on such day, the average of the reported closing bid and asked
prices, in either case on the NYSE, or (ii) if the shares of Common Stock are
not listed or admitted to trading on the NYSE, the last reported sales price, or
in case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices on the principal national securities
exchange on which the shares of Common Stock are listed or admitted to trading,
or (iii) if the shares of Common Stock are not listed on any national securities
exchange, the average of the closing bid and asked prices in the
over-the-counter market as furnished by any NYSE member firm selected from time
to time by the Corporation for that purpose, or (iv) if such prices in the
over-the-counter market are not available, the Fair Market Value.
"Common Dividend" shall have the meaning set forth in Section 2(a).
"Common Stock" means the Common Stock, par value $0.001, of the
Corporation.
"Conversion Price" shall have the meaning set forth in Section 4(a).
"Corporation" shall have the meaning set forth in the preamble to this
resolution.
"Fair Market Value" means, as to any security, the average of the Closing
Prices of such security (i) averaged over a period of 21 days consisting of the
day immediately preceding the day as of which "Fair Market Value" is being
determined and the 20 consecutive Business Days prior to such immediately
preceding day and (ii) excluding any trades that are not bona fide, arm's length
transactions). If at any time such security is not listed on any domestic
8
securities exchange or quoted in the NASDAQ System or the domestic
over-the-counter market, the "Fair Market Value" of such security shall be the
fair market value thereof as determined in accordance with the Appraisal
Procedure, using an appropriate valuation method, assuming an arms-length sale
to an independent party. In determining the fair market value of any class or
series of Common Stock, a sale of all of the issued and outstanding Common Stock
of the Corporation will be assumed, without giving regard to the lack of
liquidity of such stock due to any restrictions (contractual or otherwise)
applicable thereto or any discount for minority interests and assuming the
conversion or exchange of all securities then outstanding that are convertible
into or exchangeable for Common Stock and the exercise of all rights and
warrants then outstanding and exercisable to purchase shares of such stock or
securities convertible into or exchangeable for shares of such stock; provided,
however that such assumption will not include those securities, rights and
warrants convertible into Common Stock where the conversion, exchange or
exercise price per share is greater than the fair market value; provided,
further, however, that fair market value shall be determined with regard to the
relative priority of each class or series of Common Stock (if more than one
class or series exists.)
"Liquidation" means (i) any voluntary or involuntary liquidation,
dissolution, or winding up of the affairs of the Corporation, other than any
dissolution, liquidation or winding up in connection with any reincorporation of
the Corporation in another jurisdiction and (ii) any Sale of the Corporation.
"Liquidation Amount" means, as to each share of Series C Preferred Stock,
the Preference Amount plus all accrued and unpaid dividends and all accumulated
and unpaid dividends, whether or not declared and whether or not there are
profits, surplus or other funds legally available for dividends, payable with
respect to such share of Series C Preferred Stock, as adjusted to account for
any stock splits, reverse splits, stock dividends or other similar events.
"NASDAQ System" means the National Association of Securities Dealers
Automated Quotation System.
"Net Authorized Shares" means, as of any time, the number of authorized but
unissued shares of the Corporation's Common Stock minus the number of shares of
Common Stock contractually required to be reserved for issuance by the
Corporation at the time of such determination, upon the conversion, exchange or
exercise of all securities of the Corporation that are convertible into, or
exchangeable or exercisable for, shares of Common Stock.
"NYSE" means the New York Stock Exchange.
"Original Issuance Date" for the Series C Preferred Stock means the date of
original issuance of the first share of such Series C Preferred Stock.
"Person" shall be construed broadly and shall include, without limitation,
an individual, a partnership, an investment fund, a limited liability
corporation, a corporation, an association, a joint stock corporation, a trust,
a joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Preference Amount" means $0.02 per share.
9
"Preferred Stock" shall have the meaning set forth in the preamble to this
resolution.
"Requisite Convertible Preferred Shareholders" means, as of any date of
determination, the holders of a majority of the outstanding shares of Series C
Preferred Stock as of such date.
"Restated Articles of Incorporation" shall have the meaning set forth in
the preamble to this resolution.
