================================================================= ENCOMPASS BANKRUPTCY NEWS Issue Number 1 ----------------------------------------------------------------- Copyright 2002 (ISSN XXXX-XXXX) November 20, 2002 ----------------------------------------------------------------- Bankruptcy Creditors' Service, Inc. 609-392-0900 FAX 609-392-0040 ----------------------------------------------------------------- ENCOMPASS BANKRUPTCY NEWS is published by Bankruptcy Creditors' Service, Inc., 24 Perdicaris Place, Trenton, New Jersey 08618, on an ad hoc basis (generally every 10 to 20 days) as significant activity occurs in the Debtor's cases. New issues are prepared by Julie Anne G. Lopez, Frauline Sinson-Abangan, and Peter A. Chapman, Editors. Subscription rate is US$45 per issue. Any re-mailing of ENCOMPASS BANKRUPTCY NEWS is prohibited. ================================================================= IN THIS ISSUE ------------- [00000] HOW TO SUBSCRIBE TO ENCOMPASS BANKRUPTCY NEWS [00001] BACKGROUND & DESCRIPTION OF ENCOMPASS & ITS AFFILIATES [00002] CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 2002 [00003] COMPANY'S PRESS RELEASE ANNOUNCING CHAPTER 11 FILING [00004] ENCOMPASS & DEBTOR AFFILIATES' CHAPTER 11 DATABASE [00005] CONSOLIDATED LIST OF THE 50-LARGEST UNSECURED CREDITORS [00006] DEBTORS' MOTION FOR JOINT ADMINISTRATION OF CASES [00007] DEBTORS' MOTION TO PAY $160 MILLION TO CRITICAL VENDORS KEY DATE CALENDAR ----------------- 11/19/02 Voluntary Petition Date 12/04/02 Deadline for filing Schedules of Assets and Liabilities 12/04/02 Deadline for filing Statement of Financial Affairs 12/04/02 Deadline for filing Lists of Leases and Contracts 12/09/02 Deadline to provide Utilities with adequate assurance 01/18/03 Deadline to make decisions about lease dispositions 02/17/03 Deadline to remove actions pursuant to F.R.B.P. 9027 03/19/03 Expiration of Debtors' Exclusive Plan Proposal Period 05/18/03 Expiration of Debtors' Exclusive Solicitation Period 11/18/04 Deadline for Debtors' Commencement of Avoidance Actions Organizational Meeting with UST to form Committees Bar Date for filing Proofs of Claim First Meeting of Creditors pursuant to 11 USC Sec. 341 ----------------------------------------------------------------- [00000] HOW TO SUBSCRIBE TO ENCOMPASS BANKRUPTCY NEWS ----------------------------------------------------------------- ENCOMPASS BANKRUPTCY NEWS is distributed to paying subscribers by electronic mail. New issues are published on an ad hoc basis as significant activity occurs (generally every 10 to 20 days) in the Debtors' cases. The subscription rate is US$45 per issue. Newsletters are delivered via e-mail; invoices, transmitted following publication of each newsletter issue, arrive by fax. Re-mailing of ENCOMPASS BANKRUPTCY NEWS is prohibited. Distribution to multiple individuals at the same firm is provided at no additional charge; folks outside of your firm should set-up and pay for their own subscriptions. Subscriptions may be canceled at any time without further obligation. To continue receiving ENCOMPASS BANKRUPTCY NEWS, please complete the form below and return it by fax or e-mail to: Bankruptcy Creditors' Service, Inc. 24 Perdicaris Place Trenton, NJ 08618 Telephone (609) 392-0900 Fax (609) 392-0040 E-mail: peter@bankrupt.com We have published similar newsletters tracking billion-dollar insolvency proceedings since 1990, starting with Federated Department Stores. 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Please enter my personal subscription to ENCOMPASS BANKRUPTCY NEWS at US$45 per issue until I tell you to cancel my subscription. Name: ---------------------------------------------- Firm: ---------------------------------------------- Address: ---------------------------------------------- ---------------------------------------------- Phone: ---------------------------------------------- Fax: ---------------------------------------------- E-Mail: ---------------------------------------------- (Distribution to multiple professionals at the same firm is provided at no additional cost.) ENCOMPASS BANKRUPTCY NEWS is distributed to paying subscribers by electronic mail. New issues are published on an ad hoc basis as significant activity occurs (generally every 10 to 20 days) in the Debtors' cases. The subscription rate is US$45 per issue. Newsletters are delivered via e-mail; invoices, transmitted following publication of each newsletter issue, arrive by fax. Re-mailing of ENCOMPASS BANKRUPTCY NEWS is prohibited. Distribution to multiple individuals at the same firm is provided at no additional charge; folks outside of your firm