AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 18, 1996
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
------------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
AMERICAN RESIDENTIAL SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 1711 76-0484996
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION CLASSIFICATION CODE NUMBER)
</TABLE>
5850 SAN FELIPE -- SUITE 500
HOUSTON, TEXAS 77057-8003
(713) 706-6177
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JOHN D. HELD, ESQ.
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
AMERICAN RESIDENTIAL SERVICES, INC.
5850 SAN FELIPE -- SUITE 500
HOUSTON, TEXAS 77057-8003
(713) 706-6177
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
JAMES L. LEADER, ESQ. STEPHEN P. FARRELL, ESQ.
BAKER & BOTTS, L.L.P. MORGAN, LEWIS & BOCKIUS LLP
3000 ONE SHELL PLAZA 101 PARK AVENUE
HOUSTON, TEXAS 77002-4995 NEW YORK, NEW YORK 10178
(713) 229-1234 (212) 309-6000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=========================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.001 per share(3)................. 4,830,000 $13.00 $62,790,000 $21,652
=========================================================================================================================
</TABLE>
(1) Includes 630,000 shares subject to an option granted to the Underwriters to
cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Includes the associated rights to purchase preferred stock.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
AMERICAN RESIDENTIAL SERVICES, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION IN FORM S-1 LOCATION OR CAPTION IN PROSPECTUS
- ----------------------------------------------------------------- ----------------------------------------------------
<S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.............. Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus....................................... Inside Front and Outside Back Cover Pages
of Prospectus
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges........................ Prospectus Summary; Risk Factors; The Company
4. Use of Proceeds....................................... Prospectus Summary; Use of Proceeds; Business
5. Determination of Offering Price....................... Outside Front Cover Page of Prospectus; Risk
Factors; Underwriting
6. Dilution.............................................. Dilution
7. Selling Security Holders.............................. Not Applicable
8. Plan of Distribution.................................. Outside Front Cover Page of Prospectus; Underwriting
9. Description of Securities to be Registered............ Prospectus Summary; Capitalization; Description of
Capital Stock
10. Interests of Named Experts and Counsel................ Not Applicable
11. Information with Respect to the Registrant............ Outside Front Cover Page of Prospectus; Prospectus
Summary; Risk Factors; The Company; Use of Proceeds;
Dividend Policy; Capitalization; Dilution; Selected
Financial Data; Management's Discussion and Analysis
of Financial Condition and Results of Operations;
Business; Management; Certain Transactions; Security
Ownership of Certain Beneficial Owners and
Management; Shares Eligible for Future Sale;
Description of Capital Stock; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities...... Not Applicable
</TABLE>
<PAGE>
*******************************************************************************
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR *
* SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH *
* OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR *
* QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. *
*******************************************************************************
SUBJECT TO COMPLETION, DATED JUNE 18, 1996
PROSPECTUS
4,200,000 Shares
AMERICAN RESIDENTIAL SERVICES, INC.
Common Stock
------------------
All the shares of common stock, $.001 par value per share (the "Common
Stock"), offered hereby are being sold by American Residential Services, Inc.
("ARS"). Prior to this offering, there has not been a public market for the
Common Stock of ARS. It is currently estimated that the initial public offering
price will be $13.00 per share. See "Underwriting" for information relating to
the factors to be considered in determining the initial public offering price.
Application has been made to have the Common Stock listed on the New York Stock
Exchange under the symbol "ARS."
SEE "RISK FACTORS" ON PAGE 10 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN RISK FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==================================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................ $ $ $
- ------------------------------------------------------------------------------------------------------------------
Total(3)............................. $ $ $
==================================================================================================================
</TABLE>
(1) For information regarding indemnification of the several Underwriters,
see "Underwriting."
(2) Before deducting expenses estimated at $ payable by ARS.
(3) ARS has granted the several Underwriters a 30-day option to purchase up
to 630,000 additional shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively.
------------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about August
, 1996 at the office of Smith Barney Inc., 333 West 34th Street, New York, New
York 10001.
Smith Barney Inc. Montgomery Securities
August , 1996
<PAGE>
[graphics -- gatefold, showing service vehicles,
facilities and personnel of the Founding Companies]
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
PROSPECTUS SUMMARY
CONCURRENTLY WITH THE CLOSING OF THE OFFERING MADE HEREBY (THE
"OFFERING"), ARS PLANS TO ACQUIRE, IN SEPARATE TRANSACTIONS (COLLECTIVELY, THE
"ACQUISITIONS"), IN EXCHANGE FOR CONSIDERATION INCLUDING SHARES OF ITS COMMON
STOCK, SEVEN RESIDENTIAL SERVICES BUSINESSES (COLLECTIVELY, THE "FOUNDING
COMPANIES"), TWO OF WHICH ALREADY HAVE BEEN ACQUIRED BY AN AFFILIATE OF ARS.
SEE "THE COMPANY." THE NUMBER OF SHARES OF COMMON STOCK TO BE ISSUED IN EACH
ACQUISITION WILL DEPEND ON THE INITIAL PUBLIC OFFERING PRICE OF THE COMMON
STOCK. ACCORDINGLY, THE DISCLOSURES HEREIN RELATING TO THE SHARES OF COMMON
STOCK TO BE ISSUED IN CONNECTION WITH THE ACQUISITIONS ARE ESTIMATED, BASED ON
AN ASSUMED INITIAL PUBLIC OFFERING PRICE OF $13.00 PER SHARE. UNLESS OTHERWISE
INDICATED BY THE CONTEXT, REFERENCES HEREIN TO (I) "ARS" MEAN AMERICAN
RESIDENTIAL SERVICES, INC., (II) THE "COMPANY" MEAN ARS AND THE FOUNDING
COMPANIES AND (III) "FISCAL 1993," "FISCAL 1994" AND "FISCAL 1995" MEAN,
RESPECTIVELY, THE YEAR ENDED DECEMBER 31, 1993, 1994 AND 1995 WITH RESPECT TO
THE COMPANY AND FIVE FOUNDING COMPANIES, JUNE 30, 1993 AND 1994 AND DECEMBER 31,
1995 WITH RESPECT TO ONE FOUNDING COMPANY AND APRIL 30, 1994, 1995 AND 1996 WITH
RESPECT TO ONE OTHER FOUNDING COMPANY.
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE INFORMATION AND
SHARE AND PER SHARE DATA IN THIS PROSPECTUS (I) GIVE EFFECT TO THE ACQUISITIONS,
(II) ASSUME THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED AND (III)
GIVE EFFECT TO AN APPROXIMATE 1.35-FOR-1 STOCK SPLIT OF THE COMMON STOCK AND THE
CONVERSION OF A CONVERTIBLE NOTE INTO COMMON STOCK.
THE COMPANY
ARS was founded in October 1995 to create a leading national provider of
(i) comprehensive maintenance, repair and replacement services for heating,
ventilating and air conditioning ("HVAC") systems, including indoor air
quality services, and for plumbing, electrical and other systems in homes and
commercial buildings and (ii) new installation services of those systems in
homes and commercial facilities under construction (collectively, "residential
services"). To achieve this goal, the Company intends to implement an
aggressive acquisition program and a national operating strategy designed to
increase internal revenue growth and capitalize on cost efficiencies. During
fiscal 1995, the combined revenues of the Founding Companies totaled $114.6
million, of which maintenance, repair and replacement services accounted for
approximately 48% and new installation services accounted for approximately 52%.
The Company believes the profitability of its maintenance, repair and
replacement business benefits from its installation services operations as a
result of (i) the significant volume of purchases of HVAC systems for its
high-volume installation services and (ii) the addition of new customer and
equipment information to the Company's marketing database. This database
provides the Company with valuable information that can be used to expand the
Company's future residential services revenue base. In addition, new
installation services provide the Company with cooperative advertising credits
from HVAC system manufacturers which it uses for promoting its maintenance,
repair and replacement services for residential HVAC systems. Through leveraging
these benefits, acquiring new service companies and internal development, the
Company intends to emphasize the growth of its higher-margin maintenance, repair
and replacement services business.
ARS has definitive agreements to acquire the seven Founding Companies
simultaneously with the closing of this Offering. The Founding Companies have
been in business an average of 31 years and provide various residential services
in and around the Houston and Washington-Baltimore metropolitan areas, Richmond,
Virginia, throughout South Carolina, southeast Florida and central Indiana
(primarily Indianapolis). The Company is a leading provider of one or more
residential services in each region in which it operates. During fiscal 1995,
the Company's service and installation technicians (totaling approximately 930
as of March 31, 1996) responded to approximately 263,000 maintenance, repair and
replacement service calls and installed approximately 12,800 HVAC systems in
newly built homes,
3
apartments and small commercial buildings. Three of the largest Founding
Companies, representing approximately 63% of the Company's fiscal 1995 combined
revenues, have been members of an industry-sponsored practice-sharing group for
the past six years. Through this arrangement, they have developed common
marketing plans, computer systems and other operational practices in order to
develop "best practices" in their respective markets. The Company believes
building upon this arrangement to include all the Founding Companies will aid in
the initial integration of the Founding Companies following the closing of this
Offering.
The Company estimates that the HVAC, plumbing and electrical industries in
the United States represent an annual market in excess of $ billion, of which
maintenance, repair and replacement services account for in excess of $
billion. It believes this market is served by several thousand companies,
consisting predominantly of small, owner-operated businesses operating in single
local geographic areas and providing a limited range of services. For example,
the Company estimates there are more than 500 companies serving this market in
Houston. It believes the majority of owners in its industry have limited access
to adequate capital for modernization, training and expansion and limited
opportunities for liquidity in their businesses.
The Company believes significant opportunities are available to a well
capitalized, national company employing professionally trained,
customer-oriented service technicians and providing a full complement of
high-quality residential services in an industry that has been characterized by
inconsistent quality, reliability and pricing. It also believes the highly
fragmented nature of the residential services industry will provide it with
significant opportunities to consolidate the capabilities and resources of a
large number of existing residential services businesses.
BUSINESS STRATEGY
The Company plans to achieve its goal of becoming the leading national
provider of professional, high-quality residential services by emphasizing
growth through acquisitions and implementing a national operating strategy that
enhances internal revenue growth and achieves cost efficiencies.
GROWTH THROUGH ACQUISITION. The Company intends to implement an aggressive
acquisition program targeting large metropolitan and high-growth suburban areas
with attractive residential demographics. The Company's acquisition strategy
involves entering new geographic markets and expanding within existing markets.
o ENTERING NEW GEOGRAPHIC MARKETS. In each new market, the Company will
initially target for acquisition one or more leading local or regional
companies providing residential services and having the critical mass
necessary to be a core business around which other residential service
operations can be assembled. An important criterion for these
acquisition candidates will be superior operational management
personnel, whom the Company generally will seek to retain.
o EXPANDING WITHIN EXISTING MARKETS. Once the Company has entered a
market, it will seek to acquire other well-established service
companies operating within that region, in order to expand its market
penetration and expand the range of services it offers in that market.
The Company also will pursue "tuck-in" acquisitions of smaller
residential services companies whose operations can be incorporated
into the Company's existing operations without a significant increase
in infrastructure.
IMPLEMENTATION OF A NATIONAL OPERATING STRATEGY. The Company intends to
implement a national operating strategy employing "best practices" designed to
increase internal growth through enhanced operations and the achievement of cost
efficiencies.
o INTERNAL GROWTH. The Company will review its operations at the local
and regional operating levels (as well as examine other service
industry practices) in order to identify certain "best practices"
that will be implemented throughout its operations. For example, the
Company intends
4
to provide 24-hour emergency service at each of its locations and to
monitor service call quality by attempting to contact each of its
service customers promptly following a service call. In addition, the
Company intends to utilize a national training program to improve and
keep current the technical, selling and customer relations skills of
its service technicians and will use specialized computer technology
at each of its locations to improve communications, vehicle dispatch
and service quality and responsiveness. Management believes these
practices will enable the Company to provide superior customer service
and maximize sales opportunities. This service-oriented strategy will
also allow the Company to reinforce its brand images at the local
level while fostering its efforts to develop a national brand name.
o COST EFFICIENCIES. The Company believes it should be able to reduce
the total operating expenses of the Founding Companies and other
acquired businesses by eliminating duplicative functions and
consolidating certain functions performed separately by each company
prior to its acquisition. In addition, the Company believes that, as a
large, national residential services company, it should experience
reduced costs compared to those of the individual Founding Companies
and other acquired companies in such areas as: the purchase of
equipment for resale, service vehicles, parts and tools; vehicle and
equipment maintenance; financing arrangements; and insurance and
bonding.
THIS OFFERING
Common Stock offered by the Company.. 4,200,000
Common Stock to be outstanding after
this Offering(1)................... 8,995,564
Use of Proceeds...................... To pay the cash portion of the purchase
price for the Founding Companies and to
repay indebtedness of the Founding
Companies. See "Use of Proceeds."
Proposed NYSE symbol................. ARS
- ------------
(1) The number of shares estimated to be outstanding on completion of this
Offering (i) includes shares issued as consideration in the Acquisitions or
on conversion in part of an ARS convertible note issued in the
organizational financing of ARS and (ii) includes 46,156 shares to be
awarded under the Company's 1996 Incentive Plan to certain employees of the
Company on the closing of one of the Acquisitions, but (iii) excludes an
aggregate of 1,345,000 shares subject to options granted under the Company's
1996 Incentive Plan. See "Certain Transactions -- Organization of the
Company" and "Management -- Option Grants."
------------------------
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors."
------------------------
5
SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
ARS will acquire the Founding Companies simultaneously with and as a
condition to the consummation of this Offering. The Combined Founding Company
Statements of Operations data for fiscal 1993, 1994, and 1995 and for the three
months ended March 31, 1995 and 1996 represent the combined data of the Founding
Companies on an historical basis and exclude the effects of pro forma
adjustments. This data will not be comparable to and may not be indicative of
the Company's post-combination results of operations because (i) the Founding
Companies were not under common control or management and had different tax
structures (S corporations and C corporations) during the periods presented and
(ii) the Company will use the purchase method to establish a new basis of
accounting to record the Acquisitions. The following summary unaudited pro forma
financial data presents ARS, as adjusted for (i) the effects of the Acquisitions
on an historical basis, (ii) the effects of certain pro forma adjustments to the
historical financial statements and (iii) the consummation of this Offering. See
"Selected Financial Data" and the Unaudited Pro Forma Combined Financial
Statements and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED ENDED MARCH 31
--------------------------------- --------------------
1993 1994 1995 1995 1996
--------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
COMBINED FOUNDING COMPANIES
STATEMENTS OF OPERATIONS DATA
(UNAUDITED):
Revenues........................ $ 94,263 $ 105,610 $ 114,636 $ 23,727 $ 26,076
Gross profit.................... 25,579 25,860 29,416 5,573 6,670
Selling, general and
administrative expenses(1).... 20,629 22,104 24,190 5,301 5,853
</TABLE>
PRO FORMA(2)
-----------------------------------
THREE MONTHS
ENDED MARCH 31
--------------------
FISCAL 1995 1995 1996
------------ --------- ---------
ARS STATEMENTS OF OPERATIONS DATA
(UNAUDITED):
Revenues........................ $114,636 $ 23,727 $ 26,076
Gross profit.................... 29,643 5,630 6,739
Selling, general and
administrative expenses(1).... 22,321 4,776 5,670
Goodwill amortization(3)........ 1,549 387 387
Operating income................ 5,773 467 682
Interest income and other
expense, net(4)............... 613 152 174
Interest expense................ (865) (221) (227)
Net income from continuing
operations.................... $ 2,972 $ 214 $ 339
======== ========= =========
Net income per share from
continuing operations......... $ .33 $ .02 $ .04
======== ========= =========
Shares used in computing pro
forma net income per share
from continuing
operations(4)................. 8,996 8,996 8,996
======== ========= =========
MARCH 31, 1996
---------------------------
PRO
FORMA(2) AS ADJUSTED(5)
-------- --------------
ARS BALANCE SHEET DATA (UNAUDITED):
Working capital................. $(33,873) $ 2,027
Total assets.................... 93,784 93,826
Total debt, including current
portion........................ 22,546 10,435
Stockholders' equity............ 20,176 67,629
(FOOTNOTES ON FOLLOWING PAGE)
6
- ------------
(1) The historical combined statements exclude, and the pro forma combined
statements include, the effect of certain reductions in salary and benefits
to the owners of six of the Founding Companies to which they have agreed, as
follows: fiscal 1993, $998; fiscal 1994, $1,420; fiscal 1995, $1,808; and
three months ended March 31, 1995 and 1996, $470 and $493, respectively.
(2) The pro forma statements of operations and the pro forma balance sheet
assume that the Acquisitions were closed on January 1 of each period
presented and March 31, 1996, respectively, and are not necessarily
indicative of the results the Company would have obtained had these events
actually then occurred or of the Company's future results. The pro forma
combined financial information in these statements (i) is based on
preliminary estimates, available information and certain assumptions that
management deems appropriate and (ii) should be read in conjunction with the
other financial statements and notes thereto included elsewhere in this
Prospectus.
(3) Reflects amortization of the goodwill to be recorded as a result of the
Acquisitions over a 40-year period.
(4) Computed on a basis described in Note 5 of Notes to Unaudited Pro Forma
Combined Financial Statements.
(5) Reflects the closing of this Offering and the Company's application of the
net proceeds therefrom. See "Use of Proceeds."
7
SUMMARY INDIVIDUAL FOUNDING COMPANY FINANCIAL DATA
(IN THOUSANDS)
The following table presents summary data for each Founding Company for its
three most recent fiscal years as well as the most recent interim period and
comparative period of the prior year, as applicable.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL MARCH 31
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
GENERAL HEATING:
Revenues........................ $ 34,642 $ 36,334 $ 35,159 $ 7,651 $ 7,033
Gross profit.................... 7,249 6,406 6,293 1,250 1,162
Selling, general and
administrative expenses(1).... 5,011 5,245 5,280 1,351 1,186
ATLAS(2):
Revenues........................ $ 10,210 $ 15,625 $ 22,048 $ 4,939 $ 6,573
Gross profit.................... 2,027 2,948 4,237 945 1,358
Selling, general and
administrative expenses(1).... 1,761 2,421 3,022 688 874
CROWN:
Revenues........................ $ 16,268 $ 16,844 $ 19,124 $ 3,555 $ 4,152
Gross profit.................... 5,937 6,529 7,791 1,400 1,509
Selling, general and
administrative expenses(1).... 5,698 5,837 6,165 1,348 1,519
FLORIDA HAC(3):
Revenues........................ $ 13,123 $ 15,845 $ 14,510 $ 3,919 $ 3,658
Gross profit.................... 3,217 3,766 3,969 929 984
Selling, general and
administrative expenses(1).... 2,807 3,321 3,738 894 837
MERIDIAN & HOOSIER(3):
Revenues........................ $ 5,864 $ 8,066 $ 10,133 $ 1,959 $ 2,638
Gross profit.................... 1,800 2,269 2,852 537 871
Selling, general and
administrative expenses(1).... 1,454 1,989 2,350 512 854
A-ABC(3):
Revenues........................ $ 10,979 $ 8,676 $ 8,707 $ 1,704 $ 2,022
Gross profit.................... 4,584 3,101 2,998 512 786
Selling, general and
administrative expenses(1).... 3,159 2,444 2,348 508 583
CLIMATIC:(3)
Revenues........................ $ 3,177 $ 4,220 $ 4,955
Gross profit.................... 765 841 1,276
Selling, general and
administrative
expenses...................... 739 847 1,287
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
8
(1) Excludes the effects of certain reductions in salaries and benefits to the
owners of six of the Founding Companies, as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL MARCH 31
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
General Heating......................... $ 39 $ 31 $ 41 $ 10 $ 10
Atlas................................... 88 123 210 52 52
Crown................................... 729 402 449 110 115
Florida HAC............................. 58 712 868 245 266
Meridian & Hoosier...................... 8 42 104 19 16
A-ABC................................... 76 110 136 34 34
</TABLE>
- ------------
(2) Results for fiscal years ended June 30, 1993 and 1994 and December 31,
1995.
(3) The following summary financial data is unaudited: Florida HAC, fiscal 1993
and 1994; Meridian & Hoosier and A-ABC, fiscal 1993; and Climatic, all
fiscal years.
9
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS, AS
WELL AS THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS
CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF
ANY NUMBER OF FACTORS, INCLUDING THE RISK FACTORS SET FORTH BELOW AND ELSEWHERE
IN THIS PROSPECTUS.
ABSENCE OF COMBINED OPERATING HISTORY
ARS, incorporated in Delaware in October 1995, has conducted no operations
to date other than in connection with its pending acquisitions in separate
transactions (the "Acquisitions") of seven businesses (the "Founding
Companies"), two of which already have been acquired by an affiliate of ARS,
and this Offering. See "The Company." The Founding Companies have operated,
and will continue to operate prior to the closing of the Acquisitions, as
separate, independent businesses, and the Company will use the purchase method
of accounting to record the Acquisitions. Consequently, the pro forma financial
information herein may not be indicative of the Company's future operating
results and financial condition. Until the Company establishes centralized
accounting and other administrative systems, it will rely on the separate
systems of the Founding Companies. The success of the Company will depend, in
part, on the extent to which the Company is able to centralize these functions,
eliminate the unnecessary duplication of other functions and otherwise integrate
the Founding Companies and such additional businesses as the Company may acquire
into a cohesive, efficient enterprise. No assurance can be given the Company's
management group will be able to manage effectively the combined entity or
implement the Company's acquisition or national operating strategy.
DEPENDENCE ON ACQUISITIONS FOR GROWTH
The Company intends to grow primarily by acquiring residential services
businesses that maintain, repair, replace and install heating, ventilating and
air conditioning ("HVAC"), plumbing, electrical and other systems and
equipment in homes and small commercial buildings in its existing and in new
markets. Its acquisition strategy presents risks that, singly or in any
combination, could materially adversely affect the Company's business and
financial performance. These risks include the possibility of the adverse effect
on existing operations of the Company from the diversion of management attention
and resources to acquisitions, the possible loss of acquired customer bases and
key personnel, including service technicians, and the contingent and latent
risks associated with the past operations and other unanticipated problems
arising in the acquired businesses. The success of the Company's acquisition
strategy will depend on the extent to which it is able to acquire, successfully
absorb and profitably manage additional businesses, and no assurance can be
given the Company's strategy will succeed. In this connection, if competition
for acquisition candidates develops, the cost of acquiring businesses could
increase materially. See "Business -- Business Strategy."
NEED FOR ADDITIONAL FINANCING
The Company currently intends to use shares of its Common Stock in making
future acquisitions. The extent to which the Company will be able or willing to
use the Common Stock for this purpose will depend on its market value from time
to time and the willingness of potential sellers to accept it as full or partial
payment. To the extent the Company is unable to use its Common Stock to make
future acquisitions, its ability to grow may be limited by the extent to which
it is able to raise capital for this purpose, as well as to expand existing
operations, through debt or additional equity financings. The Company is
currently pursuing the establishment of a line of credit of at least $50 million
from one or more financial institutions to be used for acquisitions, working
capital and other corporate purposes. In addition, the Company plans to use a
portion of this facility (presently estimated to be approximately $10 million)
to refinance indebtedness of the Founding Companies. No assurance can be given
the Company will be able to obtain a line of credit of that size on terms it
considers acceptable or that it will otherwise be able to obtain the capital it
would need to finance a successful acquisition program and its other cash needs.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
10
DEPENDENCE ON HOUSING STARTS
The extent to which the Company is able to maintain or increase revenues
from new installation services for homebuilders will depend on the levels of
housing starts from time to time in the markets in which it operates and likely
will reflect the cyclical nature of the homebuilding industry. That industry is
affected significantly by changes in general and local economic conditions, such
as employment and income levels, the availability and cost of financing for home
buyers (including the continued deductibility of mortgage interest in
determining federal income tax), consumer confidence and housing demand. Unless
and until the Company is able through implementation of its growth strategy to
reduce the relative importance of new installation services to its overall
operating results, downturns in the levels of housing starts could have a
material adverse effect on its results of operations.
FACTORS AFFECTING INTERNAL GROWTH
The factors affecting the Company's ability to generate internal growth
will include the extent to which it is able to expand the range of services
offered to customers, increase existing customer bases through the development
and implementation of cost-effective advertising and other marketing programs
and reduce operating and overhead costs of acquired businesses. Factors
affecting the ability of the Founding Companies to expand services will include
the extent to which they are able to attract and retain qualified operational
management and service and installation technicians in new areas of operation
and leverage their relationships with existing customers to provide them
services they currently obtain from others.
PROCEEDS OF OFFERING PAYABLE TO AFFILIATES AND ASSOCIATES
ARS will use the net proceeds of this Offering, an anticipated new credit
facility and cash available from the Founding Companies to meet its cash
requirements relating to the closing of the Acquisitions, and no portion of the
net proceeds of this Offering should be considered available to meet the
Company's cash requirements following closing of the Acquisitions and this
Offering. In connection with the closing of the Acquisitions, ARS will pay,
subject to upward and possible downward working capital and other adjustments,
approximately $30.2 million in cash for stock of the Founding Companies which is
beneficially owned by individuals who will become directors of the Company
and/or executive officers of subsidiaries of the Company and approximately
$ million to pay or refinance debt of or relating to the Founding Companies,
including approximately $14.5 million of debt of Enterprises Holding Company
("EHC"), an affiliate of ARS and the owner of two of the Founding Companies.
See "Use of Proceeds" and "Certain Transactions."