"Sale of the Corporation" shall mean (i) the sale or other disposition,
directly or indirectly, of all or substantially all of the Corporation's assets
(on a consolidated basis) in one transaction or a series of transactions or (ii)
the merger or consolidation of the Corporation with or into another Person, in
the case of clause (ii) only, under circumstances in which the holders of Voting
Stock entitled to cast a majority of the votes entitled to be cast by the
holders of the Voting Stock of the Corporation, immediately prior to the merger
or consolidation, own Voting Stock entitled to cast less than a majority of the
votes entitled to be cast by the holders of the Voting Stock of the Corporation
or the surviving or resulting corporation or acquirer, as the case may be,
immediately following such merger or consolidation. A sale (or sales) of one or
more Subsidiaries of the Corporation (whether by way of merger, consolidation,
reorganization or sale of all or substantially all assets or securities) which
constitutes all or substantially all of the consolidated assets of the
Corporation shall be deemed a Sale of the Corporation.
"Series A Participating Preferred Stock" means the Corporation's 7.25%
Convertible Preferred Stock, par value $0.001 per share.
"Series C Preferred Stock" shall have the meaning set forth in Section 1.
"Shareholder Approval Event" means the date on which an amendment to the
Restated Articles of Incorporation which authorizes a sufficient number of
additional shares of Common Stock to allow the holders of the Series C Preferred
Stock to convert all of such shares of Series C Preferred Stock to Common Stock
(assuming, for purposes of determining the number sufficient to allow such
conversion, that all options, warrants, convertible securities or other rights
convertible, directly or indirectly, into Common Stock have been so exercised or
converted, regardless of whether such options, warrants, convertible securities
or other rights have an exercise or conversion price that is less than or
greater than the Fair Market Value of its underlying security) pursuant to
Section 4 hereof shall have been filed and be in full force and effect in
accordance with all applicable laws.
"Subscription Price" has the meaning set forth in the Securities Purchase
Agreement dated as of June 27, 2002 by and among the Corporation and the
Investors named therein, as such may be amended from time to time.
"Subsidiary" means any entity of which a majority of the outstanding Voting
Stock, is owned by the Corporation either directly or indirectly through
Subsidiaries.
"Voting Stock" of a Person means any class or all classes of capital stock
or other interests (including partnership interests) of such Person then
outstanding and normally entitled
10
(without regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof.
11
IN WITNESS WHEREOF, Encompass Services Corporation has caused this
Statement of Designation to be duly executed this __ day of ____________.
ENCOMPASS SERVICES CORPORATION
By:______________________________________
Name:____________________________________
Title:_____________________________________
12
SCHEDULE 3.2
SUBSIDIARIES AND CONTROLLED AFFILIATES
Name of Subsidiary Jurisdiction Equity Holder(s)
-------------------------------------------------------------------------------------------------------------------------
A-1 Mechanical of Lansing, Inc. Michigan Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
AA Advance Air, Inc. Florida Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
A-ABC Appliance, Inc. Texas Encompass Services Holding
Corp.
-------------------------------------------------------------------------------------------------------------------------
A-ABC Services, Inc. Delaware Encompass Services Holding
Corp.
-------------------------------------------------------------------------------------------------------------------------
▇▇ ▇▇▇▇, Inc. Delaware Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Air Conditioning, Plumbing & Heating Service Co., Inc. Colorado Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Aircon Energy Incorporated California Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Air Systems, Inc. California Pacific Rim Mechanical
Contractors, Inc.
-------------------------------------------------------------------------------------------------------------------------
Airtron, Inc. Delaware Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Airtron of Central Florida, Inc. Florida Airtron, Inc.
-------------------------------------------------------------------------------------------------------------------------
American Air Company, Inc. California Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
AMS Arkansas, Inc. Arkansas Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
B&R Electrical Services, Inc. Maryland Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Building One Commercial, Inc. Missouri Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Building One Service Solutions, Inc. Virginia Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
BUYR, Inc. Delaware Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇▇ ▇▇▇▇▇ Products & Publications, Inc. Colorado Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Cardinal Contracting Corporation Indiana Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Central Carolina Air Conditioning Company North Carolina Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Chapel Electric Co. Ohio Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Inc. Delaware Encompass Services Holding
Corp.