should set-up and pay for their own subscriptions. Subscriptions may be canceled at any time without further obligation. ----------------------------------------------------------------- [00001] BACKGROUND & DESCRIPTION OF ENCOMPASS & ITS AFFILIATES ----------------------------------------------------------------- Encompass Services Corporation 3 Greenway Plaza, Suite 2000 Houston, Texas 77046 Telephone (713) 860-0100 Fax (713) 626-4766 http://www.encompserv.com Ranking No. 412 on the Fortune 500 list in 2001, Encompass Services Corporation (Pink Sheets: ESVN) provides one-stop shopping for systems and facilities management. From 200 offices, Encompass' 25,000 workers provide a full suite of electrical and network technologies, mechanical services and cleaning systems to commercial, industrial and residential customers from coast to coast, generating nearly $4 billion in annual revenues. Encompass operates in three primary business segments: (1) Commercial/Industrial Services Group -- 80% of revenues -- the Commercial/Industrial Services Group designs, installs, maintains and repairs electrical, heating, ventilating, air conditioning, plumbing, network infrastructure, lighting, power, security, sound and related systems to a variety of commercial customers, including manufacturing, processing and industrial facilities, chemical plants, data room servers, correctional facilities, hospitals, universities, hotels, retail stores and sports facilities (2) the Residential Services Group -- 11 % of revenues -- the Residential Services Group installs and maintains HVAC and plumbing in residences and small commercial buildings. The Residential Services Group markets its services to local, regional, and national homebuilders. (3) the Cleaning Services Group -- 9% of revenues -- provides cleaning and maintenance management services to 8,000 locations nationwide, including, retail chain stores, supermarket chains, office buildings, industrial plants, banks and airports. Revenue & Profit Deterioration Several factors have resulted in a recent contraction of the Company's revenues and profits, Encompass' Senior Vice President, Secretary, and General Counsel Gray H. Muzzy explains. In particular, the downturn in the economy has caused the Company's customers to reduce and delay capital spending, and increased competition from companies with substantially lower cost structures has placed pressure on the Company's operating margins. The collapse of the telecommunications industry has further resulted in the loss of high-margin projects and has increased collection problems. The Company is also continuing to address issues concerning the integration of the former Building One and GroupMAC businesses. Management reacted to the challenging business environment through a number of measures, including aggressively reducing expenses, actively managing receivables balances downward, restructuring the mechanical and electrical businesses by eliminating $3.5 million in overhead costs, discontinuing the distressed global technologies business, and making numerous management changes. Despite these efforts, the positive impact of these changes on Encompass' business has been substantially outweighed by the negative impacts of the declining business environment and escalating commercial issues, including, particularly, customer, vendor, employee, and surety concerns. In addition, uncertainty regarding the Company's capital structure and the completion of a proposed $35 million capital infusion by a major shareholder, Apollo Advisors IV, L.P. and its affiliates, impaired Encompass' ability to stem declines in profitability. Such profitability declines are largely attributable to customer reluctance to award new business to Encompass, declining access to surety bonding capacity, dwindling employee morale and retention issues, and declining trade support. Liquidity Contracts As of September 19, 2002, Encompass had approximately $86 million in cash; however, approximately 10 to 15% of that cash was required for near-term trade payables. Encompass' liquidity could become severely constrained in the event of a number of occurrences, i.e., operating challenges, reduction in bonding capacity, lack of trade support, or default on Encompass' senior subordinated notes. The combination of a weak operating environment and concerns regarding the Company's capital structure have resulted in significant downward pressure on the Company's profitability. The Debt Load Excluding its unsecured trade obligations, the Company has obligations in the approximate amount of $1.2 billion. That indebtedness includes secured credit facility