COMPETITION
The markets for the residential services the Company provides are highly
competitive and are served principally by small, owner-operated private
companies. Certain of these smaller competitors may have lower overhead cost
structures and, consequently, may be able to provide their services at lower
rates than the Company. The Company believes the residential services industry
is subject to rapid consolidation on both a national and a regional scale. Other
companies, including unregulated affiliates of electric and gas public
utilities, which have objectives the same as or similar to the Company's
objectives, may enter the industry. These entrants may have greater financial
resources than the Company to finance acquisition and internal growth
opportunities and might be willing to pay higher prices than the Company for the
same opportunities. Consequently, the Company may encounter significant
competition in its efforts to achieve its growth objectives. See
"Business -- Competition."
SEASONALITY
The Company's installation, maintenance, repair and replacement operations
are subject to seasonal variations in the different lines of service. Except in
southeast Florida and South Carolina, the demand for new installations can be
substantially lower during the winter months. Demand for HVAC and plumbing
services generally varies with the weather; demand generally is higher during
periods of extremely cold or hot weather and lower in the spring and fall
months. The Company expects its revenues and operating
11
results generally will be lower in its first and fourth quarters. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Seasonality."
DEPENDENCE ON KEY PERSONNEL
The Company's operations depend on the continuing efforts of its executive
officers and the senior management of the Founding Companies, and the Company
likely will depend on the senior management of any significant businesses it
acquires in the future. The business or prospects of the Company could be
affected adversely if any of these persons does not continue in his or her
management role after joining the Company and the Company is unable to attract
and retain qualified replacements. The success of the Company's growth strategy,
as well as the Company's current operations, will depend on the extent to which
the Company is able to retain, recruit and train qualified service and
installation technicians who meet the Company's standards of conduct and service
to its customers. See "Business -- Hiring, Training and Safety."
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS
On closing of the Acquisitions and this Offering, 10 former owners of the
Founding Companies, including the principal venture-capital financing source of
ARS (Equus II Incorporated ("Equus II")) and three executive officers of ARS,
will beneficially own in the aggregate approximately 49% of the outstanding
Common Stock. If these persons were to act in concert, they would, as a
practical matter, be able to exercise control over the Company's affairs,
including the election of the entire Board of Directors and (subject to Section
203 of the Delaware General Corporation Law (the "DGCL")) any matter submitted
to a vote of stockholders. See "Security Ownership of Certain Beneficial Owners
and Management."
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK
On closing of the Acquisitions and this Offering, 8,995,564 shares of
Common Stock will be outstanding. The 4,200,000 shares sold in this Offering
(other than shares that may be purchased by affiliates of the Company) will be
freely tradable. The remaining shares outstanding may be resold publicly only
following their effective registration under the Securities Act of 1933, as
amended (the "Securities Act"), or pursuant to an available exemption (such as
provided by Rule 144 following a holding period for previously unregistered
shares) from the registration requirements of that Act. The holders of those
remaining shares have certain rights to have their shares registered in the
future under the Securities Act (see "Shares Eligible for Future Sale"), but
may not exercise such registration rights, and have agreed with ARS that they
will not sell, transfer or otherwise dispose of any of their shares, for two
years following the closing of this Offering (or for such shorter period as the
Securities and Exchange Commission (the "SEC") may prescribe as the holding
period for restricted securities under Rule 144). Sales made pursuant to Rule
144 must comply with its applicable volume limitations and other requirements.
On closing of this Offering, the Company also will have outstanding options
and warrants to purchase up to a total of 1,454,615 shares of Common Stock, of
which only warrants to purchase 109,615 shares will become exercisable
immediately after the Closing. The Company intends to register all the shares
subject to these options and warrants under the Securities Act for public
resale.
The Company and its directors and executive officers, Equus II and all
persons who acquire shares of Common Stock in connection with the Acquisitions
have agreed not to offer or sell any shares for a period of 180 days following
the date of this Prospectus (the "Lockup Period") without the prior written
consent of Smith Barney Inc., except that the Company may issue Common Stock in
connection with acquisitions, pursuant to the Company's 1996 Incentive Plan (see
"Management -- 1996 Incentive Plan") and pursuant to the exercise of warrants
outstanding as of the closing of this Offering.
Within 60 days after the closing of this Offering, the Company intends to
register 5,000,000 additional shares of Common Stock under the Securities Act
for its use in connection with future acquisitions. These shares generally will
be freely tradable after their issuance by persons not affiliated with the
Company unless the Company contractually restricts their resale.
12
The effect, if any, the availability for sale, or sale, of the shares of
Common Stock eligible for future sale will have on the market price of the
Common Stock prevailing from time to time is unpredictable, and no assurance can
be given that the effect will not be adverse.
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this Offering, no public market for the Common Stock has existed,
and the initial public offering price, which will be determined by negotiation
between the Company and representatives of the Underwriters, may not be
indicative of the price at which the Common Stock will trade after this
Offering. See "Underwriting" for the factors to be considered in determining
the initial public offering price. Application has been made to list the Common
Stock on the New York Stock Exchange, but no assurance can be given an active
trading market for the Common Stock will develop or, if developed, continue
after this Offering. The market price of the Common Stock after this Offering
may be subject to significant fluctuations from time to time in response to
numerous factors, including variations in the reported financial results of the
Company and changing conditions in the economy in general or in the Company's
industry in particular. In addition, the stock markets experience significant
price and volume volatility from time to time which may affect the market price
of the Common Stock for reasons unrelated to the Company's performance at that
time.
IMMEDIATE, SUBSTANTIAL DILUTION
Purchasers of Common Stock in this Offering (i) will experience immediate,
substantial dilution in the net tangible book value of their stock of $12.37 per
share (see "Dilution") and (ii) may experience further dilution in that value
from issuances of Common Stock in connection with future acquisitions.
POTENTIAL ADVERSE EFFECTS OF AUTHORIZED PREFERRED STOCK
The Company's Restated Certificate of Incorporation authorizes the Board of
Directors to issue, without stockholder approval, one or more series of
preferred stock having such preferences, powers and relative, participating,
optional and other rights (including preferences over the Common Stock
respecting dividends and distributions and voting rights) as the Board of
Directors may determine. See "Description of Capital Stock -- Preferred
Stock."
POTENTIAL ANTI-TAKEOVER EFFECTS
The Company has adopted a stockholder rights plan. This plan and provisions
of the Company's Restated Certificate of Incorporation and Bylaws and the DGCL
may have the effect of delaying, discouraging, inhibiting, preventing or
rendering more difficult an attempt to obtain control of the Company by means of
a tender offer, business combination, proxy contest or otherwise. These
provisions include the charter authorization of "blank check" preferred stock
and classification of the Board of Directors, a By-law restriction on the
ability of stockholders to take actions by written consent and a DGCL provision
imposing restrictions on business combinations with certain interested parties.
See "Description of Capital Stock."
13
THE COMPANY
ARS: ARS was founded in October 1995 to create a leading national provider
of residential services through the implementation of both an aggressive
acquisition program and a national operating strategy. Concurrently with and as
a condition to the closing of this Offering, ARS will acquire the seven Founding
Companies. For a description of the transactions pursuant to which these
businesses will be acquired, see "Certain Transactions -- Organization of the
Company."
GENERAL HEATING: General Heating Engineering Company, Inc., which does
business as "General Heating & Air Conditioning Co." ("General Heating"),
was founded in 1947 and is a leading installer of HVAC systems and equipment and
pre-fabricated gas and wood-burning fireplaces for residential and light
commercial construction markets in the Washington-Baltimore metropolitan area,
including northern Virginia, and Richmond. It also provides comprehensive HVAC
maintenance, repair and replacement services to the residential and light
commercial markets and sells and installs pre-fabricated gas and wood-burning
fireplaces. In recognition of its commitment to customer service, General
Heating has received CONTRACTING BUSINESS magazine's 1996 Residential Contractor
of the Year Award. It maintains its headquarters in Manassas, Virginia and has
branch facilities in Savage, Maryland and Richmond, Virginia. At its Manassas
location, General Heating operates a facility that fabricates and assembles
substantially all the sheet metal, duct work, fiberglass and flexible duct work
items used in its installation operations. During fiscal 1995, General Heating
had revenues of approximately $35.2 million.
ATLAS: Atlas Services, Inc. ("Atlas") was founded in 1976 and is a
leading provider of electric, HVAC and plumbing installation services to
residential and light commercial construction markets throughout South Carolina.
Atlas also provides comprehensive plumbing, HVAC and electrical, maintenance,
repair and replacement services and retails and installs pre-fabricated gas and
wood-burning fireplaces. It maintains its headquarters in Charleston, South
Carolina and has branch facilities in Columbia, Greenville, Hilton Head, Clemson
and Myrtle Beach, South Carolina. During fiscal 1995, Atlas had revenues of
approximately $22.0 million.
CROWN: Services Enterprises, Inc., which does business as "Crown
Services" ("Crown"), began operations in 1956 and is the largest single
provider of residential plumbing, HVAC and electrical maintenance, repair and
replacement services to the residential and light commercial markets in the
Houston metropolitan area. Crown does not provide new installation services. It
maintains its headquarters in Houston. In March 1996, Crown was acquired by EHC,
an affiliate of ARS, which will be acquired by the Company in one of the
Acquisitions. See "Certain Transactions -- EHC." During fiscal 1995, Crown had
revenues of approximately $19.1 million.
FLORIDA HAC: Florida Heating and Air Conditioning, Inc. (together with
three affiliated companies having common management, "Florida HAC") began
operations in 1970 and is a leading installer of HVAC systems and equipment for
the residential construction market, and a leading provider of HVAC maintenance,
repair and replacement services to the residential and light commercial markets,
in Southeast Florida, including Broward, Dade and Palm Beach counties. It
maintains its headquarters in Margate, Florida, a suburb of Ft. Lauderdale, and
has a sales office in West Palm Beach. At Margate, Florida HAC operates a
facility that fabricates substantially all fiberglass and flexible duct systems
used in its installation operations. During fiscal 1995, Florida HAC had
revenues of approximately $14.5 million.
MERIDIAN & HOOSIER: DIAL ONE Meridian and Hoosier, Inc. ("Meridian &
Hoosier") is the successor to a business founded in 1973 and is a leading
provider of HVAC maintenance, repair and replacement services to the residential
and light commercial markets, and also installs HVAC systems and equipment for
the residential construction market, in central Indiana, including Indianapolis.
Meridian & Hoosier is the only Founding Company that currently maintains,
repairs and replaces commercial heating and air conditioning units in large
commercial facilities. It maintains its headquarters in Indianapolis, a branch
facility in Lafayette, Indiana and a sales office in Crawfordsville, Indiana.
During fiscal 1995, Meridian & Hoosier had revenues of approximately $10.1
million.
14
A-ABC: ADCOT, Inc., which does business as "A-ABC Appliance"
("A-ABC"), was founded in 1972 and is among the leading providers of home
appliance, HVAC and plumbing maintenance, repair and replacement services to the
residential and light commercial markets in the greater Houston and surrounding
areas. A-ABC does not provide new installation services. It maintains its
headquarters in Houston. In May 1996, A-ABC was acquired by EHC, which will be
acquired in one of the Acquisitions. In June 1996, EHC determined to discontinue
and hold for sale the retail appliance operations of A-ABC, which included eight
retail stores in the greater Houston area. See "Certain Transactions -- EHC."
During fiscal 1995, A-ABC had revenues of approximately $8.7 million (net of
discontinued appliance store revenues of $11.9 million).
CLIMATIC: Climatic Corporation of Vero Beach ("Climatic") is the
successor to a business founded in 1956 and is the leading provider of HVAC
maintenance, repair and replacement services (including internal air quality
("IAQ") services) to the residential and light commercial markets in the
four-county area in Florida known as the Treasure Coast region (Indian River,
St. Lucie, Martin and Palm Beach Counties). It also installs HVAC systems and
equipment for the residential and light commercial construction markets. It
maintains its headquarters in Vero Beach, Florida. During fiscal 1995, Climatic
had revenues of approximately $5.0 million.
SUMMARY OF TERMS OF ACQUISITIONS: The aggregate consideration that will be
paid by ARS to acquire the Founding Companies is approximately $76.9 million,
consisting of (i) approximately $34.8 million in cash and (ii) 3,236,613 shares
of Common Stock. The Company will also assume approximately $21.4 million of
indebtedness. In addition, the stockholders of each Founding Company will be
entitled to receive from such Founding Company (or be obligated to pay to it) an
amount equal to the increase (or decrease) in such Founding Company's net
working capital (as defined) from the date of a specified recent balance sheet
for such Founding Company through the closing of the Acquisitions. Prior to the
closing of the Acquisitions, General Heating, which is an S corporation, will
distribute cash and other current assets to its stockholders in an amount equal
to the balance of its Accumulated Adjustment Account ("AAA account") as of the
closing of the General Heating Acquisition (approximately $10 million as of
December 31, 1995). An AAA account generally represents undistributed retained
earnings of an S corporation, upon which taxes have been paid by the
stockholders. In addition, prior to the closing of the Acquisitions, certain
Founding Companies will make distributions to their stockholders of certain
assets and related liabilities. As of June 30, 1996, the net amount of these
distributions would have been approximately $ million. See "Certain
Transactions."
The consideration being paid by ARS for each Founding Company other than
Crown and A-ABC was determined by arm's-length negotiations between ARS and a
representative of that Founding Company. The consideration being paid by ARS for
EHC (which previously acquired Crown and A-ABC) was determined using generally
the same valuation method ARS used to negotiate the consideration being paid to
the stockholders of the other Founding Companies. See "Certain Transactions."
The closing of each Acquisition is subject to customary conditions. These
conditions include, among others: the accuracy on the closing date of the
Acquisitions of the representations and warranties made by the Founding
Companies, their principal stockholders and by ARS; the performance of each of
their respective covenants included in the agreements relating to the
Acquisitions; and the nonexistence of a material adverse change in the results
of operations, financial condition or business of each Founding Company.
Any Founding Company's Acquisition agreement may be terminated, under
certain circumstances, prior to the closing of this Offering: (i) by the mutual
consent of the boards of directors of ARS and the Founding Company; (ii) if this
Offering and the acquisition of that Founding Company are not closed by December
31, 1996; (iii) by ARS if the schedules to the acquisition agreement are amended
to reflect a material adverse change in that Founding Company; or (iv) if a
material breach or default under the agreement by one party occurs and is not
waived.
No assurance can be given that the conditions to the closing of all the
Acquisitions will be satisfied or waived or that each Acquisition will close.
15
For information regarding the employment agreements to be entered into by
the chief executive officer of each Founding Company other than A-ABC and Crown
(which include covenants not to compete), see "Management -- Employment
Agreements."
American Residential Services, Inc. is a Delaware corporation. Its
executive offices are located at 5850 San Felipe, Suite 500, Houston, Texas
77057-8003, and its telephone number at that address is
(713) 706-6177.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company are estimated to be
approximately $47.3 million, assuming an initial public offering price of $13.00
per share (the estimated initial public offering price). Of those net proceeds,
$34.8 million will be used to pay the cash portion of the purchase price for the
Acquisitions and the remaining approximately $12.5 million will be used to repay
outstanding indebtedness of the Founding Companies (some of which has been
guaranteed by stockholders of the Founding Companies) and ARS and to redeem the
preferred stock of EHC.
On the closing of this Offering, the Company intends to repay an aggregate
of approximately $ million of indebtedness of the Founding Companies and
ARS, and to redeem, for $0.5 million, the preferred stock of EHC. To the extent
such repayment and redemption are not funded with proceeds from this Offering,
the Company intends to fund the repayment thereof through borrowings under a new
credit facility (the "New Credit Facility") which the Company intends to enter
into effective concurrently with the closing of this Offering. The Company has
initiated discussions with several financial institutions to establish the terms
of the New Credit Facility and, based on those discussions, the Company expects
the New Credit Facility will provide initial borrowing availability of at least
$50 million.
The indebtedness to be repaid from the proceeds of this Offering and the
New Credit Facility bears interest at rates ranging from 5.9% to 13.3%. Such
indebtedness would otherwise mature at various dates through 2017.
16
DIVIDEND POLICY
It is the Company's current intention to retain earnings to finance the
expansion of its business. Any future dividends will be at the discretion of the
Board of Directors after taking into account various factors, including, among
others, the Company's financial condition, results of operations, cash flows
from operations, current and anticipated cash needs and expansion plans, the
income tax laws then in effect, the requirements of Delaware law and any
restrictions that may be imposed by the Company's future credit facilities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
CAPITALIZATION
The following table sets forth the current maturities of long-term
obligations and capitalization as of March 31, 1996 (April 30, 1996 in the case
of Climatic) of (i) the Company on a pro forma combined basis to give effect to
the Acquisitions and (ii) the Company, pro forma as adjusted, to give effect to
the Acquisitions, this Offering and the application of the estimated net
proceeds therefrom. See "Use of Proceeds." This table should be read in
conjunction with the Unaudited Pro Forma Financial Statements of the Company and
the related notes thereto included elsewhere in this Prospectus.
MARCH 31, 1996
-------------------------
PRO FORMA AS ADJUSTED
--------- ------------
(IN THOUSANDS)
Current maturities of long-term
obligations........................ $ 805 $ 805
======= ========
Long-term obligations, less current
maturities......................... 20,341 9,330
Stockholders' equity:
Preferred Stock: $0.001 par
value, 10,000,000 shares
authorized; none issued or
outstanding.................... -- --
Common Stock: $0.001 par value,
50,000,000 shares authorized;
4,795,564 shares issued and
outstanding, pro forma; and
8,995,564 shares issued and
outstanding, pro forma as
adjusted(1).................... 5 9
Additional paid-in capital...... 23,535 71,284
Retained deficit................ (3,364) (3,664)
------- --------
Total stockholders'
equity.................. 20,176 67,629
------- --------
Total
capitalization..... $40,517 $ 76,959
======= ========
- ------------
(1) Excludes an aggregate of 1,345,000 shares of Common Stock subject to options
granted pursuant to the Company's 1996 Incentive Plan. See
"Management -- 1996 Incentive Plan."
17
DILUTION
The deficit in pro forma net tangible book value of the Company as of March
31, 1996 was approximately $(41,793,000), or approximately $(8.71) per share,
after giving effect to the Acquisitions. The deficit in pro forma net tangible
book value per share represents the amount by which the Company's pro forma
total liabilities exceed the Company's pro forma net tangible assets as of March
31, 1996, divided by the number of shares to be outstanding after giving effect
to (i) the Acquisitions and (ii) the issuance of stock awards to employees of
the Company in connection with the acquisition of EHC, (iii) the conversion in
part of an ARS convertible note and EHC preferred stock held by Equus II and
(iv) the assumed exercise of a warrant held by a bank lender of EHC. After
giving effect to the sale of the 4,200,000 shares offered hereby and deducting
estimated underwriting discounts and commissions and estimated offering expenses
payable by the Company, the Company's pro forma net tangible book value as of
March 31, 1996 would have been approximately $5,660,000, or approximately $.63
per share, based on the estimated initial public offering price of $13.00 per
share. This represents an immediate increase in pro forma net tangible book
value of approximately $9.34 per share to existing stockholders and an immediate
dilution of approximately $12.37 per share to new investors purchasing shares in
this Offering. The following table illustrates this pro forma dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................................... $ 13.00
Pro forma deficit in net tangible book value per share before
this Offering..................................................................... $ (8.71)
Increase in pro forma net tangible value per share attributable to
new investors..................................................................... 9.34
---------
Pro forma net tangible book value per share after this Offering..................... .63
---------
Dilution per share to new investors................................................. $ 12.37
=========
</TABLE>
The following table sets forth, on a pro forma basis to give effect to the
Acquisitions as of March 31, 1996, the number of shares of Common Stock
purchased from the Company, the total consideration to the Company and the
average price per share paid to the Company by existing stockholders and the new
investors purchasing shares from the Company in this Offering (before deducting
underwriting discounts and commissions and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION(1) AVERAGE
---------------------- -------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- --------------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ 4,795,564 53.3% $ (41,793,000) (326.3)% $ (8.71)
New investors........................ 4,200,000 46.7 54,600,000 426.3 13.00
----------- ------- --------------- -------
Total...................... 8,995,564 100.0% $ 12,807,000 100.0%
=========== ======= =============== =======
</TABLE>
- ------------
(1) Total consideration paid by existing stockholders represents the combined
stockholders' equity of the Founding Companies before this Offering,
adjusted to reflect: (i) the payment of $34,800,000 in cash to the
stockholders of the Founding Companies as part of the consideration for the
Acquisitions; and (ii) the transfer of selected assets to and the assumption
of certain liabilities by certain stockholders of the Founding Companies in
the net amount of $.6 million in connection with the Acquisitions. See "Use
of Proceeds" and "Capitalization."
18
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
ARS will acquire the Founding Companies simultaneously with and as a
condition to the consummation of this Offering. The Combined Founding Company
Statements of Operations data for fiscal 1993, 1994 and 1995 and for the three
months ended March 31, 1995 and 1996 represent the combined data of the Founding
Companies on an historical basis and exclude the effects of pro forma
adjustments. This data will not be comparable to and may not be indicative of
the Company's post-combination results of operations because (i) the Founding
Companies were not under common control or management and had different tax
structures (S corporations and C corporations) during the periods presented and
(ii) the Company will use the purchase method to establish a new basis of
accounting to record the Acquisitions. The following summary unaudited pro forma
financial data presents ARS, as adjusted for (i) the effects of the Acquisitions
on an historical basis, (ii) the effects of certain pro forma adjustments to the
historical financial statements and (iii) the consummation of this Offering. See
the Unaudited Pro Forma Combined Financial Statements and the notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED ENDED MARCH 31
--------------------------------- --------------------
1993 1994 1995 1995 1996
--------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
COMBINED FOUNDING COMPANIES
STATEMENTS OF OPERATIONS DATA
(UNAUDITED):
Revenues........................ $ 94,263 $ 105,610 $ 114,636 $ 23,727 $ 26,076
Gross profit.................... 25,579 25,860 29,416 5,573 6,670
Selling, general and
administrative expenses(1).... 20,629 22,104 24,190 5,301 5,853
</TABLE>
PRO FORMA(2)
-----------------------------------
THREE MONTHS
ENDED MARCH 31
--------------------
FISCAL 1995 1995 1996
------------ --------- ---------
ARS STATEMENTS OF OPERATIONS DATA
(UNAUDITED):
Revenues........................ $114,636 $ 23,727 $ 26,076
Gross profit.................... 29,643 5,630 6,739
Selling, general and
administrative expenses(1).... 22,321 4,776 5,670
Goodwill amortization(3)........ 1,549 387 387
Operating income................ 5,773 467 682
Interest income and other
expense, net(4)............... 613 152 174
Interest expense................ (865) (221) (227)
Net income from continuing
operations.................... $ 2,972 $ 214 $ 339
======== ========= =========
Net income per share from
continuing operations......... $ .33 $ .02 $ .04
======== ========= =========
Shares used in computing pro
forma net income per share
from continuing
operations(4)................. 8,996 8,996 8,996
======== ========= =========
MARCH 31, 1996
---------------------------
PRO
FORMA(2) AS ADJUSTED(5)
-------- --------------
ARS BALANCE SHEET DATA (UNAUDITED):
Working capital................. $(33,873) $ 2,027
Total assets.................... 93,784 93,826
Total debt, including current
portion........................ 22,546 10,435
Stockholders' equity............ 20,176 67,629
(FOOTNOTES ON FOLLOWING PAGE)
19
- ------------
(1) The historical combined statements exclude, and the pro forma combined
statements include, the effect of certain reductions in salary and benefits
to the owners of six of the Founding Companies to which they have agreed, as
follows: fiscal 1993, $998; fiscal 1994, $1,420; fiscal 1995, $1,808; and
three months ended March 31, 1995 and 1996, $470 and $493, respectively.
(2) The pro forma statements of operations and the pro forma balance sheet
assume that the Acquisitions were closed on January 1 of each period
presented and March 31, 1996, respectively, and are not necessarily
indicative of the results the Company would have obtained had these events
actually then occurred or of the Company's future results. The pro forma
combined financial information in these statements (i) is based on
preliminary estimates, available information and certain assumptions that
management deems appropriate and (ii) should be read in conjunction with the
other financial statements and notes thereto included elsewhere in this
Prospectus.
(3) Reflects amortization of the goodwill to be recorded as a result of the
Acquisitions over a 40-year period.
(4) Computed on a basis described in Note 5 of Notes to Unaudited Pro Forma
Combined Financial Statements.
(5) Reflects the closing of this Offering and the Company's application of the
net proceeds therefrom. See "Use of Proceeds."
20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Founding
Companies' Financial Statements and related notes thereto and "Selected
Financial Data" appearing elsewhere in this Prospectus.
INTRODUCTION
The Company's revenues are primarily derived from (i) owners and occupants
of homes and light commercial buildings and (ii) builders and developers of new
homes, residential developments and commercial buildings. Cost of services
consists primarily of salaries and benefits of service and installation
technicians, parts and materials, subcontracted services, depreciation,
maintenance, fuel and equipment rentals. Selling, general and administrative
expenses consist primarily of compensation and related benefits for owners,
administrative salaries and benefits, advertising, office rent and utilities,
communications and professional fees.
The Founding Companies have been managed throughout the periods presented
as independent private companies, and, as such, their results of operations
reflect different tax structures (S corporations and C corporations), which have
influenced, among other things, their historical levels of owners' compensation.
These owners and certain key employees have agreed to certain reductions in
their compensation and benefits in connection with the organization of the
Company.
ARS, which has conducted no operations to date, intends to integrate these
businesses, their operations and administrative functions over a period of time.