-------------------------------------------------------------------------------------------------------------------------
ChIP Corp. Delaware Encompass Services
Corporation
Name of Subsidiary Jurisdiction Equity Holder(s)
-------------------------------------------------------------------------------------------------------------------------
Colonial Air Conditioning Company Delaware Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Commercial Air Holding Company Maryland Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
CONCH Republic Corp. Delaware Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇ Brothers, Inc. South Carolina Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Delta Innovations, Ltd. Ohio ▇▇▇▇ Companies Incorporated
-------------------------------------------------------------------------------------------------------------------------
Divco, Inc. Washington Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Dynalink Corporation Ohio Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
EET Holdings, Inc. Delaware Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Electrical Contracting, Inc. California Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Encompass Capital, Inc. Maryland Commercial Air Holding
Company
-------------------------------------------------------------------------------------------------------------------------
Encompass Capital, L.P. Texas CONCH Republic Corp. Isla
Morada, LLC
-------------------------------------------------------------------------------------------------------------------------
Encompass Central Plains, Inc. Oklahoma Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Encompass Constructors, Inc.(fka Atlantic Industrial Constructors, Virginia Encompass Services
Inc.) Corporation
-------------------------------------------------------------------------------------------------------------------------
Encompass Design Group, Inc. Oklahoma Encompass Central Plains,
Inc.
-------------------------------------------------------------------------------------------------------------------------
Encompass Electrical Technologies, Inc.(fka Continental Electrical Delaware Encompass Services
Construction Co.) Corporation
--------------------------------------------------------------------------------------------------------------------------
Encompass Electrical Technologies, Inc.(fka Oil Capital Electric, Inc.) Oklahoma Encompass Central Plains,
Inc.
-------------------------------------------------------------------------------------------------------------------------
Encompass Electrical Technologies Central Tennessee, Inc. Tennessee Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Encompass Electrical Technologies Eastern Tennessee, Inc. Tennessee Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Encompass Electrical Technologies - Florida, LLC Delaware EET Holdings, Inc.
-------------------------------------------------------------------------------------------------------------------------
Encompass Electrical Technologies Georgia, Inc. Georgia Encompass Electrical
Technologies Southeast,
Inc.
-------------------------------------------------------------------------------------------------------------------------
Encompass Electrical Technologies - Midwest, Inc. Wisconsin Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Encompass Electrical Technologies North Carolina, Inc. North Carolina Encompass Electrical
Technologies Southeast,
Inc.
-------------------------------------------------------------------------------------------------------------------------
Encompass Electrical Technologies North Florida, Inc. Florida Encompass Electrical
Technologies Southeast,
Inc.
Name of Subsidiary Jurisdiction Equity Holder(s)
-------------------------------------------------------------------------------------------------------------------------
Encompass Electrical Technologies of Nevada, Inc. Nevada Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Encompass Electrical Technologies of New England, Inc. Delaware Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Encompass Electrical Technologies of Texas, Inc. Texas Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Encompass Electrical Technologies Projects Group, Inc. Florida Encompass Electrical
Technologies Southeast,
Inc.
-------------------------------------------------------------------------------------------------------------------------
Encompass Electrical Technologies - Rocky Mountains, Inc. Colorado Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Encompass Electrical Technologies South Carolina, Inc. South Carolina Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Encompass Electrical Technologies Southeast, Inc. Florida Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Encompass Electrical Technologies Western Tennessee, Inc. Tennessee Encompass Electrical
Technologies Southeast,
Inc.
-------------------------------------------------------------------------------------------------------------------------
Encompass Facility Services, Inc. Delaware ▇▇▇▇▇▇▇▇▇-▇▇▇▇▇▇ Industries
Inc.
-------------------------------------------------------------------------------------------------------------------------
Encompass Global Technologies, Inc. Delaware Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Encompass Ind./Mech. of Texas, Inc. Delaware Encompass Services Holding
Corp.