obligations in the approximate amount of $589 million, unsecured bonds and note obligations in the face amount of $339 million, and accrued and unpaid mandatorily redeemable convertible preferred stock dividends in the approximate amount of $309 million. The Company also has significant trade obligations. A Prepackaged Plan Proposal In an effort to restructure their indebtedness and to significantly deleverage their capital structure, on October 18, 2002, the Debtors submitted a Disclosure Statement and Prepackaged Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code to the holders of the Debtors' secured credit facility claims and 10-1/2% senior subordinated notes. That Plan Proposal provided that: (i) trade claims owed to vendors would be paid in the ordinary course, consistent with the Company's normal business practices and current credit terms, (ii) amounts outstanding under the Company's primary bank credit facility would be exchanged for a new $200 million term loan and 80% of the shares of new common stock in Reorganized Encompass, (iii) the Company's 101/2% Senior Subordinated Notes would be exchanged for 20% of the shares of new common stock in the Reorganized Encompass; (iv) the Company's junior subordinated notes of $4.1 million, its Convertible Preferred Stock, its common stock and all outstanding stock options and warrants would be canceled without consideration; and (v) Reorganized Encompass would adopt a stock option plan and assume substantially all employee agreements and contractual arrangements. Significant conditions to the Proposed Plan included that the Company would secure adequate surety bonding capacity, a $100 million debtor-in-possession financing and a $100 million Exit Facility. The Proposed Plan also called for the sale of certain non-strategic and under-performing businesses and the delivery of $50 million of net proceeds from those sales (including related tax refunds) to the senior bank lenders by December 31, 2003. Houlihan Lokey Howard & Zukin, Encompass' financial advisor, opined in connection with the Proposed Plan that the Company's total enterprise value on a post-Restructuring basis is in a range of approximately $600 million to $650 million with a mid- point value of $625 million. Houlihan Lokey reduced its mid- point TEV estimate by the estimated pro forma debt levels of the Debtors as of September 30, 2002 (approximately $200 million) to calculate the implied reorganized equity value of Encompass. Houlihan Lokey estimated that the Debtors' mid-point total reorganized equity value would equal $425 million. Based on that valuation, the Plan Proposal projected a 90.3% recovery by the Senior Lenders and a 24.3% recovery by the Senior Noteholders. Rather than accepting the Company's proposal, the Senior Lenders and the Senior Noteholders each proposed alternative restructuring plans that varied from the terms and conditions of the Plan. Encompass, in turn, commenced voluntary chapter 11 cases to force a plan onto creditors with or without their consent that will return the balance sheet to solvency, rationalize the company's capital structure and position the company for long-term success. ----------------------------------------------------------------- [00002] CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 2002 ----------------------------------------------------------------- ENCOMPASS SERVICES CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS Unaudited at September 30, 2002 ASSETS Current assets: Cash and cash equivalents................. $ 139,424,000 Accounts receivable, net of $30,672,000 allowance.................. 639,694,000 Inventories............................... 21,009,000 Costs and estimated earnings in excess of billings on uncompleted contracts... 109,040,000 Deferred tax assets....................... 14,310,000 Prepaid expenses and other current assets. 36,232,000 --------------- Total current assets.................. 959,709,000 Property and equipment, net.................. 103,523,000 Goodwill, net................................ 100,319,000 Other intangible assets, net................. 7,078,000 Deferred tax assets, net of allowance of $39,500,000.................. 11,067,000 Deferred debt issuance costs, net............ 20,188,000 Other long-term assets....................... 32,250,000 --------------- Total assets.......................... $ 1,234,134,000 =============== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term borrowings and current maturities of long-term debt........... $ 917,827,000 Accounts payable.......................... 239,046,000 Billings in excess of costs and estimated earnings on uncompleted contracts...... 