This integration process may present opportunities to reduce costs through the
elimination of duplicative functions and through economies of scale,
particularly in obtaining additional contracts through shared customer lists and
greater volume discounts from material suppliers, but may necessitate additional
costs and expenditures for corporate management and administration, corporate
expenses related to being a public company, systems integration and facilities
expansion. These various costs and possible cost-savings may make comparison of
historical operating results not comparable to, or indicative of, future
performance. Accordingly, neither the anticipated savings nor the anticipated
costs have been included in the unaudited pro forma financial information
presented herein.
COMBINED FOUNDING COMPANIES
RESULTS OF OPERATIONS -- COMBINED
The Combined Founding Company Statements of Operations data (unaudited) for
fiscal 1993, 1994 and 1995 and for the three months ended March 31, 1995 and
1996 represents the combined data of the Founding Companies on a historical
basis and exclude the effects of pro forma adjustments. However, during the
periods presented, the Founding Companies were not under common control or
management and, as such, their results of operations reflect different tax
structures (S corporations and C corporations). In addition, a new basis of
accounting will be established as a result of the Acquisitions. Accordingly, the
data presented may not be comparable to or indicative of post-combination
results to be achieved by the Company. See "Risk Factors -- Absence of Combined
Operating History."
COMBINED UNAUDITED INTERIM RESULTS
REVENUES. Revenues increased $2.4 million, or 10.1%, from $23.7 million
for the three months ended March 31, 1995 to $26.1 million for the three months
ended March 31, 1996. This increase was primarily due to an increase in Atlas
revenues of $1.7 million, or 34.7%, from $4.9 million for the three months ended
March 31, 1995 to $6.6 million for the three months ended March 31, 1996, due to
several large new installation projects added during the three months ended
March 31, 1996. The remaining increase in revenues was primarily attributable to
an increase in Crown's residential service revenues of $0.6 million resulting
from increased plumbing and renovation services, an increase in Meridian &
Hoosier's revenues of $0.6 million resulting from the acquisition of Sagamore
Heating and Cooling ("Sagamore") and increases in repair and replacement
services and an increase in A-ABC's revenues of $0.3 million. These increases
were partially offset by a $0.7 million decrease at General Heating reflecting
reduced new
21
installation activity resulting from severe weather conditions encountered in
much of the northeast United States during the first quarter of 1996, and an
$0.2 million decrease at Florida HAC.
COST OF SERVICES. Cost of services increased $1.3 million, or 7.2%, from
$18.1 million for the three months ended March 31, 1995 to $19.4 million for the
three months ended March 31, 1996, but decreased as a percentage of revenues
from 76.5% for the three months ended March 31, 1995 to 74.4% for the three
months ended March 31, 1996. The dollar increase in cost of services was
primarily attributable to a $1.2 million increase at Atlas, from $4.0 million
for the three months ended March 31, 1995 to $5.2 million for the three months
ended March 31, 1996, which was attributable to the increase in revenue and an
increase in repair and maintenance expenditures. The remaining dollar increase
was primarily attributable to a $0.4 million increase at Crown resulting
primarily from lower-margin services and increased use of subcontractors and a
$0.4 million increase at Meridian & Hoosier resulting primarily from the
Sagamore acquisition. The increase was offset by a $0.5 million decrease at
General Heating as a result of adverse weather conditions and a $0.3 million
decrease at Florida HAC. The decrease in cost of services as a percentage of
sales was primarily attributable to increases in volume purchase discounts and
more effective employee utilization at A-ABC and changes in the mix of services
and increases in volume purchase discounts at Meridian & Hoosier.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.6 million, or 11.3%, from $5.3 million for
the three months ended March 31, 1995 to $5.9 million for the three months ended
March 31, 1996, and remained relatively constant as a percentage of revenues
between the two periods. The dollar increase in selling, general and
administrative expenses was primarily attributable to slight changes at all the
Founding Companies.
COMBINED RESULTS FOR FISCAL 1995 COMPARED TO FISCAL 1994
REVENUES. Revenues increased $9.0 million, or 8.5%, from $105.6 million in
fiscal 1994 to $114.6 million in fiscal 1995. This increase was largely due to
(i) an increase in Atlas revenues of $6.4 million, or 41.0%, from $15.6 million
in fiscal 1994 to $22.0 million in fiscal 1995, primarily attributable to a
opening new operational facility in Hilton Head, South Carolina (opened in April
1994) and the addition of several new large home builder customers; (ii) an
increase in Crown's revenues of $2.3 million, or 13.7%, from $16.8 million in
fiscal 1994 to $19.1 million in fiscal 1995, primarily attributable to an
increase in plumbing and HVAC services; and (iii) an increase in Meridian &
Hoosier's revenue of $2.0 million, or 24.7%, from $8.1 million in fiscal 1994 to
$10.1 million in fiscal 1995, primarily attributable to increased residential
replacement sales. This increase was partially offset by a decrease in General
Heating of $1.1 million, or 3.0%, from $36.3 million in fiscal 1994 to $35.2
million in fiscal 1995 due to a reduction in new home starts in the
Washington-Baltimore metropolitan area, as well as a decrease in revenues of
Florida HAC of $1.3 million, or 8.2%, from $15.8 million in fiscal 1994 to $14.5
million in fiscal 1995 due to a reduction in new home starts.
COST OF SERVICES. Cost of services increased by $5.4 million, or 6.8%,
from $79.8 million in fiscal 1994 to $85.2 million in fiscal 1995, but decreased
as a percentage of revenues from 75.5% in fiscal 1994 to 74.3% in fiscal 1995.
The dollar increase in cost of services was primarily attributable to (i) a $5.1
million increase in Atlas, cost of services from $12.7 million in fiscal 1994 to
$17.8 million in fiscal 1995 consistent with the percentage increase in
revenues, (ii) a $1.0 million increase in Crown's cost of service from $10.3
million in fiscal 1994 to $11.3 million in fiscal 1995 as discussed below and
(iii) a $1.5 million increase in cost of services at Meridian & Hoosier from
$5.8 million in fiscal 1994 to $7.3 million in fiscal 1995 consistent with its
percentage increase in revenues. The increases were partially offset by a $1.0
million decrease in General Heating's cost of service from $29.9 million in
fiscal 1994 to $28.9 million in fiscal 1995 consistent with the percentage
decrease in revenues and a $1.6 million decrease in Florida HAC cost of service
from $12.1 million in fiscal 1994 to $10.5 million in fiscal 1995. The reduction
in cost of services as a percentage of revenues was primarily attributable to a
change in the mix of service from lower-margin home building to higher-margin
apartment complexes in fiscal 1995 and improvement in volume rebates at Florida
HAC and a change in the mix of services from lower-margin services to
higher-margin services and increased use of contractors at Crown.
22
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $2.1 million, or 9.5%, from $22.1 million in
fiscal 1994 to $24.2 million in fiscal 1995 and increased slightly as a
percentage of revenues from 20.9% in fiscal 1994 to 21.1% in fiscal 1995. The
increase in selling, general and administrative expenses was primarily
attributable to (i) a $0.6 million increase at Atlas resulting primarily from
the addition of an administrative infrastructure for the Hilton Head location
and other office expansions; (ii) a $0.4 million increase at Crown resulting
from increased advertising; (iii) a $0.3 million increase at Meridian & Hoosier
resulting from increased marketing efforts; and (iv) a $0.4 million increase at
Florida HAC resulting from a $0.2 million increase in owner compensation. This
increase was partially offset by a $0.2 million decrease at General Heating.
COMBINED RESULTS FOR FISCAL 1994 COMPARED TO FISCAL 1993
REVENUES. Revenues increased $11.3 million, or 12.0%, from $94.3 million
in fiscal 1993 to $105.6 million in fiscal 1994. This increase was primarily due
to (i) an increase in Atlas revenues of $5.4 million, or 52.9% from $10.2
million in fiscal 1993 to $15.6 million in fiscal 1994, primarily due to the
opening of a new operation in Greenville, South Carolina and the addition of
several new home building customers, (ii) an increase of $2.7 million, or 20.7%,
at Florida HAC, as a result of an increase in the number of new home starts and
the addition of several large apartment complexes, (iii) an increase in General
Heating of $1.7 million, or 4.9%, resulting from an increase in new home
installation volume and replacement services; and (iv) an increase of $2.2
million, or 37.3%, at Meridian & Hoosier from $5.9 million in fiscal 1993 to
$8.1 million in fiscal 1994 primarily due to increased residential replacement
services and the start-up of a construction division. These increases were
partially offset by a decrease in revenues of $2.3 million, or 20.9%, at A-ABC
resulting from the elimination of certain plumbing services at A-ABC.
COST OF SERVICES. Cost of services increased $11.1 million, or 16.2%, from
$68.7 million in fiscal 1993 to $79.8 million in fiscal 1994 and increased as a
percentage of revenue for fiscal 1994 to 75.5% from 72.9% for fiscal 1993. The
dollar increase in cost of services was primarily attributable to (i) a $4.5
million increase at Atlas; (ii) a $2.2 million increase at Florida HAC, which is
consistent with its percentage increase in revenues; (iii) a $2.5 million
increase at General Heating; and (iv) a $1.7 million increase at Meridian &
Hoosier resulting from the start-up of the construction division. The increase
in cost of services as a percentage of revenues was primarily attributable to
(i) the elimination of certain high-margin plumbing services at A-ABC; (ii)
increased turnover and underutilized assets at Atlas; and (iii) increased truck
and delivery costs and payroll and related employee benefits at General Heating.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Total selling, general and
administrative expenses increased $1.5 million, or 7.3% of revenues, from $20.6
million in fiscal 1993 to $22.1 million in fiscal 1994. The increase in selling,
general and administrative expenses was primarily attributable to (i) a $0.6
million increase at Atlas resulting from the addition of an administrative
infrastructure in Greenville and (ii) a $0.5 million increase at Meridian &
Hoosier resulting from increased sales commission and advertising costs.
LIQUIDITY AND CAPITAL RESOURCES -- COMBINED
On a combined basis, the Founding Companies generated $6.8 million and $0.9
million of net cash from operating activities during fiscal 1995 and the three
months ended March 31, 1996, respectively. Net cash used in investing activities
by the Founding Companies on a combined basis was $1.9 million and $(0.5)
million during fiscal 1995 and the three months ended March 31, 1996,
respectively. Most of the cash used in investing activities during these periods
was used for purchases of property and equipment. Net cash used in financing
activities by the Founding Companies on a combined basis was $1.7 million and
$3.5 million during fiscal 1995 and the three months ended March 31, 1996,
respectively. Most of the cash used in financing activities during these periods
was used for net payments on long-term debt and distributions to stockholders.
The combined cash and cash equivalents of the Founding Companies decreased by
$2.4 million from $7.3 million at December 31, 1995 to $4.9 million at March 31,
1996, although one of the Founding Companies, A-ABC, had a working capital
deficit at March 31, 1996.
23
On the closing of this Offering, the Company intends to repay an aggregate
of approximately $12.1 million of indebtedness of the Founding Companies, ARS
and EHC and to redeem $0.5 million of preferred stock of EHC. The repayment of
the remaining approximately $10.4 million of indebtedness and other obligations
is expected to be funded through borrowings under a New Credit Facility.
Prior to the closing of the Acquisitions, General Heating will make
distributions to its stockholders in respect of its estimated S corporation
Accumulated Adjustment Account as of the date of the closing. These
distributions (approximately $10 million as of December 31, 1995) are expected
to be funded primarily through working capital, cash provided by General
Heating's operating activities and, to the extent necessary, additional debt.
The Company has initiated discussions with several financial institutions
to establish the terms of a New Credit Facility. Based on those discussions, the
Company expects a New Credit Facility will provide for initial borrowing
availability of at least $50 million. There is no assurance, however, that such
facility will be available in that amount or on terms acceptable to the Company.
The Company anticipates that its cash flow from operations will provide
cash in excess of the Company's normal working capital needs, debt service
requirements and planned capital expenditures for property and equipment. On a
combined basis, the Founding Companies made capital expenditures of $2.6 million
and $1.0 million in fiscal 1995 and the three months ended March 31, 1996,
respectively.
The Company intends to continue pursuing attractive acquisition
opportunities. The timing, size or success of any acquisition effort and the
associated potential capital commitments are unpredictable. The Company expects
to fund future acquisitions primarily through a combination of working capital,
cash flow from operations and borrowings, including the unborrowed portion of
the New Credit Facility, as well as issuances of additional equity.
Due to the relatively low levels of inflation experienced in fiscal 1993,
1994 and 1995, inflation did not have a significant effect on the results of the
combined Founding Companies in those fiscal years.
SEASONALITY
The Founding Companies have in the past experienced, and the Company
expects that it will in the future experience, quarterly fluctuations in
revenues, operating income and cash flows as a result of changes in weather
conditions. Except in Florida and South Carolina, the demand for new
installations is lower in the winter months because new construction activity is
lower as a result of colder weather. Demand for HVAC and plumbing services is
generally higher during periods of extreme cold and hot weather because of
greater demands placed on residential systems and lower in spring and early fall
when residential systems are not significantly burdened.
INDIVIDUAL FOUNDING COMPANIES
The selected historical financial information presented in the tables below
for the fiscal years of the individual Founding Companies is derived from the
respective audited financial statements of the individual Founding Companies
included elsewhere herein. The selected historical financial information
presented in the tables below for the quarterly periods of the Founding
Companies is derived from the respective unaudited interim financial statements
of the Founding Companies, which include all adjustments the Company considers
necessary for a fair presentation of the results of operations and cash flows of
those companies for those periods. The following discussion should be read in
conjunction with the "Summary Individual Founding Company Financial Data" and
the separate company financial statements and related notes thereto appearing
elsewhere in this Prospectus.
GENERAL HEATING
Founded in 1947, General Heating is a leading installer of HVAC systems and
equipment and pre-fabricated gas and wood-burning fireplaces for residential and
light commercial construction markets in the Washington-Baltimore metropolitan
area, including northern Virginia, and Richmond.
24
RESULTS OF OPERATIONS -- GENERAL HEATING
The following table sets forth certain historical selected financial data
and data as a percentage of revenues for the periods indicated (dollars in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
------------------------------------------------ -----------------------------------
1993 1994 1995 1995 1996
-------------- --------------- --------------- ---------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES .......................... $34,642 100.0% $36,334 100.0% $35,159 100.0% $ 7,651 100.0% $ 7,033 100.0%
COST OF SERVICES .................. 27,393 79.1 29,928 82.4 28,866 82.1 6,401 83.7 5,871 83.5
------- ----- ------- ----- ------- ----- ------- ----- ------- ------
GROSS PROFIT ...................... 7,249 20.9 6,406 17.6 6,293 17.9 1,250 16.3 1,162 16.5
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES ........................ 5,011 14.5 5,245 14.4 5,280 15.0 1,351 17.7 1,186 16.9
------- ----- ------- ----- ------- ----- ------- ----- ------- ------
INCOME (LOSS) FROM OPERATIONS ..... $ 2,238 6.4 $ 1,161 3.2 $ 1,013 2.9 $ (101) (1.4) $ (24) (0.4)
======= ===== ======= ===== ======= ===== ======= ===== ======= ======
</TABLE>
GENERAL HEATING -- UNAUDITED INTERIM RESULTS
REVENUES -- Revenues decreased $0.7 million, or 9.1%, from $7.7 million for
the three months ended March 31, 1995, to $7.0 million for the three months
ended March 31, 1996. The decrease in revenues was attributable to reduced new
installation activity resulting from the severe weather conditions encountered
in much of the northeastern United States during the three months ended March
31, 1996.
COST OF SERVICES -- Cost of services decreased $0.5 million, or 7.8%, from
$6.4 million for the three months ended March 31, 1995 to $5.9 million for the
three months ended March 31, 1996. The decrease in cost of services was
consistent with the percentage decrease in revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses decreased $0.2 million, or 14.3%, from $1.4 million for
the three months ended March 31, 1995 to $1.2 million for the three months ended
March 31, 1996. The decrease in general and administrative expenses was
attributable to reductions in variable administrative labor costs and reductions
in state unemployment taxes.
GENERAL HEATING -- 1995 COMPARED TO 1994
REVENUES -- Revenues decreased $1.1 million, or 3.0%, from $36.3 million in
1994 to $35.2 million in 1995. The decrease in revenue was attributable to a
reduction in the number of new home starts in the Washington-Baltimore
metropolitan area.
COST OF SERVICES -- Cost of services decreased $1.0 million, or 3.3%, from
$29.9 million in 1994 to $28.9 million in 1995. The decrease in cost of services
was consistent with the percentage decrease in revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses were unchanged at $5.3 million for 1994 and 1995.
GENERAL HEATING -- 1994 COMPARED TO 1993
REVENUES -- Revenues increased $1.7 million, or 4.9%, from $34.6 million in
1993 to $36.3 million in 1994. The increase in revenue was attributable to a
$1.0 million increase in new installation volume and a $0.7 million increase in
HVAC System replacement services.
COST OF SERVICES -- Cost of services increased $2.5 million, or 9.1%, from
$27.4 million in 1993 to $29.9 million in 1994. As a percentage of revenues,
cost of services increased to 82.4% in 1994 from 79.1% in 1993. The increase in
cost of sales in 1994 was primarily attributable to (i) an $0.5 million
adjustment to write off certain obsolete inventory; (ii) increased depreciation
on replacement of fully depreciated trucks; (iii) an increase in payroll and
related employee benefits; and (iv) an increase in the cost of delivery of parts
and materials, as the Company's operations were spread over a larger geographic
region.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.2 million, or 4.0%, from $5.0 million in
1993 to $5.2 million in 1994. The increase was
25
consistent with the percentage increase in revenues and was attributable to
increases in payroll and related employee benefits.
LIQUIDITY AND CAPITAL RESOURCES -- GENERAL HEATING
The following table sets forth selected information from General Heating
statements of cash flows (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31 MARCH 31
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES............... $ 0.9 $ 2.1 $ 2.9 $ 0.9 $ (0.2)
NET CASH USED IN INVESTING
ACTIVITIES......................... (1.0) (3.1) (0.3) (0.3) (0.1)
NET CASH USED IN FINANCING
ACTIVITIES......................... (1.7) (0.2) (1.5) (0.7) (0.6)
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... $ (1.8) $ (1.2) $ 1.1 $ (0.1) $ (0.9)
========= ========= ========= ========= =========
</TABLE>
From 1993 through the three months ended March 31, 1996, General Heating
generated $5.7 million in net cash from operating activities. During this
period, $6.9 million was generated from income plus non-cash charges, and was
reduced by $1.2 million of cash used to fund increases in working capital.
Cash used in investment activities was primarily attributable to the
purchase and replacement of trucks within General Heating's fleet. In addition,
in 1994, General Heating invested approximately $2.5 million in short-term
investment securities.
Cash used in financing activities consists primarily of S corporation
distributions to General Heating's stockholders.
Prior to the closing of the Acquisitions, General Heating will make
distributions to its stockholders in respect of its estimated S corporation
Accumulated Adjustment Account as of the date of the closing. These
distributions (approximately $10 million as of December 31, 1995) are expected
to be funded primarily through working capital, cash provided by General
Heating's operating activities and, to the extent necessary, additional debt.
See "Certain Transactions -- Organization of the Company."
General Heating had a working capital surplus of $7.0 million as of March
31, 1996. General Heating has historically funded its operations with cash flows
from operations. While there can be no assurance, management of General Heating
believes it has adequate cash flow to fund its operations through the second
quarter of 1997.
ATLAS
Founded in 1976, Atlas is a leading provider of electric, HVAC and plumbing
installation services to the residential and light commercial construction
markets throughout South Carolina. Atlas also provides comprehensive plumbing,
HVAC and electrical maintenance, repair and replacement services, and repairs
and installs pre-fabricated gas and wood-burning fireplaces.
26
RESULTS OF OPERATIONS -- ATLAS
The following table sets forth certain selected financial data and data as
a percentage of revenues for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30 YEAR ENDED MARCH 31
------------------------------------- DECEMBER 31, -----------------------------------
1993 1994 1995 1995 1996
------------------ ----------------- ---------------- ---------------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES............................. $ 10,210 100.0% $ 15,625 100.0% $ 22,048 100.0% $ 4,938 100.0% $ 6,573 100.0%
COST OF SERVICES..................... 8,183 80.1 12,677 81.1 17,811 80.8 3,993 80.8 5,215 79.3
--------- ------- -------- ------- -------- ------ -------- ------ ------- -------
GROSS PROFIT......................... 2,027 19.9 2,948 18.9 4,237 19.2 945 19.2 1,358 20.7
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 1,761 17.2 2,421 15.5 3,022 13.7 688 13.9 874 13.3
--------- ------- -------- ------- -------- ------ -------- ------ ------- -------
INCOME FROM OPERATIONS............... $ 266 2.7 $ 527 3.4 $ 1,215 5.5 $ 257 5.3 $ 484 7.4
--------- ------- -------- ------- -------- ------ -------- ------ ------- -------
</TABLE>
ATLAS -- UNAUDITED INTERIM RESULTS
REVENUES -- Revenues increased $1.7 million, or 34.7%, from $4.9 million
for the three months ended March 31, 1995 to $6.6 million for the three months
ended March 31, 1996. The increase in revenues was attributable to several large
new installation projects.
COST OF SERVICES -- Cost of services increased $1.2 million, or 30.0%, from
$4.0 million for the three months ended March 31, 1995 to $5.2 million for the
three months ended March 31, 1996, but decreased as a percentage of revenues
from 80.8% for the first quarter of 1995 to 79.3% for the first quarter of the
current year. The dollar increase was primarily attributable to the increase in
revenues in addition to an increase in repair and maintenance expenses on the
Atlas fleet of trucks.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.2 million, or 28.6%, from $0.7 million for
the three months ended March 31, 1995 to $0.9 million for the three months ended
March 31, 1996. The increase in selling, general and administrative expenses was
primarily attributable to added administrative staff at several operating
locations.
ATLAS -- YEAR ENDED DECEMBER 31, 1995, COMPARED TO YEAR ENDED JUNE 30, 1994
REVENUES -- Revenues increased $6.4 million, or 41.0%, from $15.6 million
in 1994 to $22.0 million in 1995. Part of this increase was attributable to the
new operating facility in Hilton Head, South Carolina (opened in April 1994).
The addition of several large home builder customers accounted for the majority
of the remaining increase.
COST OF SERVICES -- Cost of services increased $5.1 million, or 40.2%, from
$12.7 million in 1994 to $17.8 million in 1995. The increase in cost of services
resulted primarily from the increase in revenue.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.6 million, or 25.0%, from $2.4 million in
1994 to $3.0 million in 1995, but remained substantially constant as a
percentage of revenues. The dollar increase in selling, general and
administrative expense in 1995 was primarily attributable to the addition of an
administrative infrastructure in Hilton Head and the expansion of office space
at an additional location.
ATLAS -- YEAR ENDED JUNE 30, 1994 COMPARED TO YEAR ENDED JUNE 30, 1993
REVENUES -- Revenues increased $5.4 million, or 52.9%, from $10.2 million
in 1993 to $15.6 million in 1994. $1.8 million, net of this increase in revenue
was attributable to the first full year of operations of the Greenville, South
Carolina location and the addition of several new large home builder customers
accounted for the majority of the remaining increase.
COST OF SERVICES -- Cost of services increased $4.5 million, or 54.9%, from
$8.2 million in 1994 to $12.7 million in 1995. As a percentage of revenues, cost
of services increased from 80.1% in 1993 to 81.1% in 1994. The increase in cost
of services as a percentage of revenues was attributable to increased employee
turnover and under-utilization of assets at the Greenville location.
27
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.6 million, from $1.8 million in 1994 to
$2.4 million in 1995, but decreased as a percentage of revenues from 17.2% in
1993 to 15.5% in 1994. The dollar increase in selling, general and
administrative expenses was primarily attributable to the addition of an
administrative infrastructure in Greenville.
LIQUIDITY AND CAPITAL RESOURCES -- ATLAS
The following table sets forth historical selected information from Atlas
statements of cash flows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
JUNE 30 YEAR ENDED MARCH 31
-------------------- DECEMBER 31, --------------------
1993 1994 1995 1995 1996
--------- --------- ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY OPERATING
ACTIVITIES......................... $ 0.3 $ 0.7 $0.8 $ 0.2 $ 0.4
NET CASH USED IN INVESTING
ACTIVITIES......................... (0.3) (1.0) (0.3) (0.1) 0.0
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES............... 0.0 0.4 (0.4) (0.1) (0.1)
--------- --------- ----- --------- ---------
NET INCREASE IN CASH AND CASH
EQUIVALENTS........................ $ 0.0 $ 0.1 $0.1 $ 0.0 $ 0.3
========= ========= ===== ========= =========
</TABLE>
From 1993 through the three months ended March 31, 1996, Atlas generated
$2.2 million in net cash from operating activities, primarily generated from net
income plus depreciation and amortization, with little change in non-cash
working capital. Net cash used in investing activities was attributable to
purchases of property and equipment. Net cash used in financing activities was
attributable to net borrowings and repayments of short- and long-term debt
obligations.
Atlas had a working capital surplus of $0.3 and had long-term debt of $2.0
million as of March 31, 1996. Atlas has historically funded its operations with
cash flows from operations and borrowings from lenders. While there can be no
assurance, management of Atlas believes it has adequate cash flow and financing
alternatives to fund its operations through the second quarter of 1997.