-------------------------------------------------------------------------------------------------------------------------
Encompass Industrial Services Southwest, Inc. Texas Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Encompass Management Co. Delaware Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Encompass Mechanical Services of Elko, Inc.(fka ▇▇▇▇▇▇ Mechanical) Nevada Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Encompass Mechanical Services - Rocky Mountains, Inc. Colorado Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Encompass Mechanical Services Southeast, Inc. Mississippi Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Encompass Power Services, Inc. Oklahoma Encompass Central Plains,
Inc.
-------------------------------------------------------------------------------------------------------------------------
Encompass Residential Services of Houston, Inc.(fka Sterling Air Delaware Encompass Services
Conditioning) Corporation
-------------------------------------------------------------------------------------------------------------------------
Encompass Services Holding Corp. Delaware Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Encompass Services Indiana L.L.C. Indiana Airtron, Inc.
Cardinal Contracting
Corporation
▇▇▇▇ ▇. ▇▇▇▇▇ Co., Inc.
▇▇▇▇ Companies Incorporated
-------------------------------------------------------------------------------------------------------------------------
ESR PC, L.P. Texas CONCH Republic Corp. Isla
Morada, LLC
Name of Subsidiary Jurisdiction Equity Holder(s)
-------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇ Services, Inc. Alabama Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
EWG Holdings, Inc. Delaware Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, LLC Virginia Building One Service
Solutions, Inc.
-------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇▇ Electric Corporation Delaware Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇ Electrical Contractor, Inc. Texas Encompass Central Plains,
Inc.
-------------------------------------------------------------------------------------------------------------------------
Gamewell Mechanical, Inc. North Carolina Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Garfield-Indecon Electrical Services, Inc. Ohio Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇ Mechanical Contractors, Inc. Minnesota Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
GroupMAC Texas L.P. Texas Encompass Services Holding
Corp.
Wayzata, Inc.
-------------------------------------------------------------------------------------------------------------------------
Hallmark Air Conditioning, Inc. Delaware Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
HPS Plumbing Services, Inc. California Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
HVAC Services, Inc. Ohio Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Interstate Building Services, L.L.C. Virginia Building One Service
Solutions, Inc.
-------------------------------------------------------------------------------------------------------------------------
Isla Morada LLC Delaware CONCH Republic Corp.
-------------------------------------------------------------------------------------------------------------------------
▇▇▇▇ Mechanical Services, L.L.C. Texas Encompass Mechanical
Services Southeast, Inc.
-------------------------------------------------------------------------------------------------------------------------
K&N Plumbing, Heating and Air Conditioning, Inc. Delaware Encompass Services Holding
Corp.
-------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇'▇, Inc. Delaware Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Lexington/▇▇▇▇ Mechanical Company, L.L.C. Kentucky Encompass Mechanical
Services Southeast, Inc.
-------------------------------------------------------------------------------------------------------------------------
Linford Service Co. California Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
L.T. Mechanical, Inc. Delaware Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇▇▇-▇▇▇▇▇▇ Co., Inc. Washington ▇▇▇▇▇▇▇▇▇-▇▇▇▇▇▇
Industries, Inc.
-------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇▇▇-▇▇▇▇▇▇ Industries, Inc. Washington Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇▇▇-▇▇▇▇▇▇ of Oregon, Inc. Delaware ▇▇▇▇▇▇▇▇▇-▇▇▇▇▇▇
Industries, Inc.
-------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇▇▇-▇▇▇▇▇▇ Service, Inc. Washington ▇▇▇▇▇▇▇▇▇-▇▇▇▇▇▇
Industries Inc.
Name of Subsidiary Jurisdiction Equity Holder(s)
-------------------------------------------------------------------------------------------------------------------------
Masters, Inc. Maryland Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Mechanical Services of Orlando, Inc. Florida Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇ Island Air & Heat, Inc. Delaware Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
National Network Services, Inc. Delaware Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
National Network Services Northwest, LLC Delaware EWG Holdings, Inc.
-------------------------------------------------------------------------------------------------------------------------
Omni Mechanical Company Oklahoma Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Omni Mechanical Services Oklahoma Encompass Central Plains,
Inc.