129,163,000 Accrued compensation...................... 65,111,000 Other accrued liabilities................. 81,889,000 --------------- Total current liabilities............. 1,433,036,000 Long-term debt, net of current portion....... 4,113,000 Other liabilities............................ 19,486,000 Commitments and contingencies Mandatorily redeemable convertible preferred stock, $.001 par value, 50,000,000 shares authorized, 256,000 shares issued and outstanding............................... 306,066,000 Shareholders' equity (deficit): Common stock, $.001 par value, 200,000,000 shares authorized, 64,999,000 shares outstanding.......... 67,000 Additional paid-in capital................ 624,086,000 Retained earnings (accumulated deficit)... (1,138,353,000) Treasury stock, 1,643,000 shares at cost.. (10,425,000) Accumulated other comprehensive loss...... (3,942,000) --------------- Total shareholders' equity (deficit).. (528,567,000) --------------- Total liabilities and shareholders' equity (deficit)..... $ 1,234,134,000 =============== ----------------------------------------------------------------- [00003] COMPANY'S PRESS RELEASE ANNOUNCING CHAPTER 11 FILING ----------------------------------------------------------------- Encompass Files for Chapter 11 Reorganization * Company Expects Operations To Continue As Normal * Negotiating DIP Financing Commitment and Additional Surety Bonding Support HOUSTON, Texas -- November 19, 2002 -- Encompass Services Corporation (Pink Sheets:ESVN) announced today that the Company has filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas. The Company stated that, during the Chapter 11 process, it expects operations to continue as normal and customer work to proceed as scheduled. As part of its first day motions, the Company expects to receive court orders authorizing ongoing payment of its employee wages and benefits, payment of its vendors for goods and services provided under normal credit terms, as well as other customary first day orders. "We believe today's filing alleviates much of the uncertainty that has surrounded our business in the last few weeks and months," said Joe Ivey, President and Chief Executive Officer of Encompass. "We look forward to moving rapidly through the Chapter 11 process." The Company has received proposals from and is actively working with its senior bank lending group to secure Debtor-in- Possession (DIP) financing and with its primary surety bond providers to secure additional bonding capacity during the reorganization process. Encompass stated that it expects to file a Plan of Reorganization with the Bankruptcy Court before year-end. This Plan will anticipate the Company continuing its current program of divestitures of non-core or underperforming assets. Encompass also announced that Michael F. Gries of Conway, Del Genio, Gries & Co., who was previously appointed Chief Restructuring Officer (CRO), was also elected as a Director and Chairman of the Board of Encompass. J. Patrick Millinor, outgoing Chairman of the Board, who will remain a Director, stated, "I am pleased that we were able to find an individual with Mike Gries' experience and background in restructuring companies to lead Encompass through the Chapter 11 process. Mike has been doing yeoman's work as CRO over the past six weeks, and I am certain of his ability to achieve the best result possible for the Company and its various constituencies." "I look forward to working with Rick Millinor, Joe Ivey, the rest of the Board and the dedicated employees of Encompass throughout the next few critical months," Mr. Gries said. "We are confident that we will reach agreements in short order for DIP financing and additional bonding capacity. We appreciate the support we have received thus far from our senior lenders and surety providers." As previously announced, the Company began a solicitation on October 18, 2002 to gain creditor support of a proposed restructuring plan to be implemented through a "pre-packaged" bankruptcy. The solicitation period ended yesterday, and the proposed restructuring plan did not receive the necessary votes for approval. Nevertheless, the Company said it looks forward to reaching agreements quickly with its creditors through the Chapter 11 process. Weil, Gotshal & Manges, LLP is serving as Encompass' legal advisor. About Encompass Services Corporation Encompass Services Corporation is one of the nation's largest providers of facilities systems and services. Encompass provides electrical technologies, mechanical services and cleaning systems to commercial, industrial and residential