CROWN
Founded in 1956, Crown is the largest single provider of residential
plumbing, HVAC, electrical maintenance, repair and replacement services to the
residential and light commercial markets in the Houston metropolitan area.
RESULTS OF OPERATIONS -- CROWN
The following table sets forth certain historical selected financial data
and data as a percentage of revenues for the periods indicated (dollars in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
------------------------------------------------ --------------------------------
1993 1994 1995 1995 1996
--------------- --------------- -------------- -------------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES .......................... $16,268 100.0% $16,844 100.0% $19,124 100.0% $3,555 100.0% $ 4,152 100.0%
COST OF SERVICES .................. 10,332 63.5 10,314 61.2 11,333 59.3 2,155 60.6 2,643 63.7
------- ----- ------- ----- ------- ----- ------ ----- ------- -----
GROSS PROFIT ...................... 5,936 36.5 6,530 38.8 7,791 40.7 1,400 39.4 1,509 36.3
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES ........................ 5,698 35.0 5,837 34.7 6,165 32.2 1,348 37.9 1,519 36.5
------- ----- ------- ----- ------ ----- ------ ----- ------- -----
INCOME (LOSS) FROM OPERATIONS ..... $ 238 1.5 $ 693 4.1 $ 1,626 8.5 $ 52 1.5 $ (10) (0.2)
======= ===== ======= ===== ======= ===== ====== ===== ======= =====
</TABLE>
CROWN -- UNAUDITED INTERIM RESULTS
REVENUES -- Revenues increased $0.6 million, or 16.7%, from $3.6 million
for the three months ended March 31, 1995 to $4.2 million for the three months
ended March 31, 1996. The increase in revenues was primarily attributable to a
$0.3 million increase in plumbing services and a $0.3 million net increase in
Crown's other service lines.
28
COST OF SERVICES -- Cost of services increased $0.4 million, or 18.2%, from
$2.2 million for the three months ended March 31, 1995 to $2.6 million for the
three months ended March 31, 1996, and increased as a percentage of revenues
from 60.6% in the first quarter of 1995 to 63.7% in the first quarter of 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.2 million, or 15.4%, from $1.3 million for
the three months ended March 31, 1995 to $1.5 million for the three months ended
March 31, 1996, but declined as a percentage of revenues from 37.9% in the first
quarter of 1995 to 36.5% in the first quarter of 1996.
CROWN -- 1995 COMPARED TO 1994
REVENUES -- Revenues increased $2.3 million, or 13.7%, from $16.8 million
in 1994 to $19.1 million in 1995. The increase in revenues was primarily
attributable to a $1.3 million and $0.9 million increase in HVAC and plumbing
services, respectively.
COST OF SERVICES -- Cost of services increased $1.0 million, or 9.7%, from
$10.3 million in 1994 to $11.3 million in 1995, but decreased as a percentage of
revenues from 61.2 percent in 1994 to 59.3% in 1995. The decrease in cost of
services as a percentage of revenue is attributable to a change in the mix of
services provided from lower-margin services to higher-margin services and an
increase in the use of contractors.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.4 million, or 6.9%, from $5.8 million in
1994 to $6.2 million in 1995, but decreased as a percentage of revenues from
34.7% in 1994 to 32.2% in 1995. The $0.4 million increase in selling, general
and administrative expenses was primarily attributable to increased advertising.
CROWN -- 1994 COMPARED TO 1993
REVENUES -- Revenues increased $0.5 million, or 3.1%, from $16.3 million in
1993 to $16.8 million in 1994. The increase in revenues was attributable to a
$0.5 million increase in HVAC services.
COST OF SERVICES -- Cost of services was unchanged at $10.3 million for
1993 and 1994, but decreased 2.3% as a percentage of sales from 63.5% in 1993 to
61.2% in 1994.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.1 million, or 1.8%, from $5.7 million in
1993 to $5.8 million in 1994.
LIQUIDITY AND CAPITAL RESOURCES -- CROWN
The following table sets forth selected information from Crown statements
of cash flows (in thousands):
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31 MARCH 31
---------------------- --------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
(UNAUDITED)
Net cash provided by operating
activities......................... $ 0.5 $ 0.7 $ 1.3 $ 0.3 $ --
Net cash provided by (used in)
investing activities............... (0.7) 0.1 (0.6) -- 1.1
Net cash provided by (used in)
financing activities............... 0.2 0.2 0.3 (0.3) (2.8)
----- ----- ----- ----- -----
Net increase (decrease) in cash and
cash equivalents................... $ -- $ 1.0 $ 1.0 $ -- $(1.7)
===== ===== ===== ===== =====
From 1993 through the three months ended March 31, 1996, Crown generated
$2.5 million in net cash from operating activities, primarily generated from net
income plus depreciation and amortization. For the year ended December 31, 1993,
Crown recorded a loss on the sale of certain assets of $0.5 million.
The change in net cash provided by (used in) investing activities was
primarily attributable to advances/payments to/from the sole shareholder of
Crown and purchases from the sale of property and equipment.
29
The change in net cash provided by (used in) financing activities was
attributable to net borrowings and repayments of short-term and long-term debt
obligations.
Crown had a working capital surplus of $3.1 as of March 31, 1996. Crown has
historically funded its operations with cash flows from operations and
borrowings from lenders and its sole shareholder. While there can be no
assurance, management of Crown believes it has adequate cash flows and financing
alternatives to fund its operations through the second quarter of 1997.
MERIDIAN & HOOSIER
Founded in 1973, Meridian & Hoosier is a leading provider of HVAC
maintenance, repair and replacement services to the residential and commercial
markets (including large commercial facilities) in central Indiana and
Indianapolis, and also installs HVAC systems and equipment for the residential
construction market in those areas. On January 1, 1996, Meridian & Hoosier
acquired Sagamore Heating and Cooling ("Sagamore"), which provides HVAC repair
and replacement services.
RESULTS OF OPERATIONS -- MERIDIAN & HOOSIER
The following table sets forth certain historical selected financial data
and data as a percentage of revenues for the periods indicated (dollars in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 THREE MONTHS ENDED MARCH 31
------------------------------------------ ------------------------------------------
1994 1995 1995 1996
-------------------- -------------------- -------------------- --------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES............................. $ 8,066 100.0% $ 10,133 100.0% $ 1,959 100.0% $ 2,638 100.0%
COST OF SERVICES..................... 5,797 71.9 7,281 71.9 1,422 72.6 1,767 67.0
--------- --------- --------- --------- --------- --------- --------- ---------
GROSS PROFIT......................... 2,269 28.1 2,852 28.1 537 27.4 871 33.0
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 1,988 24.6 2,350 23.2 512 26.1 854 32.4
--------- --------- --------- --------- --------- --------- --------- ---------
INCOME FROM OPERATIONS............... 281 3.5 502 4.9 25 1.3 17 0.6
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
MERIDIAN & HOOSIER -- UNAUDITED INTERIM RESULTS
REVENUES -- Revenues increased $0.6 million, or 30.0%, from $2.0 million
for the three months ended March 31, 1995, to $2.6 million for the three months
ended March 31, 1996. Part of this increase was attributable to the acquisition
of Sagamore and a majority of the remaining increase was due to increased sales
of residential replacement services.
COST OF SERVICES -- Cost of services increased $0.4 million, or 28.6%, from
$1.4 million for the three months ended March 31, 1995 to $1.8 million for the
three months ended March 31, 1996, but declined 5.6% as a percentage of revenues
from 72.6% for the three months ended March 31, 1995 to 67.0% for the three
months ended March 31, 1996. The increase in cost of services was primarily
attributable to the increased sales for the three months ended March 31, 1996.
The decrease as a percentage of revenues was primarily attributable to
improvements in volume purchase rebates resulting from the Sagamore acquisition
and changes in the mix of services provided.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.4 million, or 80.0%, from $0.5 million for
the three months ended March 31, 1995 to $0.9 million for the three months ended
March 31, 1996. The increase in selling, general and administrative expenses was
primarily attributable to added administrative staff resulting from the
acquisition of Sagamore.
MERIDIAN & HOOSIER -- 1995 COMPARED TO 1994
REVENUES -- Revenues increased $2.0 million, or 24.7%, from $8.1 million in
1994 to $10.1 million in 1995. The increase in revenues was primarily
attributable to increased residential equipment replacement sales of
approximately $1.2 million and the start-up of a new construction division.
30
COST OF SERVICES -- Cost of services increased $1.5 million, or 25.9%, from
$5.8 million in 1994 to $7.3 million in 1995 and was consistent with the
increase in sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.3 million, or 15.0%, from $2.0 million in
1994 to $2.3 million in 1995. The increase in selling, general and
administrative expenses resulted from increased marketing efforts to improve
market share.
LIQUIDITY AND CAPITAL RESOURCES -- MERIDIAN & HOOSIER
The following table sets forth selected information from Meridian &
Hoosier's statements of cash flows (dollars in thousands):
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31 MARCH 31
-------------------- -------------------
1994 1995 1995 1996
--------- --------- --------- --------
(UNAUDITED)
Net cash provided by operating
activities......................... $ 0.4 $ 0.7 $ 0.1 $ 0.1
Net cash used in investing
activities........................... (0.5) (0.2) (0.1) (0.8)
Net cash provided by (used in)
financing activities................. 0.3 (0.1) (0.1) 0.8
--------- --------- --------- --------
Net increase (decrease) in cash and
cash equivalents................... $ 0.2 $ 0.4 $ (0.1) $ 0.1
========= ========= ========= ========
Net cash provided by operating activities consisted primarily of net income
plus depreciation and amortization. Net cash used in investing activities
consisted of capital expenditures for property and equipment and the acquisition
of Sagamore in the three months ended March 31, 1996. Net cash provided by (used
in) financing activities resulted from borrowing and repayments of long-term
obligations and capital lease obligations.
Meridian & Hoosier had a working capital surplus of $1.0 as of March 31,
1996. Meridian & Hoosier has historically funded its operations with cash flows
from operations and borrowings from lenders and its sole stockholder. While
there can be no assurance, management of Meridian & Hoosier believes it has
adequate cash flows and financing alternatives to fund its operations through
the second quarter of 1997.
A-ABC
Founded in 1972, A-ABC is among the leading providers of home appliances,
HVAC and plumbing maintenance, repair and replacement services to the
residential and light commercial markets in the Houston metropolitan area.
RESULTS OF OPERATIONS -- A-ABC
The following table sets forth certain historical selected financial data
and data as a percentage of revenues for the periods indicated (dollars in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31 ENDED MARCH 31
------------------------------------------ ------------------------------------------
1994 1995 1995 1996
-------------------- -------------------- -------------------- --------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES............................. $ 8,676 100.0% $ 8,707 100.0% $ 1,704 100.0% $ 2,022 100.0%
COST OF SERVICES..................... 5,574 64.2 5,709 65.6 1,192 70.0 1,236 61.1
--------- --------- --------- --------- --------- --------- --------- ---------
GROSS PROFIT......................... 3,102 35.8 2,998 34.4 512 30.0 786 38.9
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 2,444 28.2 2,348 27.0 508 29.8 583 28.8
--------- --------- --------- --------- --------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS.... 658 7.6 650 7.6 4 0.2 203 10.1
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
A-ABC -- UNAUDITED INTERIM RESULTS
REVENUES -- Revenues increased $0.3 million, or 17.6%, from $1.7 million
for the three months ended March 31, 1995 to $2.0 million for the three months
ended March 31, 1996.
COST OF SERVICES -- Cost of services remained constant at $1.2 million for
the three months ended March 31, 1995 and 1996, but decreased as a percentage of
revenues from 70.0% to 61.1%, primarily as a result of an increase in volume
purchase discounts and better utilization of employees resulting in reduced
labor dollars as a percentage of sales during 1996.
31
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.1 million, or 20.0%, from $0.5 million for
the three months ended March 31, 1995 to $0.6 million for the three months ended
March 31, 1996.
A-ABC -- 1995 COMPARED TO 1994
REVENUES -- Revenues remained constant at $8.7 million for 1994 and 1995.
COST OF SERVICES -- Cost of services increased $0.1 million, or 2.0%, from
$5.6 million in 1994 to $5.7 million in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses decreased $0.1 million, or 4.2%, from $2.4 million in
1994 to $2.3 million in 1995.
LIQUIDITY AND CAPITAL RESOURCES -- A-ABC
The following table sets forth selected information from A-ABC's statements
of cash flows (in thousands):
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
---------------- --------------------
1994 1995 1995 1996
---- --------- --------- ---------
(UNAUDITED)
NET CASH PROVIDED BY (USED IN) BY
OPERATING ACTIVITIES............... $0.3 $ 0.6 $ (0.2) $ 0.6
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES............... 0.2 (0.4) 0.1 (0.7)
NET CASH USED IN FINANCING
ACTIVITIES......................... (0.4) (0.1) 0.0 (0.1)
---- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... $0.1 $ (0.1) $ (0.1) $ (0.2)
==== ========= ========= =========
From 1994 through the three months ended March 31, 1996, A-ABC generated
$1.5 million in net cash from operating activities. During this period, $1.8
million was generated from income plus non-cash charges, partially offset by
$0.3 million of cash used to fund working capital.
Cash used in investment activities was primarily attributable to purchasing
additional trucks and the net change in the cash provided by (used in)
discontinued operations.
Cash used in financing activities consists primarily of S corporation
distributions to the Company's sole shareholder and net borrowings and
repayments of long-term obligations.
A-ABC had a working capital deficit of $1.1 million at March 31, 1996.
A-ABC has historically funded its operations with cash flows from operations and
borrowings from lenders and its shareholder.
32
BUSINESS
GENERAL
ARS was founded in October 1995 to create a leading national provider of
(i) comprehensive maintenance, repair and replacement services for HVAC systems,
including IAQ, and for plumbing, electrical and other systems in homes and
commercial buildings and (ii) new installation services of those systems in
homes and commercial facilities under construction (collectively, "residential
services"). To achieve this goal, the Company intends to implement an
aggressive acquisition program and a national operating strategy designed to
increase internal revenue growth and capitalize on cost efficiencies. During
fiscal 1995, the combined revenues of the Founding Companies totaled $114.6
million, of which maintenance, repair and replacement services accounted for
approximately 48% and new installation services accounted for approximately 52%.
The Company believes the profitability of its maintenance, repair and
replacement business benefits from its installation services operations as a
result of (i) the significant volume of purchases of HVAC systems for its
high-volume installation services and (ii) the addition of new customer and
equipment information in the Company's marketing database. This database
provides the Company with valuable information that can be used to expand the
Company's future residential services revenue base. In addition, new
installation services provide the Company with cooperative advertising credits
from the HVAC system manufacturers which it uses for promoting its maintenance,
repair and replacement services for residential HVAC systems. Through leveraging
these benefits, acquiring new service companies and internal development, the
Company intends to emphasize the growth of its higher-margin maintenance, repair
and replacement services business.
ARS has definitive agreements to acquire the seven Founding Companies
simultaneously with the closing of this Offering. The Founding Companies have
been in business an average of 31 years and provide various residential services
in and around the Houston and Washington-Baltimore metropolitan areas, Richmond,
Virginia, throughout South Carolina, southeast Florida and central Indiana
(primarily Indianapolis). The Company is a leading provider of one or more
residential services in each region in which it operates. During fiscal 1995,
the Company's service and installation technicians (totaling approximately 930
as of March 31, 1996) responded to approximately 263,000 maintenance, repair and
replacement service calls and installed approximately 12,800 HVAC systems in
newly built homes, apartments and commercial buildings. Three of the largest
Founding Companies, representing approximately 63% of the Company's fiscal 1995
combined revenues, have been members of an industry-sponsored practice-sharing
group for the past six years. Through this arrangement, they have developed
common marketing plans, computer systems and other operational practices in
order to develop "best practices" in their respective markets. The Company
believes building upon this arrangement to include all of the Founding Companies
will aid in the initial integration of the Founding Companies following the
closing of this Offering.
INDUSTRY OVERVIEW
The Company estimates that the HVAC, plumbing and electrical industries in
the United States represent an annual market in excess of $ billion, of which
maintenance, repair and replacement services account for in excess of $
billion. It believes this market is served by several thousand companies,
consisting predominantly of small, owner-operated businesses operating in single
local geographic areas and providing a limited range of services. It believes
the majority of owners in its industry have limited access to adequate capital
for modernization, training and expansion and limited opportunities for
liquidity in their businesses.
The Company believes significant opportunities are available to a well
capitalized, national company employing professionally trained,
customer-oriented service technicians and providing a full complement of
high-quality residential services in an industry that has been characterized by
inconsistent quality, reliability and pricing. It also believes the highly
fragmented nature of the residential services industry will provide it with
significant opportunities to consolidate the capabilities and resources of a
large number of existing residential services businesses.
BUSINESS STRATEGY
The Company plans to achieve its goal of becoming the leading national
provider of professional, high-quality residential services by emphasizing
growth through acquisitions and implementing a national operating strategy that
enhances internal revenue growth and achieves cost efficiencies.
33
GROWTH THROUGH ACQUISITION. The Company intends to implement an aggressive
acquisition program targeting large metropolitan and high-growth suburban areas
with attractive residential demographics. The Company's acquisition strategy
involves entering new geographic markets and expanding within existing markets.
o ENTERING NEW GEOGRAPHIC MARKETS. In each new market, the Company will
initially target for acquisition one or more leading local or regional
companies providing residential services and having the critical mass
necessary to be a core business around which other residential service
operations can be assembled. An important criterion for these
acquisition candidates will be superior operational management
personnel, whom the Company generally will seek to retain.
o EXPANDING WITHIN EXISTING MARKETS. Once the Company has entered a
market, it will seek to acquire other well-established service
companies operating within that region, in order to expand its market
penetration and expand the range of services it offers in that market.
The Company also will pursue "tuck-in" acquisitions of smaller
residential services companies whose operations can be incorporated
into the Company's existing operations without any significant
increase in infrastructure.
IMPLEMENTATION OF A NATIONAL OPERATING STRATEGY. The Company intends to
implement a national operating strategy employing "best practices" designed to
increase internal growth through enhanced operations and the achievement of cost
efficiencies.
o INTERNAL GROWTH. The Company will review its operations at the local
and regional operating levels (as well as examining practices in other
service industries) in order to identify certain "best practices"
that will be implemented throughout its operations. For example, the
Company intends to provide 24-hour emergency service at each of its
locations and to monitor service call quality by attempting to contact
each of its service customers promptly following a service call. In
addition, the Company intends to utilize a national training program
to improve and keep current the technical, selling and customer
relations skills of its service technicians and will use specialized
computer technology at each of its locations to improve
communications, vehicle dispatch and service quality and
responsiveness. Management believes these practices will enable the
Company to provide superior customer service and maximize sales
opportunities. This service-oriented strategy will also allow the
Company to reinforce its brand image at the local level while
fostering its efforts to develop a national brand name.
o COST EFFICIENCIES. The Company believes it should be able to reduce
the total operating expenses of the Founding Companies and other
acquired businesses by eliminating duplicative functions and
consolidating certain functions performed separately by each company
prior to its acquisition. In addition, the Company believes that, as a
large, national residential services company, it should experience
reduced costs compared to those of the individual Founding Companies
and other acquired companies in such areas as: the purchase of
equipment for resale, service vehicles, parts and tools; vehicle and
equipment maintenance; financing arrangements; and insurance and
bonding.
ACQUISITION STRATEGY
Given the large size and fragmentation of the residential services
industry, the Company believes there are numerous potential acquisition
candidates both within the markets currently served by the Company and in other
large metropolitan and high-growth suburban markets. The Company intends to
implement an aggressive acquisition program to expand into these new markets and
to enhance its position in existing markets.
In new markets, the Company will target for acquisition one or more leading
local or regional residential services companies. Generally, these companies
will be run by successful entrepreneurs whom the Company will endeavor to retain
and will be of sufficient size to provide the basis for future Company expansion
within a given market. Through implementation of its national operating
strategy, the Company will aid the acquired companies (operating on a
decentralized basis) in increasing their revenues and improving their
profitability. Once the Company has entered a market, it will seek to acquire
other residential services providers in order to expand its share of that market
and increase the range of services offered in that market. Some of the
acquisitions within existing markets will be large enough to warrant their own
operating and management structure while other acquisitions will be small enough
to be folded
34
into an existing operation without significantly increasing the Company's
infrastructure. If an acquisition is large enough to warrant its own operating
structure, the Company will develop a regional operating plan whereby these
companies can benefit from regional operating efficiencies such as shared
marketing efforts, centralized maintenance, local purchasing power, expanded
service line management expertise and other economies of scale.
Each of the Company's acquisition candidates will be expected to
demonstrate potential for revenue growth and profitability. The Company will
also evaluate certain qualitative characteristics of acquisition candidates,
including their reputations in their respective geographic regions, the size and
other characteristics of customer bases, the quality and experience levels of
operational management and service technicians, the amount, type and condition
of their equipment and facilities and their operating histories. The Company
believes there are numerous acquisition candidates that meet the Company's
acquisition criteria.
The Company believes it will be regarded by many owners of residential
services businesses as an attractive acquirer because of: (i) the Company's
strategy for creating a large, professionally managed company with national name
recognition and a reputation for quality service and customer satisfaction; (ii)
management's experience in consolidations; (iii) the Company's decentralized
operating strategy; (iv) the Company's increased visibility and access to
financial resources as a public company; (v) the potential for increased
profitability due to centralized administrative functions, enhanced systems
capabilities and access to increased marketing resources; and (vi) depending on
the size of the acquisition, the ability of the business being acquired to
participate in the Company's growth and expansion, while realizing liquidity.
The Company has analyzed various data on the residential services industry
and individual businesses within the industry and believes it is well positioned
to implement its acquisition program promptly following this Offering. Based on
the Company's experience in connection with the acquisitions of the Founding
Companies, the Company believes the senior executives of the Founding Companies
will be instrumental in identifying and completing future acquisitions. Several
of these executives have had leadership roles in both national and regional
residential services trade associations, which have allowed these principals to
become personally acquainted with other owners of residential services
businesses across the country. The Company believes that the visibility of these
individuals within these associations will increase the industry's awareness of
the Company and its acquisition program, thereby attracting interest from owners
of other residential services companies. In addition, several members of the
Company's executive management team have worked together for a number of years
and have significant experience in negotiating, closing and integrating
acquisitions in various industries. Within the past several months, the Company
has contacted the owners of a number of residential services businesses, several
of whom have expressed interest in having their businesses acquired by the
Company. The Company currently has no binding agreements to effect any
acquisition other than in connection with the Founding Companies. The timing,
size and success of the Company's acquisition efforts and the associated
potential capital commitments cannot be readily predicted.
As consideration for future acquisitions, the Company intends to use
various combinations of its Common Stock, cash and notes. The consideration for
each future acquisition will vary on a case-by-case basis, with the major
factors being historical operating results, the future prospects of the business
to be acquired and the ability of that business to complement the services
offered by the Company. Within 60 days after completion of this Offering, the
Company intends to register 5,000,000 additional shares of Common Stock under
the Securities Act for use in connection with future acquisitions. See "Risk
Factors -- Dependence on Acquisitions for Growth," "-- Need for Additional
Financing" and "-- Potential Effect of Shares Eligible for Future Sale on
Price of Common Stock."
SERVICES PROVIDED
The Company provides a variety of maintenance, repair and replacement
services for HVAC, plumbing, electrical and other systems in homes and
commercial buildings. It also installs such operating systems in new homes and
commercial buildings under construction. The Company's maintenance, repair and
replacement services include: checkups, cleaning, repair and replacement of HVAC
systems and associated parts; maintenance, repair and replacement of electrical
switches, outlets, lines, panels and fixtures; repair and replacement of
bathroom fixtures, water filters and water heaters; cleaning, repair and
replacement of pipes, sewer lines and residential sanitary systems; and
maintenance, repair and replacement
35
of other residential systems, including home appliances and fireplaces. As a
subcontractor to builders, it installs complete central heating and air
conditioning systems, electrical systems, plumbing systems and other systems,
including fireplaces, in newly constructed homes and commercial buildings.
The following table shows, by region, the approximate percentages of the
combined Founding Companies' revenue for fiscal 1995 represented by maintenance,
repair and replacement services and new installation services, respectively.
OTHER
HVAC PLUMBING ELECTRICAL SERVICES
---- -------- ---------- --------
MAINTENANCE, REPAIR AND
REPLACEMENT SERVICES:
Houston Metropolitan Area....... 8% 10% 1% 6%
Washington-Baltimore
Metropolitan Area and
Richmond, Virginia............ 6 - - -
South Carolina.................. 3 - - -
Southeast Florida............... 6 - - -
Indianapolis and Central
Indiana....................... 8 - - -
---- -------- ---------- --------
31% 10% 1% 6%
==== ======== ========== =======
NEW INSTALLATION SERVICES:
Houston Metropolitan Area....... -% -% -% -%
Washington-Baltimore
Metropolitan Area and
Richmond, Virginia............ 20 - - 5
South Carolina.................. 6 4 5 -
Southeast Florida............... 11 - - -
Indianapolis and Central
Indiana....................... 1 - - -
---- -------- ---------- --------
38% 4% 5% 5%
==== ======== ========== ========
An important element of the Company's growth strategy is to increase the
range of residential services it provides in each of its regions through
acquisitions and internally generated growth. In addition, the Company intends
to provide a full range of these services in new geographic areas into which it
will expand, principally by acquisitions. See "-- Business Strategy."