Omni Mechanical Company
-------------------------------------------------------------------------------------------------------------------------
Pacific Rim Mechanical Contractors, Inc. California Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇ Co., Inc. Indiana Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Phoenix Electric Company Delaware Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Ray's Plumbing Contractors, Inc. Florida Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Regency Electric Company, LLC Florida EET Holdings, Inc.
-------------------------------------------------------------------------------------------------------------------------
Regency Electric Company South Florida Office, Inc. Florida Encompass Electrical
Technologies Southeast,
Inc.
-------------------------------------------------------------------------------------------------------------------------
Riviera Electric of California, Inc. California Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇▇ Electric Corp. Ohio Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
▇▇▇▇ Companies Incorporated Indiana Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇ Bros., Inc. South Carolina Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Sequoyah Corporation Washington Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
S. L. Page Corporation Florida Encompass
ServicesCorporation
-------------------------------------------------------------------------------------------------------------------------
Southeast Mechanical Service, Inc. Florida Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Inc. Delaware Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Sun Plumbing, Inc. Florida Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇-▇▇▇▇ Electric, Inc. Utah Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Name of Subsidiary Jurisdiction Equity Holder(s)
-------------------------------------------------------------------------------------------------------------------------
Team Mechanical, Inc. Utah Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
The Farfield Company Delaware Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Tri-City Electrical Contractors, Inc. Florida Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Tri-M Corporation Pennsylvania Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Tri-State Acquisition Corp. Nevada Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
United Acquisition Corp. Iowa Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
United Service Alliance, Inc. Delaware Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Van's Comfortemp Air Conditioning, Inc. Florida Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Vantage Mechanical Contractors, Inc. Maryland Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Vermont Mechanical, Inc. Delaware Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
▇▇▇▇'▇ Heating & Cooling, Inc. Florida Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇ Electrical Construction Co. North Carolina Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Wayzata, Inc. Delaware Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇ & Sons, Inc. Florida Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇ Refrigeration, Air Conditioning & Heating, Inc. Ohio Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇ Electric Company, Inc. Arizona Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Yale Incorporated Minnesota Encompass Services
Corporation
-------------------------------------------------------------------------------------------------------------------------
Other Equity or Voting Interest (50% or less):
Entity Equity Holder(s)
------------------------------------------------------------------------------------------------------------------
Oakleaf Waste Management, LLC 12.5% Membership interest held by Wayzata, Inc.
87.5% Membership interest held by ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, founder
------------------------------------------------------------------------------------------------------------------
Process Design Builders, LLC 50% Membership interest held by ▇▇▇▇▇▇▇ Bros., Inc.
50% Membership interest held by Penta, Inc.
------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ Corporation Approximately 10% equity interest on a fully diluted basis held by Encompass
Management Co. by common stock and warrants. Other investors include
Constellation Real Technologies and Austin Ventures
------------------------------------------------------------------------------------------------------------------
From time to time the Company or one of its Subsidiaries may enter into a joint
venture or other collaborative agreement in connection with a job specific
project.
SCHEDULE 3.3
SHAREHOLDER CONSENTS
Under the rules of the New York Stock Exchange, shareholder approval is required
prior to listing of the Shares on the Exchange.
SCHEDULE 3.4
Capitalization at June 27, 2002
(in thousands)
Number of Votes, after giving
effect to the Transactions
-----------------------------------------
Actual Assumes Assumes
Shares before Investor subscribes Full Subscription
Transactions at $0.55 at $0.55
------------- ------------------- ------------------
Convertible Preferred Stock 256 21,679 (a) 21,679 (a)
Common shares outstanding (net of treasury) 64,280 64,280 64,280
Investor common shares - 63,636 (b) 23,091 (c)
Non-Investor common shares - - 67,818 (d)
Series C Preferred Stock - - 40,545 (e)
------- -------
Total votes 149,596 217,414
======= =======
Investor voting percentage 57.0% 39.2%
(a) $256,191 plus accrued dividends of $47,318 divided by $14.00 assumed
conversion price.
(b) $35,000 divided by $0.55 exercise price.
(c) 25.4% participation in rights offering x $50 million divided by $0.55
exercise price.
(d) 74.6% participation in rights offering x $50 million divided by $0.55
exercise price.
(e) $35,000 Apollo investment less common portion of $12,700 ($50,000 x 25.4%)
divided by $0.55 exercise price.