customers nationwide. Additional information and press releases about Encompass are available on the Company's web site at http://www.encompass.com ----------------------------------------------------------------- [00004] ENCOMPASS & DEBTOR AFFILIATES' CHAPTER 11 DATABASE ----------------------------------------------------------------- Debtor Entities Filing Separate Chapter 11 Petitions: Case No. Debtor Entity -------- ------------- 02-43582 Encompass Services Corporation 02-43583 Encompass Electrical Technologies of New England, Inc. 02-43584 Encompass Electrical Technologies of Texas, Inc. 02-43585 Encompass Electrical Technologies Projects Group, Inc. 02-43586 Isla Morada LLC 02-43587 Encompass Electrical Technologies South Carolina, Inc. 02-43588 Encompass Electrical Technologies Southeast, Inc. 02-43589 Encompass Electrical Technologies Western Tennessee, Inc. 02-43590 K&N Plumbing, Heating and Air Conditioning, Inc. 02-43591 Encompass Electrical Technologies, Inc. 02-43592 L.T. Mechanical, Inc. 02-43593 Laney's, Inc. 02-43594 AA Jarl, Inc. 02-43595 Encompass Electrical Technologies, Inc. 02-43596 Encompass Facility Services, Inc. 02-43597 A-ABC Appliance, Inc. 02-43598 MacDonald-Miller Co., Inc. 02-43599 Encompass Global Technologies, Inc. 02-43600 MacDonald-Miller Industries, Inc. 02-43601 A-ABC Services, Inc. 02-43602 MacDonald-Miller of Oregon, Inc. 02-43603 Encompass Ind./Mech. of Texas, Inc. 02-43604 MacDonald-Miller Service, Inc. 02-43605 Encompass Industrial (Indianapolis), Inc. 02-43606 Encompass Industrial Services Southwest, Inc. 02-43607 Masters, Inc. 02-43608 Mechanical Services of Orlando, Inc. 02-43609 Encompass Management Co. 02-43610 Air Conditioning, Plumbing & Heating Service Co., Inc. 02-43611 Merritt Island Air & Heat, Inc. 02-43612 Air Systems, Inc. 02-43613 National Network Services Northwest, LLC 02-43614 Encompass Mechanical (Bloomfield), Inc. 02-43615 Aircon Energy Incorporated 02-43616 Omni Mechanical Company 02-43617 Encompass Mechanical (Fort Myers), Inc. 02-43618 Airtron of Central Florida, Inc. 02-43619 Omni Mechanical Services 02-43620 Pacific Rim Mechanical Contractors, Inc. 02-43621 Airtron, Inc. 02-43622 Encompass Mechanical (Lansing), Inc. 02-43623 AMS Arkansas, Inc. 02-43624 Paul E. Smith Co., Inc. 02-43625 Encompass Mechanical (Pompano Beach), Inc. 02-43626 Building One Commercial, Inc. 02-43627 Phoenix Electric Company 02-43628 Encompass Mechanical (Spokane), Inc. 02-43629 Building One Service Solutions, Inc. 02-43630 Ray's Plumbing Contractors, Inc. 02-43631 BUYR, Inc. 02-43632 Encompass Mechanical (Utah), Inc. 02-43633 Regency Electric Company South Florida Office, Inc. 02-43634 Callahan Roach Products & Publications, Inc. 02-43635 Regency Electric Company, LLC 02-43636 Encompass Mechanical Services - Rocky Mountains, Inc. 02-43637 Central Carolina Air Conditioning Company 02-43638 Charlie Crawford, Inc. 02-43639 Riviera Electric of California, Inc. 02-43640 ChIP Corp. 02-43641 Sanders Bros., Inc. 02-43642 Commercial Air Holding Company 02-43643 Sequoyah Corporation 02-43644 CONCH Republic Corp. 02-43645 Costner Brothers, Inc. 02-43646 EET Holdings, Inc. 02-43647 Southeast Mechanical Service, Inc. 02-43648 Encompass Mechanical Services Northeast, Inc. 02-43649 Electrical Contracting, Inc. 02-43650 Stephen C. Pomeroy, Inc. 02-43651 Encompass Mechanical Services of Elko, Inc. 02-43652 Encompass Capital, Inc. 02-43653 Sun Plumbing, Inc. 02-43654 Encompass Central Plains, Inc. 02-43655 Encompass Mechanical Services Southeast, Inc. 02-43656 Encompass Constructors, Inc. 02-43657 Taylor-Hunt Electric, Inc. 02-43658 Encompass Design Group, Inc. 02-43659 Encompass Power Services, Inc. 02-43660 The Farfield Company 02-43661 Encompass Electrical (Cleveland), Inc. 02-43662 Encompass Residential Services of Houston, Inc. 02-43663 Tri-City Electrical Contractors, Inc. 02-43664 Encompass Electrical (Dayton), Inc. 02-43665 Tri-M Corporation 02-43666 Encompass Electrical (DC), Inc. 02-43667 Encompass Services Holding Corp. 02-43668 Tri-State Acquisition Corp. 02-43669 United Acquisition Corp. 02-43670 Encompass Electrical (Indianapolis), Inc. 02-43671 Encompass Services Indiana, L.L.C. 02-43672 United Service Alliance, Inc. 02-43673 Encompass Electrical (Network), Inc. 02-43674 ESR PC, L.P. 02-43675 Van's Comfortemp Air Conditioning, Inc. 02-43676 Encompass Electrical (Toledo), Inc. 02-43677 Vantage Mechanical Contractors, Inc. 02-43678 Encompass Electrical Technologies - Florida, LLC 02-43679 Wade's Heating & Cooling, Inc. 02-43680 Evans Services, Inc. 02-43681 Watson Electrical Construction Co. 02-43682 Encompass Electrical Technologies - Midwest, Inc. 