OPERATIONS
The Company intends to operate on a decentralized basis, with the
management of each operating location responsible for its day-to-day operations,
profitability and growth. Local management will be supported by the Company's
marketing and advertising strategies and programs and will be provided
appropriate support in developing optimal pricing strategies. Financial
resources for improved systems and expansion of services, training programs,
financial controls, purchasing information and operating expertise will be
shared among locations to improve productivity, lower operating costs and
improve customer satisfaction to stimulate internal growth. While the local
management will operate with a high degree of autonomy and be empowered to make
the necessary operating decisions, adherence to Company training, safety,
customer satisfaction, accounting and internal control policies will be
required. Frequent communication with the Company's executive management team
will be integral to the Company's achieving the benefits that are anticipated by
the consolidation of these businesses into a single company.
The Company's residential service operations are coordinated by local
operations centers, which are staffed by order entry and customer service
personnel, operations or service coordinators, and inventory, vehicle
maintenance and office personnel. All of these centers use specialized computer
and communications technology to process orders, arrange service calls, ensure
timely delivery of required repair parts or new equipment, communicate with
customers and service technicians, and invoice customers. A typical maintenance,
repair or replacement service call begins with either the customer telephoning a
local operations center and requesting an estimate or placing an order for
repair service or the Company calling the customer to make an appointment for
periodic service agreement maintenance. Coordination and deployment of service
technicians are managed by the operations center through communications systems
linked to the center's computer system, cellular telephone, pager or radio.
Service personnel work out of service vehicles, which are equipped with an
inventory of equipment and commonly required tools, parts and supplies needed to
complete a variety of jobs. The service
36
technician assigned to a service call is generally responsible for driving to
the service location, initiating the customer contact, analyzing the problem and
job requirements, providing the price quotation, overseeing the work and
collecting payment for the service. Payment for maintenance, repair and
replacement services not covered by a service contract is generally made in cash
or by check or credit card at the job site, except for certain well-established
customers.
During fiscal 1995, the Company's service technicians responded to
approximately 263,000 maintenance, repair and replacement service calls, of
which approximately 54,000 were requests for services under the Company's
monitoring service contracts; approximately 22,000 were requests for service
under the Company's warranty service contracts; and approximately 187,000 were
requests for emergency or other services not under contract. These calls covered
a wide variety of services including the replacement of approximately 9,000
heating and air conditioning units. Service histories on past customers are
generally available to the customer service representatives in a continuously
updated computer database matched to addresses in the local service area.
The Company's new installation services are generally provided to builders
of new homes and small commercial facilities. During 1995, the Company was
involved in the installation of approximately 12,800 HVAC systems in new homes
and commercial facilities.
Typically, new installation service begins with the customer providing the
architectural plans or mechanical drawings for the particular home or an entire
tract of homes or other facility to be constructed and either requesting a bid
or entering into direct negotiation for the work required. The Company's new
installation personnel analyze the plans to determine the labor, materials and
equipment type and size required for the installation of the system specified,
price the job and either bid for or negotiate the written contract for the job.
In HVAC installations, most of the required air ducts are fabricated and,
together with the other equipment to be installed, partially pre-assembled in
the Company's facilities and readied for delivery to the job site. The equipment
and supplies necessary for the particular job are ordered from the suppliers or
manufacturers, and delivery generally is timed according to the builder's
schedule. The installation work is coordinated with the builder's construction
supervisors. Scheduled draw payments for these services generally are obtained
within 30 days of completing the installation, at which time mechanics' and
materialmen's liens securing the rights to such payments are released. Interim
payments are often obtained to cover the Company's labor and materials costs on
large installation projects.
SALES AND MARKETING
In the Founding Companies, the Company believes it has acquired well known
and established businesses that are leading providers of one or more residential
services in their geographic markets. The Company intends to build on this
foundation through the use of advertising to expand name recognition and the
adoption of best practices to increase the quality of services provided. For
example, the Company intends to implement the practice whereby the Company's
customers each receive prompt follow-up inquiries to determine
customer-satisfaction levels and to arrange for follow-up service calls if
necessary.
In each of the market areas in which the Company provides residential
maintenance, repair and replacement services, vigorous advertising campaigns
have traditionally been emphasized by the Founding Companies. These campaigns
have used mailouts, yellow pages, newspapers, radio and television to promote
the services offered under their particular trade names or service marks. These
advertising campaigns have been effective in creating name recognition and
customer identification with the Founding Companies for the quality of the
services they offer in their local areas. The Company expects for the
foreseeable future to retain the trade names and service marks of the Founding
Companies in its advertising and promotional materials in their local areas, but
intends over time to promote and establish the Company's name and service marks
nationally. See "-- Intellectual Property."
The Company also views its existing service contracts as an important way
of retaining its customer base. The Company has several general types of service
contracts: "maintenance and repair" contracts whereby the Company maintains
and repairs selected residential HVAC, plumbing, electrical and other systems
for a period of time for a fixed fee and "maintenance only" or "repair only"
contracts whereby the Company makes periodic inspections of a residential system
and provides certain preventative maintenance for a period of time for a fixed
fee. The Company had approximately 27,000 service contracts in
effect as of March 31, 1996, which generally have one-year terms. The Company
believes that such service contracts provide the Company with flexibility in
determining the timing for delivery of its services, thereby
37
generating greater stability in the level of demand for services throughout
different seasons of the year. See " -- Seasonality." Certain states regulate
the provision of service under residential services warranty contracts. See "--
Governmental Regulation and Environmental Matters."
With respect to its new installation business, the Company's marketing
strategy focuses on cultivating long-term relationships with its national,
regional and local home builder and general contractor customers. The Company's
marketing efforts with these customers primarily involve direct sales contacts
emphasizing the Company's quality of services and reliability. In addition,
labels with the Company's name and phone number are applied to newly installed
equipment, and direct telemarketing sales efforts for service contracts are
timed to closely coincide with the expiration of manufacturer warranties on
Company installed equipment. Therefore, the Company believes new installation
business generally leads to maintenance, repair and replacement business.
The Company has numerous customers. No single customer accounted for more
than 10% of the Company's revenues during fiscal 1995.
HIRING, TRAINING AND SAFETY
The Company will seek to ensure through its hiring procedures and
continuous training programs that all service technicians it uses meet safety
standards established by the Company, its insurance carriers and federal, state
and local laws and regulations. The Company reviews prospective permanent
service technicians to ensure they are trained thoroughly in their trades, the
Company's procedures and customer satisfaction standards, possess the required
trade licenses and have acceptable driving records. In addition, the Company
intends to require certain employees to take a physical exam and pass periodic
drug tests.
The Company intends to have continuous training programs in place to
provide initial, refresher and upgrade training programs to trainees,
apprentices and service and installation technicians. These programs typically
are presented by the Company's senior master plumbers, electricians, heating and
air conditioning service technicians and safety supervisors. For example, in
Houston, the Company operates a 150-seat classroom and training facility
incorporating "hands on" training stations where service personnel,
apprentices and new trainees can work on functioning HVAC, plumbing, electrical
and other systems under the supervision of skilled tradesmen. A safety
supervisor at this facility conducts both initial and continuous comprehensive
training classes for all personnel and works with operating management to
observe and evaluate safety procedures in an effort to constantly improve the
effectiveness of the Company's safety programs.
VEHICLES AND FACILITIES
The Company operates a fleet of approximately 800 owned or leased service
trucks, vans and support vehicles in its operations. It believes these vehicles
generally are well-maintained, ordinary wear and tear excepted, and adequate for
the Company's current operations.
The Company has 25 facilities for its service locations and operations, six
of which it owns and 19 of which are leased under leases with remaining terms
ranging from 18 months to 10 years from the date hereof on terms the Company
believes to be commercially reasonable. Some of these leases are with affiliates
of the Founding Companies. See "Certain Transactions -- Real Estate and Other
Transactions." Total rental expense for the Company's facilities leases in
fiscal 1995 (excluding certain discontinued retail appliance operations) was
approximately $1.4 million.
The Company's facilities consist principally of offices, garages and
maintenance and warehouse facilities. The Company's principal operating
facilities include (i) a 60,000 square foot facility owned by the Company and
located in Houston, Texas, which is the operational base for Crown, (ii) a
36,000 square foot leased facility in Manassas, Virginia, which serves as the
principal fabrication and production facility for General Heating, (iii) a
36,000 square foot leased facility in Savage, Maryland, which serves as a
distribution, fabrication, production and administrative facility for General
Heating, (iv) a 62,500 square foot leased facility in Charleston, South
Carolina, which is the headquarters for Atlas and (v) a 29,000 square foot
leased facility in Margate, Florida, which serves as the principal office and
fabrication facility for Florida HAC. The Company believes its facilities are
well-maintained and adequate for the Company's existing and planned operations
at each operating location.
After completion of this Offering, the Company will lease its principal
executive and administrative offices in Houston, Texas, and is currently in the
process of obtaining office space for this purpose.
38
INTELLECTUAL PROPERTY
The Company owns various trademarks, service marks and trade names, which
it uses in its local operations, advertising and promotions. Initially, the
Founding Companies and subsequently acquired businesses will continue to use
their respective trade names and service marks in their local areas. Meridian &
Hoosier currently is using the "DIAL ONE" name and related logos and marks
under a franchise agreement. See "Certain Transactions -- Real Estate and Other
Transactions." The Company intends to adopt and implement throughout its
operations uniform service names and markings for use on its vehicles and in its
advertising and promotional materials. See "Business -- Sales and Marketing."
EMPLOYEES
As of March 31, 1996, the Company had approximately 1,300 employees
(excluding sales personnel from A-ABC's discontinued retail appliance
operations, see "The Company"), of which approximately 930 were service and
installation technicians, approximately 245 were clerical and administrative
personnel, approximately 45 were sales personnel and approximately 80 were
management personnel. The Company is not a party to any collective bargaining
agreements. The Company has not experienced any strikes or work stoppages and
believes its relationship with its employees is good.
The residential services business is characterized by, among other things,
high turnover rates among service technicians. A substantial majority of the
service technician turnover experienced by the Founding Companies in recent
years has been during the extended screening period in the first year of
employment. The Company's future success will depend, in part, on its ability to
continue to attract, retain and motivate qualified service technicians and
operational management personnel. One way by which the Company hopes to attract,
retain and motivate such personnel is by offering them a more comprehensive
benefits package at less cost to the employee than is typical in the industry.
The Company expects to be able to offer such a package in a cost effective
manner because of the large number of persons it will employ on closing of this
Offering.
SOURCES OF SUPPLY
The raw materials used in the Company's operations, such as HVAC system
components, sheet metal, electrical components and copper and PVC tubing, are
generally available from domestic suppliers at competitive prices. The Company
believes that the combined entity will be able to obtain a price savings on raw
materials through volume purchases. The Company does not currently have any
significant company-wide contracts relating to the supply of equipment or
materials. The Company has not experienced any significant difficulty in
obtaining adequate supplies to conduct its operations.
SEASONALITY
The Company's installation, maintenance, repair and replacement operations
are subject to seasonal variations in the different lines of service. Except in
southeast Florida and South Carolina, the demand for new installations is lower
during the winter months because new construction activity is lower as a result
of colder weather. Demand for HVAC and plumbing services generally varies with
the weather; demand generally is higher during periods of extremely cold or hot
weather and lower in the spring and fall months. The Company expects its
revenues and operating results generally will be correspondingly lower in its
first and fourth quarters.
COMPETITION
The market for residential services is highly competitive. The Company
believes that the principal competitive factors in the residential services
industry are (i) timeliness, reliability and quality of services provided, (ii)
range of services provided, (iii) market share and visibility and (iv) price.
The Company believes its strategy of creating a leading national provider of
comprehensive residential services directly addresses these factors. The ability
of the Company to recruit, train and retain highly motivated service technicians
to provide quality services should be enhanced by its ability to utilize
professionally managed recruiting and training programs. In addition, the
Company expects to offer compensation, health and savings benefits that are more
comprehensive than most offered in the industry. See "Business -- Hiring,
Training and Safety." Quality of service should be enhanced by the
implementation and continuous reinforcement of customer satisfaction policies,
retraining and follow-up with the customer. Competitive pricing is possible
through the implementation of the cost saving opportunities that exist across
each of the service lines offered and from productivity improvements.
39
Most of the Company's competitors are small, owner-operated companies that
typically operate in a single local geographic area. Certain of these smaller
competitors may have lower overhead cost structures and, consequently, may be
able to provide their services at lower rates. Moreover, many homeowners have
traditionally relied on individual persons or small repair service firms with
whom they have long-established relationships for a variety of home repairs. The
Company believes there are currently only two public companies, Roto-Rooter,
Inc. and Baltimore Gas & Electric Company (through a subsidiary), focused on
providing residential services in some of the same services lines provided by
the Company. There are a number of national chains, such as Home Depot, Sears
and Builders Square, that sell a variety of plumbing fixtures and equipment, and
heating and air conditioning equipment for residential use and offer, either
directly or through various subcontractors, installation, warranty and repair
services. Other companies or trade groups engage in franchising their names and
marketing programs in some residential services lines. In the future,
competition may be encountered from, among others, the unregulated business
segments of regulated gas and electric utilities or from newly deregulated
utilities in those industries entering into various residential service areas.
Certain of the Company's competitors and potential competitors have greater
financial resources than the Company to finance residential services acquisition
and development opportunities, to pay higher prices for the same opportunities
or to develop and support their own residential services operations if they
decide to enter the field.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS
Many aspects of the Company's operations are subject to various federal,
state and local laws and regulations, including, among others, (i) permitting
and licensing requirements applicable to service technicians in their respective
trades, (ii) building, HVAC, plumbing and electrical codes and zoning
ordinances, (iii) laws and regulations relating to consumer protection,
including laws and regulations governing service contracts for residential
services, and (iv) laws and regulations relating to worker safety and protection
of the environment.
The Company believes it has all required permits and licenses to conduct
its operations and is in substantial compliance with applicable regulatory
requirements relating to its operations. Failure of the Company to comply with
the applicable regulations could result in substantial fines or revocation of
the Company's operating permits.
A large number of state and local regulations governing the residential
services trades require various permits and licenses to be held by individuals.
In some cases, a required permit or license held by a single individual may be
sufficient to authorize specified activities for all the Company's service
technicians who work in the geographic area covered by the permit or licenses.
The Company intends to implement a policy to ensure that, where allowed, any
such permits or licenses that may be material to the Company's operations in a
particular geographic region are held by at least two persons within that
region.
The Company's operations are affected by numerous federal, state and local
environmental laws and regulations, including those governing vehicle emissions
and the use and handling of refrigerants. The technical requirements of these
laws and regulations are becoming increasingly expensive, complex and stringent.
Federal and state environmental laws include statutes intended to allocate the
cost of remedying contamination among specifically identified parties. The
Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA" or "Superfund") imposes strict, joint and several liability on
owners or operators of facilities at, from, or to which a release of hazardous
substances has occurred, on parties who generated hazardous substances that were
released at such facilities, and on parties who arranged for the transportation
of hazardous substances to such facilities. A majority of states have adopted
"Superfund" statutes comparable to and, in some cases, more stringent than
CERCLA. If the Company were to be found to be a responsible party under CERCLA
or a similar state statute, the Company could be held liable for all
investigative and remedial costs associated with addressing such contamination.
In addition, claims alleging personal injury or property damage may be brought
against the Company as a result of alleged exposure to hazardous substances
resulting from the Company's operations. None of the Founding Companies has been
notified that it is a potentially responsible party under CERCLA or any similar
state statute.
The Company's operations are subject to the federal Clean Air Act, as
amended (the "Clean Air Act"), which governs air emissions and imposes
specific requirements on the use and handling of refrigerants. The Clean Air Act
requires all service technicians performing air conditioning maintenance,
40
repair and installation services to be licensed to perform those activities and
require the containment and recycling of certain refrigerants used in the
Company's operations.
The Company's operations in certain geographic regions are subject to laws
that will, over the next few years, require specified percentages of vehicles in
large vehicle fleets to use "alternative fuels," such as compressed natural
gas ("CNG") or propane, and to meet reduced emissions standards. A significant
proportion of the vehicles in the Crown fleet that are currently in service have
been converted to use CNG. The Company does not anticipate that the cost of
additional fleet conversion that may be required under current laws will be
material. Future costs of compliance with these laws will be dependent upon the
number of vehicles purchased in the future for use in the covered geographic
regions, as well as the number and size of future business acquisitions by the
Company in these regions. The Company cannot determine to what extent its future
operations and earnings may be affected by new regulations or changes in
existing regulations relating to vehicle emissions.
Prior to entering into the agreements relating to the Acquisitions, the
Company evaluated the properties to be acquired and property leases to be
assumed in the Acquisitions, and engaged an independent environmental consulting
firm to conduct or review assessments of environmental conditions at certain
properties owned or operated by the Founding Companies. No material
environmental problems were discovered in these reviews. The Company intends to
implement various programs to promote compliance with applicable health and
worker safety regulations and to increase employee safety awareness.
Capital expenditures for property, plant and equipment for environmental
control facilities during fiscal 1995 were not material. The Company does not
currently anticipate any material adverse effect on its business or consolidated
financial position as a result of future compliance with existing environmental
laws and regulations controlling the discharge of materials into the
environment. Future events, however, such as changes in existing laws and
regulations or their interpretation, more vigorous enforcement policies of
regulatory agencies or stricter or different interpretations of existing laws
and regulations may require additional expenditures by the Company which may be
material.
LITIGATION AND INSURANCE
The Company is, from time to time, a party to litigation arising in the
normal course of its business, most of which involves claims for personal injury
and property damage incurred in connection with its operations. The Company is
not currently involved in any litigation the Company believes will have a
material adverse effect on its financial condition or results of operations.
The Company maintains various worker safety and quality control programs in
an attempt to reduce the risk of potential damage to persons and property. In
addition, the Company maintains insurance in such amounts and against such risks
as it deems prudent. No assurance can be given such insurance will be sufficient
under all circumstances to protect the Company against significant claims for
damages. The occurrence of a significant event not fully insured against could
materially and adversely affect the Company's financial condition and results of
operations. Moreover, no assurance can be given the Company will be able to
maintain adequate insurance in the future at commercially reasonable rates or on
acceptable terms.
41
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning each of the
Company's current directors, the eight persons nominated to become directors on
closing of this Offering and the executive officers of the Company (ages are as
of June 30, 1996):
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- ---------------------------------------------------------------------
<S> <C> <C>
C. Clifford Wright, Jr............... 43 Director, President and Chief Executive Officer; President of EHC
Howard S. Hoover, Jr................. 57 Director, Chairman of the Board; Chairman of the Board of EHC
Gorden H. Timmons.................... 47 Director* and Chief Operating Officer*; President of Atlas
William P. McCaughey................. 38 Director, Executive Vice President - Planning and Development
John D. Held......................... 34 Senior Vice President, General Counsel and Secretary
Frank N. Menditch.................... 44 Director*; President of General Heating
Elliot Sokolow....................... 53 Director*; President of Florida HAC
A. Jefferson Walker.................. 34 Treasurer
Michael Mamaux....................... 30 Controller
Thomas N. Amonett.................... 53 Director*
Robert J. Cruikshank................. 65 Director*
Randall B. Hale...................... 33 Director*
Nolan Lehmann........................ 52 Director*
Don D. Sykora........................ 65 Director*
- ------------
</TABLE>
* Appointment will become effective on closing of this Offering.
C. CLIFFORD WRIGHT, JR. has been President and Chief Executive Officer and
a director of the Company since November 1995. Since March 1996, Mr. Wright has
also served as President and Chief Executive Officer of EHC. From 1991 to 1995,
Mr. Wright was Vice President and Chief Financial Officer of American Ecology
Corporation. From 1990 to 1991, Mr. Wright was a Director of Corporate Finance
with KPMG Peat Marwick. Prior thereto, he was a divisional vice president in
finance and planning of Browning-Ferris Industries, Inc. ("BFI"). Mr. Wright
is a Certified Public Accountant.
HOWARD S. HOOVER, JR. has been Chairman of the Board of the Company since
November 1995. Since March 1996, Mr. Hoover has also served as Chairman of EHC.
From 1970 until 1991, Mr. Hoover was employed by BFI and served during his
tenure as a director and in various management capacities as a member of the
Senior Management Committee, Senior Vice President, General Counsel and
Secretary. From 1992 until 1995, Mr. Hoover was engaged in various business
development and consulting activities.
GORDEN H. TIMMONS founded Atlas in 1976 and has served as its President
since that time. Mr. Timmons was a founder of the Charleston Chapter of the Air
Conditioning Contractors of America ("ACCA") and is a past President of that
Chapter. Mr. Timmons has been active in computer systems development for HVAC
companies and is a frequent speaker at national industry conventions.
WILLIAM P. MCCAUGHEY has been Executive Vice President - Planning and
Development and a director of the Company since November 1995. Since March 1996,
Mr. McCaughey has also served as Executive Vice President of EHC. From 1992 to
1995, Mr. McCaughey was Treasurer of American Ecology Corporation. From 1991 to
1992, he was President of Environmental Financial Services, Inc., a research and
consulting firm. He served as Vice President and Corporate Treasurer of Republic
Waste Industries, Inc. from 1990 to 1991 and, prior thereto, was employed by BFI
in several financial positions from 1982 to 1990. Mr. McCaughey is a Chartered
Financial Analyst.
JOHN D. HELD has been Senior Vice President, General Counsel and Secretary
of the Company since March 1996. Mr. Held also has served as Vice President and
Secretary of EHC since March 1996. From
42
October 1995 to March 1996, he was an associate at the law firm of Liddell,
Sapp, Zivley, Hill and LaBoon, LLP. Mr. Held was Associate General Counsel of
American Ecology Corporation from 1994 to 1995 and was an associate at the law
firm of Baker & Botts, L.L.P. prior thereto.
FRANK N. MENDITCH has been President of General Heating for more than the
past five years. Mr. Menditch is a past president of the National Capital
Chapter of ACCA and of the Metro Washington Heat Pump Association. Mr. Menditch
holds Master Air Conditioning licenses in various jurisdictions.
ELLIOT SOKOLOW was a founder of Florida HAC in 1970 and has served as its
president since 1977. Mr. Sokolow served as national President of ACCA in 1992
and 1993, and is the President-Elect of the Florida Air Conditioning Contractors
Association.
A. JEFFERSON WALKER joined the Company in April 1996 as Treasurer and was a
consultant to the Company from January 1996 to March 1996. Mr. Walker has also
served as Treasurer of EHC since March 1996. From 1993 to January 1996, he was
employed by American Ecology Corporation as a Manager-Financial Analysis and
Assistant Treasurer. From 1990 to 1993, Mr. Walker served as a Senior Financial
Analyst and Assistant Banking Officer of Mellon Bank Corporation in Houston,
Texas. Mr. Walker was a financial analyst at BFI from 1988 to 1989.
MICHAEL MAMAUX joined the Company in April 1996 as Controller. From 1995
until April 1996, Mr. Mamaux was an assistant corporate controller at U.S.
Delivery Systems, Inc. Prior thereto, he was a Senior Auditor at Arthur Andersen
LLP. Mr. Mamaux is a Certified Public Accountant.
THOMAS N. AMONETT has served as President and a director of Reunion
Resources Company (previously known as Buttes Gas and Oil Company), a
Houston-based company primarily engaged in manufacturing high volume, precision
plastic products; providing engineered plastic services; oil and gas
exploration, development and production; and wine grape vineyard development,
since 1992. Previously, he was Of Counsel with the law firm of Fulbright &
Jaworski L.L.P. from 1986 to 1992. Prior thereto, he was President and a
director of Houston Oil Fields Company, an oil and gas exploration and
production company, from 1982 to 1986. Mr. Amonett also currently serves as a
director of Air-Cure Technologies, Inc., PetroCorp Incorporated and Weatherford
Enterra, Inc.
ROBERT J. CRUIKSHANK is primarily engaged in managing his personal
investments in Houston. Prior to his retirement in 1993, he was a Senior Partner
in the accounting firm of Deloitte & Touche. Mr. Cruikshank serves as a director
of Houston Industries Incorporated, MAXXAM Inc., Kaiser Aluminum Corporation,
Compass Bank-Houston and Texas Biotechnology Corporation.
RANDALL B. HALE has been a Vice President of Equus Capital Management
Corporation ("ECMC") and Equus II (see "Certain Transactions" and "Security
Ownership of Certain Beneficial Owners and Management") since 1992 and a
director of ECMC since February 1996. Mr. Hale currently serves as an officer or
director of several private businesses in industries including investment
management, environmental services, oilfield and petrochemical services,
transportation, casual sportswear and specialty manufacturing. From 1985 to
1992, he was employed by Arthur Andersen LLP, where he served in an accounting
and financial advisory capacity to a number of publicly traded and private
companies in a variety of industries. Mr. Hale is a Certified Public Accountant.
Mr. Hale is being appointed to the Company's Board of Directors pursuant to the
provisions of a funding agreement between ARS and Equus II, which will terminate
pursuant to its terms upon completion of this Offering. See "Certain
Transactions -- Organization of the Company."
NOLAN LEHMANN has been the President of ECMC since its formation in 1983
and of Equus II since its formation in 1991 (see "Certain Transactions" and
"Security Ownership of Certain Beneficial Owners and Management"). Prior
thereto, Mr. Lehmann was employed by Service Corporation International, where he
held various positions, including vice president - regional manager and vice
president - corporate development. Mr. Lehmann currently serves as a director of
a number of public and private companies, including Allied Waste Industries,
Inc., Champion Healthcare Corporation, Drypers Corporation and Garden Ridge
Corporation. Mr. Lehmann is a Certified Public Accountant. Mr. Lehmann is being
appointed to the Company's Board of Directors pursuant to the provisions of a
funding agreement between ARS and
43
Equus II, which will terminate pursuant to its terms upon completion of this
Offering. See "Certain Transactions -- Organization of the Company."