Other convertible securities outstanding:
Convertible Preferred Stock 256
Common stock options 9,083
Common stock warrants 4,446
Phantom stock outstanding under director plan 23
The Company has an Employee Stock Purchase Plan, which permits eligible
employees of the Company to purchase shares of Common Stock. Approximately 1,600
shares are reserved for issuance under the plan.
The Company's non-employee directors receive an automatic grant of options upon
election to the Board and upon any annual re-election to the Board. Pursuant
thereto, the Company granted in the aggregate 40 options at $0.54 per share to
its non-employee directors re-elected at the annual meeting of shareholders on
June 26, 2002.
Under the Building One Services Stock Performance Incentive Plan and the 2000
Encompass Services Corporation Stock Price Incentive Plan, certain employees
will receive stock grants upon achieving a minimum stock price of $30 per share.
SCHEDULE 3.6
CONSENTS AND APPROVALS
Under the rules of the New York Stock Exchange, shareholder approval is required
prior to listing of the Shares on the Exchange.
Terms and provisions of the Investor Rights Agreement or the Statement of
Designation.
Pursuant to the terms and conditions of the Indenture relating to the Company's
10-1/2% Senior Subordinated Notes Due 2009, the Company is required to deliver
to the Trustee a letter from an independent financial advisor stating that the
Transaction is fair to the Company from a financial point of view.
The options granted to certain officers and directors of the Company at its
creation (the "Founder's Options") are fully vested.
Pursuant to the Encompass Services Corporation 1997 Stock Option Plan, the
Encompass Services Corporation 1997 Stock Awards Plan, and the Building One
Services Stock Performance Incentive Plan, all options (or stock) granted
thereunder will immediately vest upon a change of control of the Company. A
substantial number of the options referred to in this paragraph are fully vested
and expire within 12 months. In addition, all such options are "out of the
money."
Pursuant to the Building One Services 1997 Long-Term Incentive Plan, the
Building One Services 1998 Long-Term Incentive Plan, the Building One Services
1999 Long-Term Incentive Plan, and the Building One Services 1997 Non-Employee
Directors' Stock Plan, all options (or stock) granted thereunder will
immediately vest upon a change of control of the Company unless the Board of
Directors elects not to vest any unvested options. The Board of Directors will
determine whether to do so in due course.
Pursuant to the Encompass Services Corporation Amended and Restated 1997 Stock
Awards Plan, the Encompass Services Corporation 2000 Stock Awards Plan, and the
2000 Encompass Services Corporation Stock Performance Incentive Plan, the Board
of Directors may elect to vest all unvested options outstanding under the
respective plans upon a change of control of the Company. The Board of Directors
will determine whether to do so in due course.
Under the Company's Employment Agreement with ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇., the
Transaction qualifies as a Change of Control and would allow ▇▇. ▇▇▇▇▇▇▇▇ to
elect to terminate his employment for "Good Reason" if, within six months
following the Change of Control he has not given the Company a written waiver of
this right. Termination by ▇▇. ▇▇▇▇▇▇▇▇ for Good Reason would give rise to
severance obligations of the Company. Additionally, all stock options held by
▇▇. ▇▇▇▇▇▇▇▇ will automatically vest six months following the Change of Control
unless he has given the Company a written waiver of this right prior to such
time.
Under the Company's Employment Agreement with ▇▇▇▇▇▇ ▇. ▇▇▇▇, the Transaction
qualifies as a Change of Control and would allow ▇▇. ▇▇▇▇ to elect to terminate
his employment for "Good Reason" if, within six months following the Change of
Control he has not given the Company a written waiver of this right. Termination
by ▇▇. ▇▇▇▇ for Good Reason would give rise to severance obligations of the
Company. Additionally, all stock options held by ▇▇. ▇▇▇▇ will automatically
vest six months following the Change of Control unless he has given the Company
a written waiver of this right prior to such time.
Under the Company's Employment Agreements with each of ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇.
▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇
▇▇▇▇▇▇ and ▇▇▇ ▇▇▇▇▇▇▇▇, the Transaction qualifies as a Change of Control.