02-43683 EWG Holdings, Inc. 02-43684 Wayzata, Inc. 02-43685 FacilityDirect.com, LLC 02-43686 Wiegold & Sons, Inc. 02-43687 Ferguson Electric Corporation 02-43688 Willis Refrigeration, Air Conditioning & Heating, Inc. 02-43689 Fred Clark Electrical Contractor, Inc. 02-43690 Wilson Electric Company, Inc. 02-43691 Gamewell Mechanical, Inc 02-43692 Yale Incorporated 02-43693 Garfield-Indecon Electrical Services, Inc. 02-43694 Encompass Electrical Technologies - Rocky Mountain 02-43695 Encompass Electrical Technologies North Carolina, 02-43696 Gilbert Mechanical Contractors, Inc. 02-43697 Encompass Electrical Technologies North Florida, Inc. 02-43698 Encompass Elec Technologies Central Tennessee, Inc. 02-43699 GroupMAC Texas L.P. 02-43700 Delta Innovations, Ltd. 02-43701 Encompass Electrical Technologies Eastern Tennessee, Inc. 02-43702 Hallmark Air Conditioning, Inc. 02-43703 Encompass Electrical Technologies Georgia, Inc. 02-43704 HPS Plumbing Services, Inc. 02-43705 Encompass Capital, L.P., a Texas Ltd. Partnership 02-43706 HVAC Services, Inc. 02-43707 Interstate Building Services, L.L.C. 02-43708 Encompass Electrical Technologies of Nevada, Inc. Petition Date: November 19, 2002 Court: United States Bankruptcy Court Southern District of Texas Houston Division 5401 Bob Casey United States Courthouse 515 Rusk Ave Houston, Texas 77002 Telephone (713) 250-5500 Judge: The Honorable William R. Greendyke Debtors' Counsel: Alfredo R. Perez, Esq. Lydia T. Protopapas, Esq. WEIL, GOTSHAL & MANGES LLP 700 Louisiana, Suite 1600 Houston, Texas 77002 Telephone (713) 546-5000 Fax (713) 224-9511 ----------------------------------------------------------------- [00005] CONSOLIDATED LIST OF THE 50-LARGEST UNSECURED CREDITORS ----------------------------------------------------------------- Entity Nature of Claim Claim Amount ------ --------------- ------------ Northwestern Mutual Life Insurance Company 720 E. Wisconsin Ave. Milwaukee, WI 05322 Bond debt $37,805,000 Mizuho International PLC One Friday Street Braken House London, GBR EC4M Bond debt $11,000,000 Wells Fargo Capital Markets 550 California Street 14th Floor San Francisco, CA 94104 Bond debt $8,705,000 Blackrock Capital 40 East 52nd Street New York, NY 10022 Bond debt $8,825,000 Reynolds Company P.O. Box 569180 Dallas, TX 75356-9180 Trade debt $8,273,000 HSBC Bank PLC Level 41 8 Canada Square London E14 5HQ United Kingdom Bond debt $7,000,000 Rexel, Inc. 6700 LBJ Freeway Dallas, TX 75240-6503 Trade debt $4,344,000 Unumprovident Corporation Investment Operations Dept., Floor 6 One Fountain Square Chattanooga, TN 37402 Bond debt $4,000,000 Sutter CBO 2000-2 550 California Street San Francisco, CA 94104 Bond debt $3,945,000 Ferguson Enterprises, Inc. 12500 Jefferson Avenue Newport, VA 23602-4314 Trade debt $3,881,000 General Electric Supply, Inc. 400 Technology Court S.E. Suite R Smyrna, GA 30082 Trade debt $3,685,000 Graybar Electric Company, Inc. 34 North Meramec Avenue Clayton, MO 63105 Trade debt $3,570,000 Bay Harbour Management 885 Third Ave., 34th Floor New York, NY 10022 Bond debt $3,460,000 Hughes Supply, Inc. 20 North Orange Ave. Suite 200 Orlando, FL 32801 Trade debt $3,264,000 SLS Management 140 W. 57th Street, NBR 7B New York, NY 10019 Bond debt $2,966,000 Carrier Enterprises, Inc. One Carrier Place Farmington, CT 06034-4015 Trade debt $2,899,000 The Trane Company 3600 Pammel Creek Road La Crosse, WI 54601-7599 Attn: Patrick L. Rieland Telephone: (608) 787-3538 Thomas W. Mikulina Telephone: (608) 787-3237 Trade debt $2,872,000 Hartford Investment Management Proxy Processing 9th Floor P.O. Box 1744 Hartford, CT 06144-1744 Bond debt $2,500,000 CNA Risk Management CNA Plaza 333 S. Wabash Chicago, IL 60685 Trade debt $2,353,000 Deltec Recovery Fund LP 645 Fifth Ave., 18th Floor New York, NY 10022 Trade debt $2,216,000 Cincinnati Insurance P.O. Box 145496 Cincinnati, OH 45214 Trade debt $2,000,000 Tour Societe Generale (France) 17 Cours Valmy Paris La Defense Cedex FRA 92972 Bond debt $2,000,000 Turner Envirologic, Inc. 3439 SW 11th St. Deerfield Beach, FL 33442 Trade debt $1,674,000 Crescent Electric Supply Company P.O. Box 500 East Dubuque, IL 61025 Trade debt $1,648,000 ABCO, Inc. 2675 E. HWY 80 P.O. Box 268 Abilene, TX 79604-0268 Trade debt $1,519,000 Dynaelectric Co. of Nevada 3555 West Oquendo Road Las Vegas, NV 89118 Attn: Don Mitchell (702) 736-8677 Trade debt $1,479,000 William Mason Dillard Revocable Trust - MSI 3789 McKay Creek Drive Largo, FL 33770 Note obligation $1,250,000 Deborah K. Dillard Revocable Trust 3789 McKay Creek Drive Largo, FL 33770 Note obligation $1,250,000 Johnson Controls, Inc. 5757 N. Green Bay Avenue