DON D. SYKORA is currently a consultant to Houston Industries Incorporated.
Prior to his retirement in 1995, he served as President and Chief Operating
Officer of Houston Industries Incorporated since 1993. From 1990 to 1993, Mr.
Sykora was President and Chief Operating Officer of Houston Industries
Incorporated's principal operating subsidiary, Houston Lighting & Power Company.
Mr. Sykora is currently serving as a director of each of Powell Industries,
Inc., Pool Oilfield Services, Inc. and TransTexas Gas Corp.
On closing of this Offering, the Board of Directors will be divided into
three classes with staggered terms of office. The term of the Class I directors,
consisting of Messrs. Wright, Sokolow and Amonett, will expire at the annual
stockholders' meeting in 1997. The term of the Class II directors, consisting of
Messrs. Hoover, Menditch, Cruikshank and Hale, will expire at the annual
stockholders' meeting in 1998. The term of the Class III directors, consisting
of Messrs. Timmons, McCaughey, Lehmann and Sykora, will expire at the annual
stockholders' meeting in 1999. After 1997 for the Class I directors, after 1998
for the Class II directors and after 1999 for the Class III directors, each
class will hold office until the third annual stockholders' meeting following
the most recent election of such class. Classification of the Board could have
the effect of increasing the length of time necessary to change the composition
of a majority of the Board. In general, at least two annual meetings of
stockholders will be necessary for stockholders to effect a change in a majority
of the members of the Board. Executive officers serve at the discretion of the
Board.
On closing of this Offering, there will be five committees of the Board:
Audit, Compensation, Executive, Nominating and Industry Relations. The initial
members of the Audit Committee will be Messrs. Cruikshank (chairman), Amonett
and Hale. The initial members of the Compensation Committee will be Messrs.
Amonett (chairman), Sykora and Lehmann. The initial members of the Executive
Committee will be Messrs. Wright (chairman), Hoover, Sykora and Timmons. The
initial members of the Nominating Committee will be Messrs. Hoover (chairman),
Wright, Cruikshank and McCaughey. The initial members of the Industry Relations
Committee will be Messrs. Sokolow (chairman), Hoover and Menditch. The members
of the Audit and Compensation Committees will not be employees of the Company.
DIRECTOR COMPENSATION
Directors who are employees of the Company do not receive additional
compensation for serving as directors. Each director who is not an employee of
the Company (a "Nonemployee Director") initially will receive a fee of $1,500
for each Board meeting attended and $1,000 for each Board committee meeting
attended (unless held on the same day as a Board meeting) and will periodically
be granted options to purchase Common Stock pursuant to the Company's 1996
Incentive Plan (the "Incentive Plan"). See "-- 1996 Incentive
Plan -- Nonemployee Director Awards." All directors will be reimbursed for
out-of-pocket expenses incurred in attending meetings of the Board or Board
committees and for other expenses incurred in their capacity as directors.
EXECUTIVE COMPENSATION
The Company was incorporated in October 1995 and, prior to this Offering,
has not conducted any operations other than activities related to the
Acquisitions and this Offering. The Company did not pay any compensation to its
senior executive officers in 1995. In March 1996, the Company paid Mr. Wright
50% of his annual base salary accrued from November 1, 1995 to March 1, 1996 at
the annual rate of $175,000. The Company anticipates that during 1996 its most
highly compensated executive officers and their annualized base salaries will
be: Mr. Wright -- $175,000; Mr. Hoover -- $160,000; Mr. Timmons -- $150,000; Mr.
Menditch -- $150,000; and Mr. Sokolow -- $150,000. On the closing of this
Offering, Mr. Wright will be paid the balance of his accrued 1995 and 1996
compensation, while Mr. Hoover will be paid his accrued 1995 and 1996
compensation through a series of payments beginning on October 1, 1996. Pursuant
to the terms of their employment agreements with ARS, the annual base salaries
of each of the executive officers named above are subject to upward adjustment
effective one year from the effective date of his employment agreement. The
effective date of the employment agreements of Messrs. Wright and Hoover is
November 1,
44
1995 and of Messrs. Timmons, Menditch and Sokolow is the date this Offering
closes. See "-- Employment Agreements." Each of the executive officers named
above is eligible to earn additional performance-based incentive compensation
for 1996. See "-- 1996 Incentive Plan."
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Wright,
Hoover, McCaughey, Held and the current chief executive officer of each of the
Founding Companies other than Crown and A-ABC, which generally will continue
their existing employment arrangements with operational management. The
following summary of these agreements, which will be effective on the closing of
the Acquisitions and this Offering, does not purport to be complete and is
qualified by reference to them, copies of which have been filed as exhibits to
the Registration Statement of which this Prospectus is a part. Each of these
agreements provides for an annual base salary in an amount not less than the
initial specified amount and entitles the employee to participate in all the
Company's compensation plans (as defined) in which other executive officers of
the Company participate. Each of these agreements also has a continuous
three-year term subject to the right of the Company and the employee to
terminate the employee's employment at any time. If the employee's employment is
terminated by the Company without cause (as defined) or by the employee with
good reason (as defined), the employee will be entitled, during each of the
years in the three-year period beginning on the termination date, to (i)
periodic payments equal to his average annual cash compensation (as defined)
from the Company, including bonuses, if any, during the two years (or such
shorter period of employment) preceding the termination date, and (ii) continued
participation in all the Company's compensation plans (other than the granting
of new awards under the Incentive Plan or any other performance-based plan).
Except in the case of a termination for cause, any stock options previously
granted to the employee under the Incentive Plan that have not been exercised
and are outstanding as of the time immediately prior to the date of his
termination will remain outstanding (and continue to become exercisable pursuant
to their respective terms) until exercised or the expiration of their term,
whichever is earlier. If a change of control (as defined) of the Company occurs,
the employee will be entitled to terminate his employment at any time during the
365-day period following that change of control and receive a lump sum payment
equal to three times his highest annual base salary under the agreement (plus
such amounts as may be necessary to hold the employee harmless from the
consequences of any resulting excise or other similar purpose tax relating to
"parachute payments" under the Internal Revenue Code of 1986, as amended (the
"Code"). Each employment agreement contains or will contain a covenant
limiting competition with the Company for a period of one year following
termination of employment.
The Company also has entered into employment agreements with Messrs. Walker
and Mamaux.
45
OPTION GRANTS
Pursuant to the Company's previous stock option plan, the Company has
granted to its directors, officers and certain key employees (including officers
of the Founding Companies) 10-year options to purchase 1,345,000 shares of
Common Stock. Certain of these options will be exchanged for identical options
under the Incentive Plan. The following table sets forth certain information
concerning the options granted and to be granted to the following individuals
and groups:
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SHARES UNDERLYING OPTIONS
OPTIONS GRANTED OUTSTANDING OR
NAME DATE OF GRANT OR TO BE GRANTED TO BE GRANTED EXERCISE PRICE
- ------------------------------------- ---------------- ----------------- ---------------- -----------------------
<S> <C> <C> <C> <C>
C. Clifford Wright, Jr............... January 31, 1996 200,000 14.9% $8.00
Howard S. Hoover, Jr................. January 31, 1996 150,000 11.2% $8.00
William P. McCaughey................. January 31, 1996 120,000 8.9% $8.00
A. Jefferson Walker III.............. January 31, 1996 25,000 1.8% $8.00
Certain other officers and key
employees.......................... March-April 1996 150,000 11.2% $9.60-$10.80
All other officers, outside directors
and officers of Founding Companies,
as a group*........................ June 1996 700,000 52.0% Initial public offering
- ------------
</TABLE>
* Conditioned on the closing of the Acquisitions and this Offering.
The options granted to Messrs. Wright, Hoover, McCaughey, Walker and one
other executive officer are exercisable in 50% increments six and 18 months,
respectively after the closing of this Offering. Other than the options for
outside directors which are exercisable as set forth in "-- Director
Compensation," the other outstanding options generally are exercisable in 20%
increments six months after the date this Offering closes and thereafter on each
of the first four anniversaries of that date.
BONUS AWARDS
In June 1996, the Board of Directors granted Messrs. Wright, Hoover,
McCaughey and Held incentive cash bonus awards for 1996 which are based, subject
to the overall performance of the Company, on the performance of the Common
Stock after the Offering as compared to the performance of each of the stocks
included in the Standard & Poor's 500 Stock Index (the "S&P 500"). The amount
of each award will be determined by multiplying the officer's salary earned
between the closing of this Offering and December 31, 1996 by a percentage
determined by ranking the Common Stock's price performance including reinvested
dividends, if any ("Total Stockholder Return"), among Total Stockholder
Returns of all the stocks in the S&P 500, as follows:
PERCENTILE RANKING OF PERCENTAGE OF BASE
COMPANY'S TOTAL SALARY AS
STOCKHOLDER RETURN BONUS AWARD
- ------------------------------------- ------------------
50% or less.......................... 0%
51% - 65%........................... 50%
66% - 74%........................... 100%
75% - 89%........................... 150%
90% - 95%........................... 200%
96% - 100%........................... 250%
For 1996, the incentive bonus award calculation will be made from the
closing of this Offering through December 31. The officers granted these will
not be eligible to participate in any other Company cash bonus award program in
1996. The 1996 bonus for Mr. Timmons, if any, will be determined in accordance
with
46
50% of the above formula and paid in January 1997 and the balance of such
officer's 1996 bonus award, if any, will be based upon performance standards
established by the Compensation Committee of the Board of Directors. The 1996
bonuses for other officers and key employees of the Company will be based upon
the performance standards established by the Compensation Committee. The Company
expects the Compensation Committee to establish such performance standards for
the remainder of the 1996 year following the closing of this Offering.
1996 INCENTIVE PLAN
The description set forth below summarizes the principal terms and
conditions of the Incentive Plan, does not purport to be complete and is
qualified in its entirety by reference to the Incentive Plan, a copy of which
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
GENERAL. The objectives of the Incentive Plan, which was approved by the
Company's Board of Directors and stockholders, are to (i) attract and retain the
services of key employees, qualified independent directors and qualified
consultants and other independent contractors and (ii) encourage the sense of
proprietorship in and stimulate the active interest of those persons in the
development and financial success of the Company by making awards ("Awards")
designed to provide participants in the Incentive Plan with a proprietary
interest in the growth and performance of the Company.
The Company has reserved 1,500,000 shares of Common Stock for use in
connection with the Plan. Beginning with the Company's first fiscal quarter
after the closing of this Offering and continuing each fiscal quarter
thereafter, the number of shares available for use in connection with the
Incentive Plan will be the greater of 1,500,000 or 15% of the number of shares
of Common Stock outstanding on the last day of the preceding calendar quarter.
Shares subject to Awards that are forfeited or terminated, exchanged for Awards
that do not involve Common Stock or expire unexercised, or are settled in cash
in lieu of Common Stock, or otherwise such that the shares covered thereby are
not issued, again become available for Awards.
Persons eligible for Awards are (i) employees holding positions of
responsibility with the Company or any of its subsidiaries and whose performance
can have a significant effect on the success of the Company as well as
individuals who have agreed to become employees within six months of the date of
grant ("Employees"), (ii) Nonemployee Directors and (iii) nonemployee
consultants and other independent contractors providing, or who will provide,
services to the Company or any of its subsidiaries ("Independent
Contractors"). Awards to Employees ("Employee Awards") and Awards to
Independent Contractors ("Independent Contractor Awards") generally are
treated alike under the Incentive Plan, and the following discussion of Employee
Awards applies, except as noted, equally to Independent Contractor Awards. For
purposes of Section 16(b) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), which could impose so-called short-swing trading
liabilities on the directors and executive officers of the Company in connection
with their purchases and sales of Common Stock within any six-month period, the
Incentive Plan is intended to qualify for the exemptions from that Section which
are provided by Rule 16b-3 under the Exchange Act ("Rule 16b-3").
The Compensation Committee of the Company's Board of Directors (the
"Committee") will administer the Incentive Plan, except as it applies to
Nonemployee Directors, and, to the extent required for the Rule 16b-3
exemptions, the Committee will at all times consist of at least two Nonemployee
Directors. The Committee has the exclusive power to administer the Incentive
Plan and take all actions specifically contemplated thereby or necessary or
appropriate in connection with the administration thereof. Except insofar as the
Incentive Plan relates to Nonemployee Directors, the Committee also has the
exclusive power to interpret the Incentive Plan and to adopt such rules,
regulations and guidelines for carrying out its purposes as the Committee may
deem necessary or proper in keeping with the objectives thereof. The Committee
may, in its discretion, extend or accelerate the exercisability of, accelerate
the vesting of or eliminate or make less restrictive any restrictions contained
in any Employee Award, waive any restriction or other provision of the Incentive
Plan or in any Employee Award or otherwise amend or modify any Employee Award in
any manner that is either (i) not adverse to that Employee holding the Employee
Award or (ii) consented to by that Employee. The Committee also may delegate to
the chief executive officer and other senior officers of the Company its duties
under the Incentive Plan, except that no such delegation may be made in the case
of actions respecting participants subject to Section 16 of the Exchange Act.
EMPLOYEE AWARDS. Employee Awards may be in the form of (i) rights to
purchase a specified number of shares of Common Stock at a specified price
("Options") which may be denominated in one or both of Common Stock or units
denominated in Common Stock, (ii) rights to receive a payment, in cash or
47
Common Stock, equal to the fair market value or other specified value of a
number of shares of Common Stock on the rights exercise date over a specified
strike price ("SARs"), (iii) restricted or unrestricted grants of Common Stock
or units denominated in Common Stock ("Stock Awards"), (iv) grants denominated
in cash ("Cash Awards") and (v) grants denominated in cash, Common Stock, units
denominated in Common Stock or any other property which are made subject to the
attainment of one or more performance goals ("Performance Awards"). Subject to
the limitations described below, the Committee will determine the recipients of
Employee Awards and the terms, conditions and limitations applicable to each
Employee Award, which conditions may, but need not, include continuous service
with the Company, achievement of specific business objectives or goals,
increases in specified indices or other comparable measures of performance. The
Committee may grant Employee Awards (i) singly, (ii) in combination or tandem
with other Employee Awards, (iii) in replacement of or as alternatives to prior
Employee Awards or (iv) in combination or tandem with, in replacement of or as
alternatives to rights under any other employee plan of the Company or any
acquired entity. The exercise price of an Option may be paid with cash or,
according to methods determined by the Committee, with Common Stock or any other
Employee Award the exerciser has owned for at least six months. Performance
Awards may include more than one performance goal, and a performance goal may be
based on one or more business criteria applicable to the grantee, the Company as
a whole or one or more of the Company's business units and may include any of
the following: increased revenue, net income, stock price, market share,
earnings per share, return on equity or assets or decreased costs or other
liabilities.
The Incentive Plan contains limitations respecting Employee Awards,
including the following:
(i) an Option may be either an incentive stock option ("ISO") that
qualifies, or a nonqualified stock option ("NSO") that does not qualify,
with the requirements of Section 422 of the Code, and must have an exercise
price of not less than the fair market value of a Common Stock share on the
date of grant;
(ii) the Committee must establish the performance goal or goals for
each Performance Award prior to the earlier to occur of (a) 90 days after
the commencement of the performance measurement period for that Award and
(b) the lapse of 25% of that period, and in any event while it is
substantially uncertain whether the goal or goals will be met;
(iii) no employee may be granted, during any one-year period, (a)
Options or SARs covering more than 150,000 shares of Common Stock or (b)
Stock Awards covering or relating to more than 10,000 shares of Common
Stock (the limitations referred to in this clause (iii) being the
"Stock-based Awards Limitations"); and
(iv) no Employee may be granted Cash Awards (including Performance
Awards denominated in cash) having a value determined on the date of grant
in excess of $1 million.
Only the limitations described in clause (i) above apply to Independent
Contractor Awards.
NONEMPLOYEE DIRECTOR AWARDS. Nonemployee Director Awards will be granted
either automatically or at the option of Nonemployee Directors in lieu of
director's fees, as described below.
On the date this Offering closes, each Nonemployee Director automatically
will be granted NSOs to purchase 10,000 shares of Common Stock. In addition, on
the first business day of the month following the date on which each annual
meeting of the Company's stockholders is held (each an "Annual Director Award
Date"), each Nonemployee Director automatically will be granted NSOs to purchase
5,000 shares of Common Stock. The Board may increase subsequent annual Director
Awards to not more than 15,000 shares. Any person who first becomes a
Nonemployee Director after the date this Offering closes otherwise than by
election at an annual meeting of stockholders automatically will be granted, on
the date of his or her election, NSOs to purchase the number of shares of Common
Stock equal to the product of (i) 10,000 and (ii) a fraction, the numerator of
which is the number of days between the election of that Nonemployee Director
and the next scheduled Annual Director Award Date (or, if that date then has not
been scheduled, the date that is the first anniversary of the then immediately
preceding Annual Director Award Date, if any) and the denominator of which is
365. For purposes of any Director Awards granted prior to the scheduling of the
1997 annual meeting of stockholders, June 1, 1997 will be deemed the initial
Annual Director Award
48
Date. Each NSO granted to Nonemployee Directors will (i) have a 10-year term,
(ii) have an exercise price per share equal to the fair market value of a Common
Stock share on the date of grant (the initial public offering price in the case
of NSOs granted on the closing of this Offering) which must be paid in full in
cash at the time of exercise to the extent exercised and (iii) become
exercisable in increments of one-third of the total number of shares of Common
Stock subject thereto on the first, second and third anniversaries of the date
of grant. If a Nonemployee Director resigns from the Board without the consent
of a majority of the other directors, his or her NSOs may be exercised only to
the extent they were exercisable on the resignation date.
A Nonemployee Director may make an annual election to receive, in lieu of
all or any portion of the director's fees he or she would otherwise receive in
the next year (including both annual retainer fees, if any, and meeting fees), a
restricted Stock Award covering a number of shares of Common Stock having a fair
market value equal to the quotient obtained by dividing (i) the dollar amount of
fees the Nonemployee Director elects to forego in the next year in exchange for
restricted Stock Awards by (ii) the fair market value of a Common Stock share on
the date of the election.
OTHER PROVISIONS. With the approval of the Committee, payments in respect
of Employee Awards may be deferred, either in the form of installments or a
future lump sum payment, by any Employee. At the discretion of the Committee, an
Employee may be offered an election to substitute an Award for another Award or
Awards of the same or different type.
The Company will have the right to deduct applicable taxes from any
Employee Award payment and withhold, at the time of delivery or vesting of cash
or shares of Common Stock under the Incentive Plan, an appropriate amount of
cash or number of shares of Common Stock, or combination thereof, for the
payment of taxes. The Committee may (i) permit withholding to be satisfied by
the transfer to the Company of shares of Common Stock previously owned by the
holder of the Employee Award for which withholding is required and (ii) cause
the Company to make a short-term or demand loan to any Employee or Independent
Contractor to permit the payment of taxes required by law.
The Board of Directors may amend, modify, suspend or terminate the
Incentive Plan for the purpose of addressing any changes in legal requirements
or for any other lawful purpose, except that (i) no change that would impair the
rights of any holder of an Award with respect to that Award may be made without
the consent of that holder and (ii) no change requiring stockholder approval to
maintain the Rule l6b-3 exemptions will be effective until that approval has
been obtained.
If any subdivision, split or consolidation of outstanding shares of Common
Stock, or any declaration of a stock dividend payable in shares of Common Stock,
occurs, the Board will make appropriate adjustments to (i) the number of shares
of Common Stock reserved under the Incentive Plan, (ii) the number of shares of
Common Stock covered by outstanding Awards in the form of Common Stock or units
denominated in Common Stock, (iii) the exercise or other price in respect of
such Awards, (iv) the appropriate fair market value and other price
determinations for Awards in order to reflect such transactions, (v) the number
of shares of Common Stock covered by Options automatically granted to
Nonemployee Directors, (vi) the number of shares covered by restricted Stock
Awards automatically granted to Nonemployee Directors and (vii) the Stock Based
Awards Limitations. If any recapitalization or capital reorganization of the
Company, any consolidation or merger of the Company with another corporation or
entity, any adoption by the Company of any plan of exchange affecting the Common
Stock or any distribution to holders of Common Stock of securities or property
(other than normal cash dividends) occurs, the Board will make appropriate
adjustments to the amounts or other items referred to in clauses (ii), (iii),
(iv), (v), (vi) and (vii) above to give effect to such transactions, but only to
the extent necessary to maintain the proportionate interest of the holders of
the Awards and to preserve, without exceeding, the value thereof.
TAX IMPLICATIONS OF AWARDS. The following summarizes the United States
federal income tax consequences to Employees, Nonemployee Directors and the
Company as a result of the grant and exercise of Awards under the Incentive
Plan. It does not address the consequences of the Incentive Plan under any other
tax laws.
No grant of any Option or SAR will constitute realized taxable income to
the grantee. Each exerciser of an SAR or NSO will (i) recognize ordinary income
in an amount equal to the excess of (a) the amount of
49
cash and the fair market value of the Common Stock received over (b) the
exercise price (if any) paid therefor and (ii) generally have a tax basis in any
shares of Common Stock received pursuant to the exercise of an SAR or the cash
exercise of an NSO which equals the fair market value of those shares on the
date of exercise.
An Employee will not have taxable income as a result of exercising an ISO,
but the excess of the fair market value of the shares of Common Stock received
on that exercise ("ISO Stock") over the exercise price may cause the Employee
to incur alternative minimum tax ("AMT"). The payment of AMT by an Employee
attributable to an ISO exercise would be allowed as a credit against his regular
tax liability in a later year to the extent his regular tax liability exceeds
his AMT for that year.
On the disposition of ISO Stock that has been held for the requisite
holding period (generally, at least two years from the date of grant and one
year from the date of exercise of the ISO), the Employee generally will
recognize capital gain (or loss) equal to the difference between the amount
received in the disposition and the exercise price paid by the Employee for the
ISO Stock. If an Employee disposes of ISO Stock he has not held for the
requisite holding period (a "disqualifying disposition"), he will (i)
recognize ordinary income to the extent that the fair market value of the ISO
Stock at the time of exercise of the ISO (or, if less, the amount realized in
the case of an arm's-length disqualifying disposition to an unrelated party)
exceeds the exercise price paid by the Employee for such ISO Stock and (ii)
recognize capital gain to the extent the amount realized in the disqualifying
disposition exceeds the fair market value of the ISO Stock on the exercise date.
If the exercise price paid for the ISO Stock exceeds the amount realized in the
disqualifying disposition (in the case of an arm's-length disposition to an
unrelated party), that excess generally would constitute a capital loss.
Under current rulings, if a holder of an Option uses shares of Common Stock
he already owns (other than ISO Stock that has not been held for the requisite
holding period) to pay all or any part of the exercise price of that Option, (i)
he will recognize income respecting the Common Stock received in the manner
described above, (ii) no additional gain will be recognized as a result of the
transfer of shares used as payment and (iii) shares so received, up to the
number of shares so used, will have a tax basis that equals, and a holding
period that includes, the tax basis and holding period of the shares of Common
Stock surrendered in satisfaction of that exercise price. Any additional shares
of Common Stock received on exercise will have a tax basis that equals the
amount of cash (if any) paid by the exerciser.
When cash is paid or first made available to the recipient of a Cash Award
or Performance Award, that cash will constitute ordinary compensation income to
the recipient which is taxable at that time. When Common Stock is delivered
pursuant to a Stock Award or a Performance Award, or when Common Stock or cash
is delivered pursuant to a Stock Award denominated in units of Common Stock, the
recipient generally will recognize ordinary compensation income at that time
which is equal to the amount received (that amount being, in the case of Common
Stock, its fair market value when received), except that: if an Incentive Plan
participant receives Common Stock pursuant to a Stock Award or Performance Award
and that stock then is both nontransferable and subject to a substantial risk of
forfeiture, the participant may elect to recognize ordinary compensation income
equal to the then fair market value of the stock received or to defer such
recognition until such time, if ever, as the stock received first becomes both
transferable and no longer subject to a substantial risk of forfeiture, at which
time the participant would recognize ordinary compensation income equal to the
fair market value at that time of the stock previously received. If dividends
are paid or accrued on Common Stock included in a Stock Award or Performance
Award prior to the time the recipient of that Award recognizes ordinary
compensation income in respect of that stock, those dividends will be taxable as
compensation income rather than as dividend income. The tax basis of Common
Stock received by an Incentive Plan participant pursuant to a Stock Award or
Performance Award will be the amount the participant recognizes as compensation
income in respect of that stock, and the holding period of that stock will begin
on the date of that recognition.
When an Employee recognizes compensation income from the exercise of an SAR
or NSO or in respect of Common Stock, cash or other property received pursuant
to a Cash Award, Performance Award or Stock Award, he will be subject to
withholding by the Company for federal (and generally for state and local)
income tax at that time.
50
Subject to the Code limitations described below, the Company (or a
subsidiary) generally will be entitled to a deduction for federal income tax
purposes which corresponds as to amount and timing with the compensation income
realized by Incentive Plan participants in respect of Awards made to them. The
Code limits deductions to amounts constituting both reasonable compensation for
services rendered or to be rendered and ordinary, necessary business expenses.