Should any of those individual's employment be terminated within 6 months
following the Change of Control (12 months in the case of ▇▇. ▇▇▇▇▇▇▇) other
than for cause or by the individual for other than good reason, the individual
would be entitled to severance. Additionally, all stock options held by ▇▇.
▇▇▇▇▇▇▇ will automatically vest if his employment is terminated within 12 months
following the Change of Control should his employment be terminated other than
for cause or by the ▇▇. ▇▇▇▇▇▇▇ for other than good reason.
SCHEDULE 3.11
ABSENCE OF UNDISCLOSED LIABILITIES
Any and all Liabilities reflected as such on the balance sheets (and the notes
thereto) set forth or incorporated by reference in SEC Documents filed with the
Commission subsequent to January 1, 2002 and on or before June 27, 2002.
Any and all Liabilities referred to in the written minutes of the Audit
Committee of the Board held on February 15 and May 14, 2002.
SCHEDULE 3.12
ABSENCE OF CHANGES
Any and all Liabilities and claims disclosed on Schedule 3.11.
Liens in favor of Liberty Mutual Insurance Company by The Farfield Company in
connection with the SEPTA Project. Liens pursuant to the Credit Agreement.
Terminations, settlements and cancellations of debts owed to or claims made by
the Company or its Subsidiaries (a) which are covered by reserves reflected in
the Company's consolidated balance sheets included in SEC Documents, or (b)
which arose in the ordinary course of business (including bankruptcies of
customers and former customers) in an aggregate amount not exceeding $5 million.
Dispositions of inventory in the ordinary course of business and other
dispositions of tangible and intangible assets (including Subsidiaries) of the
Company and its Subsidiaries in amounts not requiring approval of the Investors
pursuant to the Investor Rights Agreement.
Damage, destruction and loss of assets which in the aggregate are not material
to the continuing operations of the Company and its Subsidiaries taken as a
whole.
Changes in executive officers that are not otherwise material for purposes of
filing current reports under Section 13 or 15(d) of the Securities Exchange Act
of 1934, filed pursuant to Rules 13a-11 or Rule 15d.
Issuance of stock options in the ordinary course of business pursuant to the
Stock Option Plans referenced in Schedule 3.6.
Issuance of shares in the ordinary course of business pursuant to the Company's
Employee Stock Purchase Plan.
In the first quarter of 2002, the Company adopted SFAS Nos. 142 and 144.
SCHEDULE 4.3
INVESTORS REQUIRED CONSENTS AND APPROVALS
None.
SCHEDULE 5.2(b)
OPTION AND WARRANT HOLDERS
ENTITLED TO PARTICIPATE IN RIGHTS OFFERING
Warrants
Warrant Number # of Warrants outstanding
-------------- -------------------------
W-3 125,000
W-6 1,221,966
W-7 65,534
W-8 2,437,500
Options
Pursuant to the terms of certain options granted to certain officers and
directors of the Company at its creation (the "Founder's Options"), there are 56
persons holding 506,817 options that are entitled to participate in a rights
offering.
SCHEDULE 7.3(e)
EMPLOYEE WAIVERS
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇.
▇▇▇▇▇▇ ▇. ▇▇▇▇
For purposes of Section 3.4, under the Company's Employment Agreements with
other members of senior management (including Sr. Vice Presidents - Operations)
the Transaction qualifies as a Change of Control. Should any of those
individual's employment be terminated within 6 months following the Change of
Control (12 months in the case of ▇▇. ▇▇▇▇▇▇▇) other than for cause or by the
individual for other than good reason, the individual would be entitled to
severance. In each instance the severance payable upon termination following a
Change of Control is equal to or less than the severance that would be payable
if the individual were terminated other than for cause or by the individual for
other than good reason, regardless of whether there was a Change of Control.
Additionally, all stock options held by ▇▇. ▇▇▇▇▇▇▇ will automatically vest if
his employment is terminated within 12 months following the Change of Control
should his employment be terminated other than for cause or by the ▇▇. ▇▇▇▇▇▇▇
for other than good reason.
The grants and options and related plans disclosed on Schedule 3.6 are
incorporated herein.