Milwaukee, WI 53201 Trade debt $1,247,000 Anixter, Inc. 4711 Golf Road Skokie, IL 60076-1278 Trade debt $1,096,000 Miller Anderson & Sherrerd 1 Tower Bridge, Suite 1100 W. Conshohochen, PA 19428 Trade debt $1,075,000 Total Plumbing, Inc. 4701 N. Colorado Boulevard Denver, CO 80216-3214 Trade debt $1,034,000 Com-Tec Building Service, Inc. 3030 East Goodland Drive P.O. Box 965 Appleton, WI 54911 Attn: S. Qualls Trade debt $1,031,000 Janitrol/Goodman 2550 N. Loop W, Suite 400 Houston, TX 77092 Trade debt $1,026,000 Integrator Com (Jv) 8001 East 195th Street Noblesville, IN 46060 Trade debt $1,015,000 Tripar Partnership 48 Par La Ville Road Suite 428 Hamilton BMU HM11 Bond debt $1,000,000 Siemens Building Technologies, Inc. 8600 N. Royal La. Suite 100 Irving, TX 75063 Attn: Rhonda Savage Telephone: (972) 550-8488 Trade debt $982,000 Purple International 10920 Switzer Ave. Suite 100 Dallas, TX 75238 Trade debt $956,000 Wesco Distribution, Inc. Commerce Court, Suite 700 Four Station Square Pittsburgh, PA 15219 Trade debt $928,000 Brook Electric Company 645 Heathrow Drive Lincolnshire, IL 60069 Trade debt $889,000 Familian NW Corp. 2250 N. Columbia Blvd. Portland, OR 97217 Trade debt $859,000 Forrest Construction Company P.O. Box 77000 Detroit, MI 48277 Trade debt $854,000 James T. Broyles - PacRim P.O. Box 7088 Rancho, Santa Fe, CA 92067 Note obligation $836,000 Airport Lighting Systems 1315 Brookside, Suite K Hurst, TX 76053 Trade debt $765,000 Medina Corp. 13823 Perthshire Houston, TX 77079 Trade debt $753,000 ACE Inc. USA 1601 Chestnut Street Philadelphia, PA 19103 Trade debt $710,000 McCorvey Sheetmetal Corp. 500 S. Main P.O. Box 405 Galena Park, TX 77547 Telephone: (713) 672-7545 Trade debt $700,000 Brown Wholesale, Inc. 210 S 29th Street Phoenix, AZ 85034 Attn: Dee Schneider Telephone: (602) 275-8521 Trade debt $674,000 Hartford Life Insurance 200 Hopmeadow Street Simsbury, CT 06089 Bond debt $580,000 Farm Bureau Life Insurance Company 5400 University Avenue Des Moines, IA 50266-5977 Bond debt $500,000 ----------------------------------------------------------------- [00006] DEBTORS' MOTION FOR JOINT ADMINISTRATION OF CASES ----------------------------------------------------------------- Pursuant to Rule 1015 of the Federal Rules of Bankruptcy Procedure, the Debtors ask the Court to direct joint administration of their individual Chapter 11 cases for procedural purposes. Alfredo R. Perez, Esq., at Weil, Gotshal & Manges LLP, tells Judge Greendyke that Encompass directly or indirectly owns a controlling interests in each of the other 100-plus Debtors. Therefore, the Debtors are "affiliates" within the meaning of Section 101(2) of the Bankruptcy Code and joint administration of their estates is appropriate under Rule 1015 of the Federal Rules of Bankruptcy Procedure and Rule 1015 of the Southern District of Texas Bankruptcy Local Rules. Mr. Perez argues it would be extremely wasteful and taxing for the Clerk of Court to maintain separate dockets and for parties to file hundreds of repetitive motions, applications, and other pleadings in these cases. Joint administration will permit the Clerk to use a single general docket for the Debtors' cases and to combine notices to creditors and other parties-in-interest. Joint administration of the Debtors' cases will also protect parties-in-interest by ensuring that they will be apprised of various matters in each the Debtors' Chapter 11 cases. Finding substantial merit in the Debtors' request, Judge Greendyke directs joint administration of the Debtors' cases as if they were one. Judge Greendyke directs that all pleadings and papers filed in these cases be captioned: UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION --------------------------------x : In re: : Chapter 11 : ENCOMPASS SERVICES CORPORATION, : Case No. 02-43582 et al., : Debtors. : Jointly Administered : --------------------------------x Judge Greendyke makes it clear that joint administration is a procedural mechanism and does not affect any party's right to request or oppose substantive consolidation of the Debtors' estates. ----------------------------------------------------------------- [00007] DEBTORS' MOTION TO PAY $160 MILLION TO CRITICAL VENDORS ----------------------------------------------------------------- Encompass Services Corporation and its debtor-affiliates estimate they owe roughly $180,000,000 in trade accounts payable and that of these outstanding accounts payable, approximately $160,000,000 is owed to Critical Vendors -- suppliers of materials, equipment, goods and services with whom the Debtors continue to do business and whose materials, equipment, goods