Code Sections 280G, which disallows deductions of amounts constituting excess
parachute payments made or deemed made in connection with a change in control of
an employer, and 162(m), which generally limits to $1 million the deductibility
of compensation paid to certain employees of the Company in any one taxable
year, could limit the ability of the Company (or a subsidiary) to deduct amounts
taxable as compensation income to Incentive Plan participants. In the case of
performance-based compensation, exceptions to Code Section 162(m) currently
apply if certain requirements are met. The Company intends generally to satisfy
these requirements in connection with the grant and payment of performance-based
Awards (including certain Options and SARs), but no assurance can be given the
Company will be able to satisfy these requirements in all cases and the Company
may, in its sole discretion, determine in one or more cases that it is in its
best interests not to satisfy these requirements even if it is able to do so.
OTHER PLANS
The Company has adopted or intends to adopt deferred compensation,
supplemental disability, supplemental life and retirement or other benefit or
welfare plans in which executive officers of the Company will be eligible to
participate. Copies of the plans that have been adopted as of the date of this
Prospectus are filed as exhibits to the Registration Statement of which this
Prospectus is a part.
CERTAIN TRANSACTIONS
ORGANIZATION OF THE COMPANY
START-UP FUNDING. ARS was initially capitalized in October 1995 with
$1,000 provided by Messrs. Wright, Hoover and McCaughey. As a result of
subsequent stock splits, the 1,000 shares initially issued by ARS to its
founders now total 449,778 shares. Since early 1996, Equus II has advanced funds
to ARS pursuant to a $1.6 million commitment to enable ARS to pay various
expenses incurred in connection with its efforts to create the Company and
effect this Offering. The Equus II advances are evidenced by an ARS convertible
note under which $0.5 million was outstanding at March 31, 1996 and the entire
$1.6 million is expected to be outstanding prior to the closing of this
Offering. On the closing of this Offering, $0.5 million of this note will be
converted into 899,556 shares of Common Stock, and ARS will pay the balance of
the note with proceeds from this Offering. As a part of its funding arrangements
with Equus II, ARS issued a warrant to Equus II in March 1996 that will become
exercisable in whole on the closing of this Offering to purchase up to 100,000
shares of Common Stock at the initial public offering price per share. This
warrant will expire in 2001 to the extent not exercised.
Simultaneously with the closing of this Offering, ARS will acquire by
merger all of the issued and outstanding capital stock of the Founding
Companies, at which time each Founding Company will become a wholly owned
subsidiary of the Company. The aggregate consideration that will be paid by ARS
to acquire the Founding Companies is approximately $76.9 million, consisting of
(i) approximately $34.8 million in cash and (ii) 3,236,613 shares of Common
Stock. In addition, the stockholders of each Founding Company will be entitled
to receive from such Founding Company (or be obligated to pay to it) an amount
equal to the increase (or decrease) in such Founding Company's net working
capital (as defined) from the date of a specified recent balance sheet for such
Founding Company through the closing of the Acquisitions. The Company will also
assume approximately $21.4 million of indebtedness. In addition, the Company
consented to the distribution of cash and certain receivables to stockholders of
General Heating, which is an S corporation, in an amount equal to the balance of
its Accumulated Adjustment Account ("AAA account") as of the closing of the
General Heating Acquisition (approximately $10 million as of December 31, 1995).
An AAA account generally represents undistributed retained earnings of an S
corporation, upon which taxes have been paid by the stockholders. In addition,
prior to the
51
closing of the Acquisitions, certain Founding Companies will make distributions
to their stockholders of certain assets and related liabilities. As of June 30,
1996, the aggregate amount of these distributions would have been approximately
$ million.
The following table sets forth for each Founding Company the consideration
to be paid its common stockholders (i) in cash and (ii) in shares of Common
Stock. For a description of the merger consideration to be provided to Equus II
in the EHC Acquisition in respect of convertible preferred stock of EHC held by
it, see "-- EHC."
COMMON STOCK
-----------------------
VALUE OF
CASH(1) SHARES SHARES
------- --------- --------
(DOLLARS IN THOUSANDS)
General Heating...................... $15,000 769,230 $ 10,000
Atlas................................ 5,000 1,230,769 16,000
EHC (including Crown and A-ABC)...... -- 436,615 5,676
Florida HAC.......................... 11,000 384,615 5,000
Meridian & Hoosier................... 3,250 288,461 3,750
Climatic............................. 550 126,923 1,650
------- --------- --------
Total........................... $34,800 3,236,613 $ 42,076
======= ========= ========
- ------------
(1) Excluding possible increases or decreases for changes in working capital (as
defined).
The consummation of each Acquisition is subject to customary conditions.
These conditions include, among others, the accuracy on the closing date of the
Acquisitions of the representations and warranties by the Founding Companies,
their principal stockholders and by ARS; the performance of each of their
respective covenants included in the agreements relating to the Acquisitions;
and the nonexistence of a material adverse change in the results of operations,
financial condition or business of each Founding Company.
The agreements relating to the Acquisitions may be terminated, under
certain circumstances, prior to the consummation of this Offering. Specifically,
the agreements may be terminated (i) by the mutual consent of the board of
directors of the Company and each Founding Company; (ii) if this Offering and
the Acquisitions are not consummated by December 31, 1996; (iii) if the
schedules to any acquisition agreement are amended to reflect a material adverse
change in a Founding Company; or (iv) if a material breach or default under the
agreements shall exist and is not waived.
There can be no assurance that the conditions to the closing of the
Acquisitions will be satisfied or waived or that the agreements relating to the
Acquisitions will not be terminated prior to closing.
Pursuant to the agreements relating to the Acquisitions, all stockholders
of each of the Founding Companies (other than minority interest owners in Atlas)
have agreed not to compete with the Company for a period of three years
commencing on the date of closing of the Acquisitions.
52
ACQUISITIONS INVOLVING CERTAIN OFFICERS, DIRECTORS AND STOCKHOLDERS
Individuals who are or will become directors of the Company will receive
the following consideration in the Acquisitions for their interests in the
Founding Companies, subject to upward or downward adjustment for changes in
working capital.
COMMON STOCK
----------------------
VALUE OF
CASH SHARES SHARES
--------- --------- --------
(DOLLARS IN THOUSANDS)
General Heating:
Frank N. Menditch..................... $ 5,000 256,410 $3,334
Atlas:
Gorden H. Timmons..................... 2,940 489,929 6,369
EHC:
C. Clifford Wright, Jr. .............. -- 60,346 785
Howard S. Hoover, Jr. ................ -- 28,966 377
William P. McCaughey.................. -- 60,346 785
Florida HAC:
Elliot Sokolow........................ 6,500 307,692 4,000
- ------------
(1) In addition, a Timmons family trust will receive approximately $1,960 in
cash and 429,094 shares of Common Stock.
Equus will receive 153,846 shares of Common Stock, $500,000 in cash and
accrued cash dividends in exchange for its EHC preferred stock.
EHC
EHC was organized in February 1996 for the purpose of acquiring, for a
total purchase price of $17.5 million, all of the capital stock of Crown and
certain real estate used in its business. The purchase price was funded by a
loan from NationsBank of Texas, N.A. ("NationsBank") secured by the capital
stock and certain assets of Crown, by a loan from Equus II, credit enhancements
provided to NationsBank by Equus II secured by all of the capital stock of ARS
and through the purchase by Equus II of $2.5 million of EHC preferred stock. In
May 1996, EHC acquired all of the capital stock of A-ABC for a total purchase
price of $2.0 million, which was provided by borrowings from NationsBank, which
are secured by the capital stock of A-ABC and credit enhancements provided by
Equus II, and the assumption of certain liabilities. See "The Company." EHC is
being acquired by the Company for a total consideration of $21.4 million,
consisting of 436,615 shares of Common Stock and the assumption and/or repayment
of approximately $15.7 million of indebtedness and other obligations (including
$0.5 million of EHC preferred stock), approximately $14.5 million of which will
be repaid either out of a portion of the net proceeds of this Offering or
through bank borrowings. The consideration being paid by ARS for EHC (which
previously acquired Crown and A-ABC) was determined using generally the same
valuation method ARS used to negotiate the consideration being paid to the
stockholders of the other Founding Companies. Messrs. Wright, Hoover and
McCaughey, who, prior to the completion of this Offering are the sole
stockholders of ARS, and Equus II are the sole stockholders of EHC.
Simultaneously with the closing of the Acquisitions, the Company will issue
shares of its Common Stock in the following amounts: (i) as part of the
acquisition of EHC, 153,846 shares to Equus II in exchange for $2.0 million of
EHC preferred stock; and (ii) 46,156 shares to employees, three officers (other
than Messrs. Wright, Hoover and McCaughey) and consultants of ARS and its
affiliates.
REAL ESTATE AND OTHER TRANSACTIONS
Atlas leases office and warehouse space in Hilton Head and Greenville,
South Carolina from a company in which Gorden H. Timmons has a 50% ownership
interest. One lease extends to May 2005 and
53
currently provides for total annual rentals of $105,000. The other lease has a
10-year term when Atlas takes possession of the leased property in mid-1996 and
provides for initial total annual rentals of $73,800. Rentals under both leases
will increase if a specified prime interest rate increases to 11% or above.
Atlas also leases office and warehouse space in Clemson, South Carolina from a
partnership in which members of Mr. Timmons' immediate family have a 50%
ownership interest. This lease extends to February 2006 and provides for total
annual rentals of $42,000. A realtor of which Mr. Timmons is a 75% owner and the
broker-in-charge acts as leasing agent of a portion of Atlas's office and
warehouse space in North Charleston, South Carolina. During the five years ended
December 31, 1995, Atlas paid this company an average annual amount of
approximately $2,000.
In November 1995, Mr. Timmons purchased the capital stock of Golden
Triangle Mechanical, Inc. from a third party for approximately $85,000. In
January 1996, Mr. Timmons conveyed that stock to Atlas for the same purchase
price.
Atlas has a receivable from Mr. Timmons, its majority shareholder, in the
amount of approximately $195,000 as of December 31, 1995. See Note 9 to "Notes
to Consolidated Financial Statements" of Atlas.
General Heating leases office and warehouse space in Manassas, Virginia and
Laurel, Maryland under four leases from a limited partnership owned by Frank N.
Menditch, his brothers and trusts for the benefit of their children. Annual
rentals under the leases, which expire at the end of 2005, currently total
$491,373 and will increase a minimum of 4% each year.
General Heating has receivables from Frank Menditch in the aggregate amount
of approximately $308,139 as of December 31, 1995. See Note 7 to "Notes to
Financial Statements" of General Heating.
Florida HAC leases its principal office and warehouse space in Margate,
Florida from a limited partnership 80% owned by Elliot Sokolow. ARS and Mr.
Sokolow have agreed to extend the lease term by five years to May 31, 2005. The
annual rental currently is $127,233 and will increase 5% each year.
Florida HAC has borrowings outstanding from Mr. Sokolow in the aggregate
amount of approximately $641,804 as of December 31, 1995. See Note 8 to "Notes
to Combined Financial Statements" of Florida HAC.
Meridian & Hoosier leases its principal office and warehouse space in
Indianapolis from Gary Daymon and his wife. The annual rental currently is
$90,000 and will increase 5% annually. The lease expires in 2001, and the
Company has obtained an option to purchase the building at its appraised fair
market value. Meridian & Hoosier leases office space in Indianapolis to DIAL ONE
of Central Indiana, Inc., a corporation wholly owned by Mr. Daymon ("DOCI").
This lease extends to June 30, 1997 and provides for total annual rentals of
$24,000.
In October 1993, Meridian & Hoosier renewed a four-year franchise agreement
with DOCI under which Meridian & Hoosier uses the "DIAL ONE" name, logo and
various materials in its business within a designated franchise territory it
shares with other DOCI franchisees that also provide various residential
services under the "DIAL ONE" name. DOCI provides its franchisees a common
telephone number for customer calls, as well as promotional and training
materials and training seminars. Meridian & Hoosier's current annual payment
obligation under its franchise agreement is $60,000, and Meridian & Hoosier may
terminate the agreement at any time. If it does so, it will owe DOCI the balance
of the payments due to the end of the agreement's stated term and must cease
using the "DIAL ONE" name and materials.
Meridian & Hoosier shares certain costs with DOCI for personnel and
overhead, for which it bills DOCI monthly based on DOCI's pro rata share of
those expenses.
The Company believes the rentals provided under the leases described above
are fair market rentals. It also believes the other agreements described above
are fair to the Company.
54
COMPANY POLICY
In the future, any transactions with directors, officers, employees or
affiliates of the Company are anticipated to be minimal and will, in any case,
be approved in advance by a majority of the Board of Directors, including a
majority of disinterested members of the Board of Directors.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table shows, as of June 12, 1996, information respecting the
then "beneficial owners" (as defined by the SEC) of more than 5% of the Common
Stock:
SHARES BENEFICIALLY
OWNED
----------------------
NAME NUMBER PERCENT
- ------------------------------------- --------- --------
C. Clifford Wright, Jr............... 168,667 37.5%
Howard S. Hoover, Jr................. 112,444 25.0%
William P. McCaughey................. 168,667 37.5%
The following table shows, immediately after giving effect to the closing
of the Acquisitions and this Offering, the then "beneficial ownership" of the
Common Stock of (i) Equus II, (ii) each director and person nominated to become
a director on closing of this Offering; (iii) each executive officer; (iv)
certain executive officers of each of the Founding Companies; and (v) all
executive officers and directors of the Company as a group.
SHARES BENEFICIALLY
OWNED
AFTER OFFERING(1)
----------------------
NAME NUMBER PERCENT
- ------------------------------------- --------- -------
Equus II Incorporated(2)............. 1,429,094 15.7%
2929 Allen Parkway, 25th Floor
Houston, Texas 77019
Gorden H. Timmons(3)................. 946,186 10.5%
Gorden H. Timmons, as Trustee under
Gorden H. Timmons
Retained Annuity Trust............. 456,257 5.1%
Elliot Sokolow....................... 307,692 3.4%
Gary Daymon.......................... 288,461 3.2%
Frank N. Menditch.................... 256,410 2.9%
Howard C. Menditch................... 256,410 2.9%
Bruce L. Menditch.................... 256,410 2.9%
C. Clifford Wright, Jr............... 229,012 2.5%
William P. McCaughey................. 229,012 2.5%
Howard S. Hoover, Jr.(4)............. 151,410 1.7%
Howard W. Hauser.................... 126,923 1.4%
All executive officers and
directors as a group (9 persons)... 2,131,644 23.7%
- ------------
(1) Shares shown do not include shares that could be acquired upon exercise of
currently outstanding stock options which do not vest within 60 days hereof.
(2) Shares shown include 100,000 shares obtainable on exercise of a warrant
exercisable at the IPO price per share. See "Certain Transactions --
Organization of the Company." Nolan Lehmann, who will become a director of
the Company on closing of this Offering, is the President of Equus II and
thus may be deemed to be the beneficial owner of shares held by Equus II.
Mr. Lehmann disclaims beneficial ownership of all those shares.
(3) As Trustee under the Gorden H. Timmons Retained Annuity Trust, Mr. Timmons
may be deemed the beneficial owner of the shares held by that trust.
55
(4) Shares shown include 10,000 shares that Mr. Hoover intends to acquire
directly from the Underwriters in connection with this Offering. The table
assumes no other person listed intends to acquire shares from the
Underwriters.
Except as otherwise indicated, the address of each person listed in the
above tables is c/o American Residential Services, Inc., 5850 San Felipe, Suite
500, Houston, Texas 77057. All persons listed have sole voting and investment
power with respect to their shares unless otherwise indicated.
SHARES ELIGIBLE FOR FUTURE SALE
On closing of the Acquisitions and this Offering, 8,995,564 shares of
Common Stock will be outstanding. The shares sold in this Offering (other than
to affiliates of the Company) will be freely tradable by the public. The
remaining outstanding shares of Common Stock (collectively, the "Restricted
Shares") have not been registered under the Securities Act and may be resold
publicly only following their effective registration under that act or pursuant
to an available exemption from the registration requirements of that act (such
as Rule 144 thereunder).
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register the shares of Common Stock reserved or to be
available for issuance pursuant to the Incentive Plan. Shares of Common Stock
issued pursuant to the Incentive Plan after the effective date of that
registration statement generally will be available for sale in the open market
by holders who are not affiliates of the Company and, subject to the volume and
other limitations of Rule 144, by holders who are affiliates of the Company.
In general, under Rule 144 as currently in effect, if a minimum of two
years has elapsed since the later of the date of acquisition of the restricted
securities from the issuer or from an affiliate of the issuer, a person (or
persons whose shares of Common Stock are aggregated), including persons who may
be deemed "affiliates" of the Company, would be entitled to sell within any
three-month period a number of shares of Common Stock that does not exceed the
greater of (i) 1% of the then outstanding shares of Common Stock (I.E., 89,955
shares immediately on closing of this Offering) and (ii) the average weekly
trading volume during a preceding period of four calendar weeks. Sales under
Rule 144 are also subject to certain provisions as to the manner of sale, notice
requirements and the availability of current public information about the
Company. In addition, under Rule 144(k), if a period of at least three years has
elapsed since the later of the date restricted securities were acquired from the
Company or the date they were acquired from an affiliate of the Company, a
stockholder who is not an affiliate of the Company at the time of sale and has
not been an affiliate for at least three months prior to the sale would be
entitled to sell shares of Common Stock in the public market immediately without
compliance with the foregoing requirements under Rule 144. Rule 144 does not
require the same person to have held the securities for the applicable periods.
The foregoing summary of Rule 144 is not intended to be a complete description
thereof. The Commission has proposed an amendment to Rule 144 that would shorten
the three- and two-year holding periods described above to two years and one
year, respectively.
The Company has agreed not to offer or sell any shares of Common Stock for
a period of 180 days (the "Lockup Period") following the date of this Prospectus
without the prior written consent of Smith Barney Inc., except that the Company
may issue Common Stock in connection with acquisitions or on the exercise of
options or warrants outstanding as of the closing of this Offering. Further, all
the current stockholders of ARS, including the former owners of the Founding
Companies and Equus II, will be contractually prohibited from selling the shares
they own for a period of 180 days following the consummation of the
Acquisitions. The Company has agreed that it will not waive such prohibition
during the Lock-up Period without the prior written consent of Smith Barney Inc.
of the Underwriters. In addition, the holders of the shares of Common Stock
acquired in connection with the Acquisitions have agreed with the Company that
they will not sell, transfer or otherwise dispose of any of their shares for two
years following the closing of this Offering (or for such shorter period as the
SEC may prescribe as the holding period for restricted securities under Rule
144).
In connection with the Acquisitions, the Company will enter into a
registration rights agreement with former stockholders of the Founding Companies
(the "Registration Rights Agreement"), which will
56
provide certain registration rights with respect to the Common Stock issued to
such stockholders in the Acquisitions. The Registration Rights Agreement will
provide for a single demand registration right, exercisable by the holders of a
majority of the shares of Common Stock subject to the agreement, pursuant to
which the Company will file a registration statement under the Securities Act to
register the sale of shares by those requesting stockholders and any other
holders of Common Stock subject to the agreement who desire to sell pursuant to
such registration statement. The demand request may not be made until the
expiration of two years after the date of this Prospectus (subject to a
corresponding reduction if the two-year holding period for restricted securities
under Rule 144 is reduced by the Commission). In addition, subject to certain
conditions and limitations, the Registration Rights Agreement will provide the
holders of Common Stock subject to the agreement with the right to participate
in registrations by the Company of its equity securities in underwritten
offerings. The registration rights conferred by the Registration Rights
Agreement will terminate on December 31, 2000. In addition, pursuant to separate
registration rights agreements with Equus II and NationsBank, both Equus II and
NationsBank have the right, in the event the Company proposes to register under
the Securities Act any Common Stock for its own account or for the account of
others, subject to certain exceptions, to require the Company to include shares
owned by them (or, in the case of NationsBank, issuable to it pursuant to a
warrant that was originally issued by EHC) in the registration.
In the case of each registration rights agreement described above, the
Company is generally required to pay the costs associated with such an offering
other than underwriting discounts and commissions and transfer taxes
attritubable to the shares sold on behalf of the selling stockholders. In
addition, in the case of the registration rights agreements with Equus II and
NationsBank, the Company is obligated to pay the fees and expenses of legal
counsel for the selling stockholders thereunder. Each registration rights
agreement provides that the number of shares of Common Stock that must be
registered on behalf of the selling stockholders is subject to limitation if the
managing underwriter determines that market conditions require such a
limitation. Under each agreement, the Company will indemnify the selling
stockholders thereunder, and such stockholders will indemnify the Company,
against certain liabilities in respect of any registration statement or offering
covered by the registration rights agreement.
Within 60 days after the closing of this Offering, the Company intends to
register 5,000,000 shares of Common Stock under the Securities Act for use in
connection with future acquisitions. These shares generally will be freely
tradable after their issuance by persons not affiliated with the Company unless
the Company contractually restricts their sale, and sales of these shares during
the Lockup Period would require the prior written consent of Smith Barney Inc.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock, par value $.001 per share, and 10,000,000 shares of preferred
stock, par value $.001 per share (the "Preferred Stock"). At June 14, 1996,
449,778 shares of Common Stock were issued and outstanding. On closing of the
Acquisitions and this Offering, the Company will have outstanding 8,995,564
shares of Common Stock (9,625,564 if the Underwriters' over-allotment option is
exercised in full) and no shares of Preferred Stock. The following summary is
qualified in its entirety by reference to the Company's Restated Certificate of
Incorporation (the "Certificate of Incorporation"), which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
COMMON STOCK
The Common Stock possesses ordinary voting rights for the election of
directors and in respect of other corporate matters, and each share has one
vote. The Common Stock affords no cumulative voting rights, and the holders of a
majority of the shares voting for the election of directors can elect all the
directors if they choose to do so. The Common Stock carries no preemptive
rights, is not convertible, redeemable, assessable or entitled to the benefits
of any sinking fund. The holders of Common Stock are entitled to dividends in
such amounts and at such times as may be declared by the Board of Directors out
of funds legally available therefor. See "Dividend Policy" for information
regarding dividend policy.
57
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the provisions
of the Certificate of Incorporation and limitations prescribed by law, the Board
of Directors is expressly authorized to adopt resolutions to issue the shares,
to fix the number of shares and to change the number of shares constituting any
series and to provide for or change the voting powers, designations, preferences
and relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof, including dividend rights (including
whether dividends are cumulative), dividend rates, terms of redemption
(including sinking fund provisions), redemption prices, conversion rights and
liquidation preferences of the shares constituting any class or series of the
Preferred Stock, in each case without any further action or vote by the holders
of Common Stock.
Although the Company has no present intention to issue shares of Preferred
Stock, the issuance of shares of Preferred Stock, or the issuance of rights to
purchase such shares, could be used to discourage an unsolicited acquisition
proposal. For example, the issuance of a series of Preferred Stock might impede
a business combination by including class voting rights that would enable the
holders to block such a transaction; or such issuance might facilitate a
business combination by including voting rights that would provide a required
percentage vote of the stockholders. In addition, under certain circumstances,
the issuance of Preferred Stock could adversely affect the voting power of the
holders of the Common Stock. Although the Board of Directors is required to make
any determination to issue such stock based on its judgment as to the best
interests of the stockholders of the Company, the Board of Directors could act
in a manner that would discourage an acquisition attempt or other transaction
that some or a majority of the stockholders might believe to be in their best
interests or in which stockholders might receive a premium for their stock over
the then-market price of such stock. The Board of Directors does not at present
intend to seek stockholder approval prior to any issuance of currently
authorized stock, unless otherwise required by law or the rules of any market on
which the Company's securities are traded.
STOCKHOLDER RIGHTS PLAN
Each share of Common Stock offered hereby includes one right ("Right") to
purchase from the Company a unit consisting of one one-hundredth of a share (a
"Unit") of Series A Junior Participating Preferred Stock, par value $.001 per
share (the "Series A Preferred Stock"), at a purchase price of $40.00 per
Unit, subject to adjustment in certain events (the "Purchase Price"). The
following summary description of the Rights does not purport to be complete and
is qualified in its entirety by reference to the Rights Agreement between the
Company and a Rights Agent (the "Rights Agreement"), the form of which is
filed as an exhibit to the Registration Statement of which this Prospectus is a
part and is incorporated herein by reference.
Initially, the Rights will attach to all certificates representing
outstanding shares of Common Stock, including the shares of Common Stock offered
hereby, and no separate certificates for the Rights ("Rights Certificates") will
be distributed. The Rights will separate from the Common Stock and a
"Distribution Date" will occur upon the earlier of (i) 10 days following a
public announcement that a person or group of affiliated or associated persons
(an "Acquiring Person") has acquired, or obtained the right to acquire,
beneficial ownership of 15% or more of the outstanding shares of Common Stock
(the date of the announcement being the "Stock Acquisition Date") or (ii) 10
business days (or such later date as may be determined by the Board of Directors
before the Distribution Date occurs) following the commencement of a tender
offer or exchange offer that would result in a person's becoming an Acquiring
Person. Notwithstanding the foregoing, so long as Equus II, together with all
affiliates and associates thereof, remains the beneficial owner of 15% or more
of the outstanding shares of Common Stock, Equus II shall not be or become an
Acquiring Person unless and until it, together with all affiliates and
associates thereof, becomes the beneficial owner of additional shares of Common
Stock constituting 1% or more of the then-outstanding shares of Common Stock or
any other person who is the beneficial owner of at least 1% of the then
outstanding shares of Common Stock shall become an affiliate or associate of
Equus II. In certain circumstances the Distribution Date may be deferred by the
Board of Directors. Certain inadvertent
58
acquisitions will not result in a person's becoming an Acquiring Person if the
person promptly divests itself of sufficient Common Stock. Until the
Distribution Date, (a) the Rights will be evidenced by the Common Stock
certificates and will be transferred with and only with those certificates, (b)
Common Stock certificates will contain a notation incorporating the Rights
Agreement by reference and (c) the surrender for transfer of any certificate for
Common Stock also will constitute the transfer of the Rights associated with the
stock represented by such certificate.