and services are essential and critical to the Debtors' reorganization. "To preserve the Debtors' enterprise value and to emerge successfully from these chapter 11 cases," Alfredo R. Perez, Esq., at Weil, Gotshal & Manges LLP, tells the Court, the Debtors want bankruptcy court authority to pay the $160 million without further discussion. To implement a workable Critical Vendor Program, the Debtors propose the Court enter an order providing that: (a) When feasible and appropriate in the Debtors' business judgment, the Debtors are authorized to satisfy a Critical Vendor Claim from available funds on these conditions: (1) all Critical Vendor Claims will be paid by check or by wire transfer of funds; (2) by accepting payment under the terms of the Order, the Critical Vendor agrees to continue extending credit and supplying materials, equipment, goods and/or services to the Debtors and, that credit must generally be provided on ordinary and acceptable terms and conditions that are at least as favorable or better than those provided to the Debtors 120 days prior to the Commencement Date; and (3) the Debtors will transmit a copy of the Order to each Critical Vendor to which any payment permitted hereunder is made; and (b) A Critical Vendors' acceptance of payment for a Critical Vendor Claim is deemed acceptance of the terms of the Order. The Debtors do not disclose the identities of those creditors the Company thinks are or are not critical . . . and the Debtors don't intend to provide the Court with that kind of a list. Rather, the Debtors tell the Court, they've performed an analysis of critical payments that are deemed necessary to avoid potential disruptions and delays to their businesses resulting from a potential inability to fill supply orders or to provide critical services through their subcontractors. The Debtors' management and financial advisors are engaged in the ongoing process of identifying Critical Vendors and critical payments to such vendors. Five criteria are being used to determine which vendor payments will be critical to avoid business interruption: (a) Vendors who have the right to impose statutory liens, mechanic's and materialman's or possessory, on the Debtors' property or their work projects; (b) Subcontractors and/or vendors involved in ongoing projects that may have the ability to delay the completion of projects that the Debtors are otherwise contractually obligated to complete; (c) Vendors who are parties to executory contracts whose prepetition claims would have to be paid in full if the Debtors elected to assume such vendors' contracts; (d) Vendors and/or subcontractors that supply goods or services to a project governed by an executory contract requiring payment for all goods and services before the Debtors can be paid; and (e) Vendors that have reclamation rights. While the Debtors seek authority to pay the vendors they think are critical, the Debtors make it clear they do not propose to pay all amounts outstanding immediately. Instead, the Debtors will determine -- in the exercise of their business judgment and sole discretion, and based upon the liquidity available to the Debtors at the time that determination is made -- which and what amount of the Critical Vendor Claims will be paid and the schedule for any payments. The Debtors assure the Court that payment of the Critical Vendor Claims will not create an imbalance in their cash flow as these cases were not initiated in an effort to defer short-term operating obligations but were instead initiated in an effort to restructure the Debtors' long-term debt obligations. Cash generated in the ordinary course of the Debtors' businesses will provide sufficient liquidity for full payment of the Critical Vendor Claims in the ordinary course of business. The Debtors submit that payment of the Critical Vendor Claims will not negatively impact their cash flows because payment of these vendors and completion of the projects they are working on will generate additional revenues from which the Debtors and their creditors will benefit. *** End of Issue No. 1 *** ------------------------------------------------------------------------- Peter A. Chapman peter@bankrupt.com http://bankrupt.com ------------------------------------------------------------------------- Recommended Reading: Professor Stuart Gilson's newest title, "Creating Value Through Corporate Restructuring: Case Studies in Bankruptcies, Buyouts, and Breakups." List Price: $79.95 -- Discounted to $55.96 at http://amazon.com/exec/obidos/ASIN/0471405590/internetbankrupt -------------------------------------------------------------------------