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on December 1, 2002, unless earlier redeemed or
exchanged by the Company as described below.
As soon as practicable after the Distribution Date, Rights Certificates
will be mailed to holders of record of Common Stock as of the close of business
on the Distribution Date and, from and after the Distribution Date, the separate
Rights Certificates alone will represent the Rights.
In the event (a "Flip-In Event") that a person becomes an Acquiring
Person (except pursuant to a tender or exchange offer for all outstanding shares
of Common Stock at a price and on terms that the Board of Directors determines
to be fair to and otherwise in the best interests of the Company and its
stockholders (a "Permitted Offer")), each holder of a Right will thereafter
have the right to receive, on exercise of that Right, a number of shares of
Common Stock (or, in certain circumstances, cash, property or other securities
of the Company) having a Current Market Price (as defined in the Rights
Agreement) equal to two times the exercise price of the Right. Notwithstanding
the foregoing, following the occurrence of any Flip-In Event, all Rights that
are, or (under certain circumstances specified in the Rights Agreement) were,
beneficially owned by any Acquiring Person (or by certain related parties) will
be null and void in the circumstances set forth in the Rights Agreement. Rights
are not exercisable following the occurrence of any Flip-In Event until such
time as the Rights are no longer redeemable by the Company as set forth below.
In the event (a "Flip-Over Event") that, at any time on or after the
Stock Acquisition Date, (i) the Company is acquired in a merger or other
business combination transaction (other than certain mergers that follow a
Permitted Offer) or (ii) 50% or more of the Company's assets or earning power is
sold or transferred, each holder of a Right (except Rights that previously have
been voided as set forth above) shall thereafter have the right to receive, on
exercise of such Right, a number of shares of common stock of the acquiring
company having a Current Market Price equal to two times the exercise price of
the Right. Flip-In Events and Flip-Over Events are collectively referred to as
"Triggering Events."
The Purchase Price payable, and the number of Units of Series A Preferred
Stock or other securities or property issuable, on exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Series A Preferred Stock, (ii) if holders of the Series A Preferred Stock are
granted certain rights or warrants to subscribe for Series A Preferred Stock or
certain convertible securities at less than the current market price of the
Series A Preferred Stock or (iii) on the distribution to holders of the Series A
Preferred Stock of evidences of indebtedness or assets (excluding regular
quarterly cash dividends) or of subscription rights or warrants (other than
those referred to above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional Units will be issued and, in lieu thereof, an adjustment in
cash will be made based on the market price of the Series A Preferred Stock on
the last trading date prior to the date of exercise. Pursuant to the Rights
Agreement, the Company reserves the right to require prior to the occurrence of
a Triggering Event that, on any exercise of Rights, a number of Rights be
exercised so that only whole shares of Series A Preferred Stock will be issued.
At any time until 10 days following the Stock Acquisition Date, the Company
may redeem the Rights in whole, but not in part, at a price of $.01 per Right,
payable, at the option of the Company, in cash, shares of the Common Stock or
such other consideration as the Board of Directors of the Company may determine.
After the redemption period has expired, the Company's right of redemption may
be reinstated prior to the occurrence of any Triggering Event if (i) an
Acquiring Person reduces its beneficial ownership to 10% or less of the
outstanding shares of Common Stock in a transaction or series of transactions
not involving the
59
Company and (ii) there are no other Acquiring Persons. Immediately upon the
effectiveness of the action of the Board of Directors ordering redemption of the
Rights, the Rights will terminate and the only right of the holders of Rights
will be to receive the $.01 redemption price.
At any time after the occurrence of a Flip-In Event and prior to a person's
becoming the beneficial owner of 50% or more of the shares of Common Stock then
outstanding, the Company may, at its option, exchange the Rights (other than
Rights owned by an Acquiring Person or an affiliate or an associate of an
Acquiring Person, which will have become void), in whole or in part, at an
exchange ratio of one share of Common Stock, and/or other equity securities
deemed to have the same value as one share of Common Stock, per Right, subject
to adjustment.
Other than certain provisions relating to the principal economic terms of
the Rights, any of the provisions of the Rights Agreement may be amended by the
Board of Directors prior to the Distribution Date. Thereafter, the provisions of
the Rights Agreement may be amended by the Board of Directors only in order to
cure any ambiguity, defect or inconsistency, to make changes that do not
materially adversely affect the interests of holders of Rights (excluding the
interests of any Acquiring Person), or to shorten or lengthen any time period
under the Rights Agreement; provided, however, that no amendment to lengthen the
time period governing redemption shall be made at such time as the Rights are
not redeemable. Until a Right is exercised, the holder thereof, as such, will
have no rights to vote or to receive dividends or any other rights as a
stockholder of the Company.
The Rights will have certain antitakeover effects. They will cause
substantial dilution to any person or group that attempts to acquire the Company
without the approval of the Company's Board of Directors. As a result, the
overall effect of the Rights may be to render more difficult or discourage any
attempt to acquire the Company, even if such acquisition may be favorable to the
interests of the Company's stockholders. Because the Board of Directors can
redeem the Rights or approve a Permitted Offer, the Rights should not interfere
with a merger or other business combination approved by the Board. The Rights
have been distributed prior to the completion of this Offering to protect the
Company's stockholders from coercive or abusive takeover tactics and to afford
the Company's Board of Directors more negotiating leverage in dealing with
prospective acquirers.
STATUTORY BUSINESS COMBINATION PROVISION
The Company is a Delaware corporation and is subject to Section 203 of the
DGCL. In general, Section 203 prevents an "interested stockholder" (defined
generally as a person owning 15% or more of a corporation's outstanding voting
stock) from engaging in a "business combination" (as defined) with a Delaware
corporation for three years following the date such person became an interested
stockholder unless: (i) before such person became an interested stockholder, the
board of directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the business
combination; (ii) upon consummation of the transaction that resulted in the
interested stockholder's becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding stock held by
directors who are also officers of the corporation and by employee stock plans
that do not provide employees with the rights to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer); or (iii) following the transaction in which such person became an
interested stockholder, the business combination was approved by the board of
directors of the corporation and authorized at a meeting of stockholders by the
affirmative vote of the holders of 66 2/3% of the outstanding voting stock of
the corporation not owned by the interested stockholder. Under Section 203, the
restrictions described above also do not apply to certain business combinations
proposed by an interested stockholder following the announcement or notification
of one of certain extraordinary transactions involving the corporation and a
person who had not been an interested stockholder during the previous three
years or who became an interested stockholder with the approval of a majority of
the corporation's directors, if such extraordinary transaction is approved or
not opposed by a majority of the directors who were directors prior to any
person becoming an interested stockholder during the previous three years or
were recommended for election or elected to succeed such directors by a majority
of such directors.
60
OTHER MATTERS
Delaware law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of a director's fiduciary duty of care. The duty of care
requires that, when acting on behalf of the corporation, directors' must
exercise an informed business judgment based on all material information
reasonably available to them. Absent the limitations authorized by Delaware law,
directors are accountable to corporations and their stockholders for monetary
damages for conduct constituting gross negligence in the exercise of their duty
of care. Delaware law enables corporations to limit available relief to
equitable remedies such as injunction or rescission. The Certificate of
Incorporation limits the liability of directors of the Company to the Company or
its stockholders to the fullest extent permitted by Delaware law. Specifically,
directors of the Company will not be personally liable for monetary damages for
breach of a director's fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the DGCL or (iv) for any transaction from which the director
derived an improper personal benefit.
The inclusion of this provision in the Certificate of Incorporation may
have the effect of reducing the likelihood of derivative litigation against
directors and may discourage or deter stockholders or management from bringing a
lawsuit against directors for breach of their duty of care, even though such an
action, if successful, might otherwise have benefited the Company and its
stockholders. The Company's Bylaws provide indemnification to the Company's
officers and directors and certain other persons with respect to certain
matters, and the Company has entered into agreements with each of its directors
and executive officers providing for indemnification with respect to certain
matters.
The Certificate of Incorporation provides that stockholders may act only at
an annual or special meeting of stockholders and may not act by written consent.
The Bylaws provide that special meetings of the stockholders can be called only
by the Chairman of the Board, the President or a majority of the Board of
Directors.
The Certificate of Incorporation provides that the Board of Directors shall
consist of three classes of directors serving for staggered terms. As a result,
it is currently contemplated that approximately one-third of the Company's Board
of Directors will be elected each year. The classified board provision could
prevent a party who acquires control of a majority of the outstanding voting
stock of the Company from obtaining control of the Board of Directors until the
second annual stockholders meeting following the date the acquirer obtains the
controlling interest. See "Management -- Directors and Executive Officers."
The Certificate of Incorporation provides that the number of directors
shall be as determined by the Board of Directors from time to time, but shall
not be less than three. It also provides that directors may be removed only for
cause, and then only by the affirmative vote of the holders of at least a
majority of all outstanding voting stock entitled to vote. This provision, in
conjunction with the provisions of the Certificate of Incorporation authorizing
the Board of Directors to fill vacant directorships, will prevent stockholders
from removing incumbent directors without cause and filling the resulting
vacancies with their own nominees.
STOCKHOLDER PROPOSALS
The Company's Bylaws contain provisions (i) requiring that advance notice
be delivered to the Company of any business to be brought by a stockholder
before an annual meeting of stockholders and (ii) establishing certain
procedures to be followed by stockholders in nominating persons for election to
the Board of Directors. Generally, such advance notice provisions provide that
written notice must be given to the Secretary of the Company by a stockholder
(i) in the event of business to be brought by a stockholder before an annual
meeting, not less than 90 days prior to the anniversary date of the immediately
preceding annual meeting of stockholders (with certain exceptions if the date of
the annual meeting is different by more than specified amounts from the
anniversary date), and (ii) in the event of nominations of persons for election
to the Board of Directors by any stockholder, (a) with respect to an election to
be held at the annual meeting of stockholders, not less than 90 days prior to
the anniversary date of the immediately preceding
61
annual meeting of stockholders (with certain exceptions if the date of the
annual meeting is different by more than specified amounts from the anniversary
date), and (b) with respect to an election to be held at a special meeting of
stockholders for the election of directors, not later than the close of business
on the 10th day following the day on which notice of the date of the special
meeting was mailed to stockholders or public disclosure of the date of the
special meeting was made, whichever first occurs. Such notice must set forth
specific information regarding such stockholder and such business or director
nominee, as described in the Company's Bylaws. The foregoing summary is
qualified in its entirety by reference to the Company's Bylaws, which are filed
as an exhibit to the Registration Statement of which this Prospectus is a part.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Chemical Mellon
Shareholder Services, L.L.C.
62
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, each of
the Underwriters named below has severally agreed to purchase from the Company,
and the Company has agreed to sell to such Underwriter, the respective number of
shares of Common Stock set forth opposite the name of such Underwriter.
NUMBER OF
UNDERWRITER SHARES
- --------------------- -------------
Smith Barney Inc................................
Montgomery Securities...........................
-------------
Total................................. 4,200,000
=============
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock are
subject to approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all shares
of Common Stock offered hereby (other than those covered by the over-allotment
option described below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc. and Montgomery Securities are
acting as representatives (the "Representatives"), propose to offer part of
the shares of Common Stock directly to the public at the offering price set
forth on the cover page of this Prospectus and part of the shares to certain
dealers at a price which represents a concession not in excess of $ per share
under the public offering price. The Underwriters may allow, and such dealers
may reallow, a concession not in excess of $ per share to certain other
dealers. The Representatives of the Underwriters have advised the Company that
the Underwriters do not intend to confirm any shares to any accounts over which
they exercise discretionary authority. After the initial public offering, the
offering price and other selling terms may be changed by the Representatives.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an additional 630,000
shares of Common Stock at the price to the public set forth on the cover page of
this Prospectus, minus the underwriting discounts and commissions. The
Underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, in connection with this Offering. To the extent such
option is exercised, each Underwriter will be obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number of shares set forth opposite each Underwriter's name in the
preceding table bears to the total number of shares listed in such table.
The Company, its officers and directors, and certain stockholders of the
Company designated by the Representatives have agreed that, for a period of 180
days from the date of this Prospectus, they will not, without the prior written
consent of Smith Barney Inc., offer, sell, contract to sell or otherwise dispose
of any shares of Common Stock of the Company or any securities convertible into,
or exercisable or exchangeable for, Common Stock of the Company, except that the
Company may issue shares of Common Stock (i) in connection with acquisitions,
(ii) pursuant to exercise of options granted under the Incentive Plan and (iii)
pursuant to the exercise of warrants outstanding as of the closing of this
Offering.
63
Prior to this Offering, there has not been any public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
shares of Common Stock included in this Offering will be determined by
negotiations between the Company and the Representatives. Among the factors to
be considered in determining such price are the history of and prospects for the
Company's business and the industry in which it competes, an assessment of the
Company's management and the present state of the Company's development, the
past and present revenues and earnings of the Company, the prospects for the
growth of the Company's revenues and earnings, the current state of the economy
in the United States and the current level of economic activity in the industry
in which the Company competes and in related or comparable industries, and
currently prevailing conditions in the securities markets, including current
market valuations of publicly traded companies that are comparable to the
Company.
The Company has agreed to indemnify the Underwriters and certain related
persons against certain liabilities, including liabilities under the Securities
Act, or to contribute to payments that the Underwriters may be required to make
in respect thereof.
At the request of the Company, the Underwriters have reserved up to 210,000
of the shares of Common Stock offered hereby for sale at the initial public
offering price to certain employees of the Company (including Howard S. Hoover,
Jr.) and certain other persons designated by the Company who have expressed an
interest in purchasing Common Stock. The number of shares of Common Stock
available to the general public will be reduced to the extent these persons
purchase the reserved shares. Any reserved shares which are not purchased by
such persons will be offered by the Underwriters to the general public on the
same basis as the other shares offered hereby.
LEGAL MATTERS
Certain legal matters in connection with the sale of the Common Stock
offered hereby are being passed upon for the Company by Baker & Botts, L.L.P.,
3000 One Shell Plaza, Houston, Texas 77002, and for the Underwriters by Morgan,
Lewis & Bockius LLP, 101 Park Avenue, New York, New York 10178.
EXPERTS
The audited financial statements included in this Prospectus and elsewhere
in the Registration Statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
ADDITIONAL INFORMATION
The Company has not previously been subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended. The Company has filed a
Registration Statement on Form S-1 (the "Registration Statement") under the
Securities Act with the SEC with respect to this Offering. This Prospectus,
filed as a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, or the exhibits and
schedules thereto, in accordance with the rules and regulations of the SEC, and
reference is hereby made to such omitted information. Each statement made in
this Prospectus concerning a document filed as an exhibit to the Registration
Statement is qualified in its entirety by reference to such exhibit for a
complete statement of its provisions. The Registration Statement and the
exhibits and schedules thereto may be inspected, without charge, at the public
reference facilities of the SEC at its principal office at Judiciary Plaza, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and its regional offices
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661, and at 7 World Trade Center, 13th Floor, New York, New York 10048. Copies
of all or any portion of the Registration Statement can be obtained at
prescribed rates from the Public Reference Section of the SEC at its principal
office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549. The SEC maintains an Internet web site that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the SEC. The address of that site is http://www.sec.gov.
64
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Unaudited Pro Forma Combined
Financial Statements
Basis of Presentation........... F-3
Pro Forma Combined Balance Sheet
as of March 31, 1996
(unaudited).................... F-4
Pro Forma Combined Statement of
Operations for the Year Ended
December 31, 1995
(unaudited).................... F-5
Pro Forma Combined Statement of
Operations for the Three Months
Ended March 31, 1995
(unaudited).................... F-6
Pro Forma Combined Statement of
Operations for the Three Months
Ended March 31, 1996
(unaudited).................... F-7
Notes to Unaudited Pro Forma
Combined Financial
Statements..................... F-8
Historical Financial Statements
American Residential Services,
Inc.
Report of Independent
Public Accountants......... F-11
Balance Sheets............. F-12
Statements of Operations... F-13
Statements of Shareholders'
Deficit.................... F-14
Statements of Cash Flows... F-15
Notes to Financial
Statements................. F-16
General Heating Engineering
Company, Inc.
Report of Independent
Public Accountants......... F-19
Balance Sheets............. F-20
Statements of Operations... F-21
Statements of Shareholders'
Equity..................... F-22
Statements of Cash Flows... F-23
Notes to Financial
Statements................. F-24
Atlas Services, Inc., and
Subsidary
Report of Independent
Public Accountants......... F-29
Consolidated Balance
Sheets..................... F-30
Consolidated Statements of
Operations................. F-31
Consolidated Statements of
Shareholders' Equity....... F-32
Consolidated Statements of
Cash Flows................. F-33
Notes to Consolidated
Financial Statements....... F-34
Service Enterprises, Inc., and
Subsidiaries
Report of Independent
Public Accountants......... F-41
Consolidated Balance
Sheets..................... F-42
Consolidated Statements of
Operations................. F-43
Consolidated Statements of
Shareholder's Equity....... F-44
Consolidated Statements of
Cash Flows................. F-45
Notes to Consolidated
Financial Statements....... F-46
F-1
PAGE
----
Florida Heating and Air
Conditioning, Inc. and Related
Companies
Report of Independent
Public Accountants......... F-52
Combined Balance Sheets.... F-53
Combined Statements of
Operations................. F-54
Combined Statements of
Shareholders' Equity....... F-55
Combined Statements of Cash
Flows...................... F-56
Notes to Combined Financial
Statements................. F-57
DIAL ONE Meridian and Hoosier,
Inc.
Report of Independent
Public Accountants......... F-63
Balance Sheets............. F-64
Statements of Operations... F-65
Statements of Shareholder's
Equity..................... F-66
Statements of Cash Flows... F-67
Notes to Financial
Statements................. F-68
ADCOT, Inc.
Report of Independent
Public Accountants......... F-75
Balance Sheets............. F-76
Statements of Operations... F-77
Statements of Shareholder's
Deficit.................... F-78
Statements of Cash Flows... F-79
Notes to Financial
Statements................. F-80
F-2
AMERICAN RESIDENTIAL SERVICES, INC., AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
(UNAUDITED)
The following unaudited pro forma combined financial statements give effect
to the acquisitions by American Residential Services, Inc. (ARS), of
substantially all of the net assets of (a) General Heating Engineering Company,
Inc. (General Heating), (b) Atlas Services, Inc. and subsidiary (Atlas), (c)
Service Enterprises, Inc. and subsidiaries (Crown), (d) Florida Heating and Air
Conditioning, Inc. and Related Companies (Florida HAC), (e) DIAL ONE Meridian
and Hoosier, Inc. (Meridian & Hoosier), (f) ADCOT, Inc. (A-ABC), and (g)
Climatic Corporation of Vero Beach (Climatic), (together, the Founding
Companies). ARS and the Founding Companies are hereinafter referred to as the
Company. These acquisitions (the Acquisitions) will occur simultaneously with
the closing of ARS's initial public offering (the Offering) and will be
accounted for using the purchase method of accounting. The unaudited pro forma
combined financial statements also give effect to the issuance of Common Stock,
which will be issued by ARS to the Sellers of the Founding Companies upon the
effectiveness of the Offering. These statements are based on the historical
financial statements of the Founding Companies included elsewhere in this
Prospectus (except Climatic) and the estimates and assumptions set forth below
and in the notes to the unaudited pro forma combined financial statements.
The unaudited pro forma combined balance sheet gives effect to these
transactions (the Acquisitions and the Offering) as if they had occurred on
March 31, 1996. The unaudited pro forma combined statements of operations give
effect to these transactions as if they had occurred at the beginning of each
period presented.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions that management deems appropriate. The pro
forma adjustments do not reflect amounts related to the working capital
adjustments, which may effect goodwill and debt. The unaudited pro forma
combined financial data presented herein do not purport to represent what the
Company's financial position or results of operations would have actually been
had such events occurred at the beginning of the periods presented, as assumed,
or to project the Company's financial position or results of operations for any
future period or the future results of the Founding Companies. The unaudited pro
forma combined financial statements should be read in conjunction with the other
financial statements and notes thereto included elsewhere in this Prospectus.
Also see "Risk Factors" included elsewhere herein.
F-3
<PAGE>
AMERICAN RESIDENTIAL SERVICES, INC., AND FOUNDING COMPANIES
PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
GENERAL FLORIDA MERIDIAN
ARS HEATING ATLAS CROWN HAC & HOOSIER A-ABC CLIMATIC
--------- -------- --------- --------- ------- --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 103 $ 2,474 $ 534 $ 372 $ 422 $ 957 $ 49 $ 96
Investments........................ -- 2,000 -- -- -- -- -- --
Accounts receivable --
Trade, net of allowance.......... -- 3,329 2,400 363 1,426 1,036 28 774
Shareholder and affiliates....... -- -- 226 2,124 -- 22 11 --
Other receivables................ -- 106 -- 74 324 -- -- --
Notes receivable --
Shareholders..................... -- 348 -- -- -- -- -- --
Other............................ -- 40 -- -- -- -- -- --
Inventories........................ -- 2,613 781 832 347 323 644 50
Prepaid expenses and other current
assets........................... 60 181 144 249 112 81 50 --
Costs and estimated earnings in
excess of billings on uncompleted
contracts........................ -- -- 274 -- -- 19 -- --
--------- -------- --------- --------- ------- --------- ------ ---------
Total current assets........... 163 11,091 4,359 4,014 2,631 2,438 782 920
--------- -------- --------- --------- ------- --------- ------ ---------
PROPERTY AND EQUIPMENT, net.......... 12 2,098 3,066 1,184 626 1,563 355 179
OTHER NONCURRENT ASSETS.............. 122 484 426 195 38 145 32 71
GOODWILL............................. -- -- -- -- -- -- -- --
NET ASSETS OF DISCONTINUED
OPERATIONS......................... -- -- -- -- -- -- 510 --
--------- -------- --------- --------- ------- --------- ------ ---------
Total assets................... $ 297 $13,673 $ 7,851 $ 5,393 $3,295 $ 4,146 $1,679 $ 1,170
========= ======== ========= ========= ======= ========= ====== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT):
Current maturities of long-term
debt............................. $ -- $ -- $ 170 $ -- $ 232 $ 275 $ 83 $ 45
Short-term debt.................... 500 -- 300 -- -- -- -- --
Accounts payable and accrued
expenses......................... 321 3,131 2,916 904 1,512 654 1,448 590
Payable to shareholder and
affiliates....................... -- -- -- -- 81 -- -- --
Unearned revenue on service and
warranty contracts, current...... -- 848 165 -- -- 407 318 --
Billings in excess of cost and
estimated earnings on uncompleted
contracts........................ -- 145 468 -- 346 113 -- 36
Deferred income taxes.............. -- -- -- -- 287 -- -- --
Pro forma cash consideration due to
Founding Companies............... -- -- -- -- -- -- -- --
--------- -------- --------- --------- ------- --------- ------ ---------
Total current liabilities...... 821 4,124 4,019 904 2,458 1,449 1,849 671
--------- -------- --------- --------- ------- --------- ------ ---------
LONG-TERM DEBT, net of current
maturities......................... -- -- 1,845 -- -- 1,335 143 51
UNEARNED REVENUE ON EXTENDED WARRANTY
CONTRACTS NONCURRENT............... -- -- -- -- -- -- 613 --
DEFERRED INCOME TAXES................ -- -- 194 114 42 18 -- 17
OTHER NONCURRENT LIABILITIES......... -- -- -- -- -- 74 -- --
Preferred stock.................... -- -- -- -- -- -- -- --
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock....................... 1 55 24 140 9 7 10 4
Additional paid-in capital......... 1 667 105 1,086 4 35 -- 46
Retained earnings (deficit)........ (526) 10,420 1,664 3,149 782 1,228 (936) 381
Treasury stock..................... -- (1,593) -- -- -- -- -- --
--------- -------- --------- --------- ------- --------- ------ ---------
Total shareholders' equity
(deficit).................... (524) 9,549 1,793 4,375 795 1,270 (926) 431
--------- -------- --------- --------- ------- --------- ------ ---------
Total liabilities and
shareholders' equity
(deficit).................... $ 297 $13,673 $ 7,851 $ 5,393 $3,295 $ 4,146 $1,679 $ 1,170
========= ======== ========= ========= ======= ========= ====== =========
</TABLE>
<TABLE>
POST
PRO FORMA MERGER AS
ADJUSTMENTS PRO FORMA ADJUSTMENTS ADJUSTED
----------- --------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $(1,374) $ 3,633 $ -- $ 3,633
Investments........................ (2,000) -- -- --
Accounts receivable --
Trade, net of allowance.......... (3,329) 6,027 -- 6,027
Shareholder and affiliates....... (2,124) 259 -- 259
Other receivables................ -- 504 -- 504
Notes receivable --
Shareholders..................... -- 348 -- 348
Other............................ -- 40 -- 40
Inventories........................ -- 5,590 -- 5,590
Prepaid expenses and other current
assets........................... 251 1,128 -- 1,128
Costs and estimated earnings in
excess of billings on uncompleted
contracts........................ -- 293 -- 293
----------- --------- ----------- --------
Total current assets........... (8,576) 17,822 -- 17,822
----------- --------- ----------- --------
PROPERTY AND EQUIPMENT, net.......... 3,430 12,513 -- 12,513
OTHER NONCURRENT ASSETS.............. (543) 970 42 1,012
GOODWILL............................. 61,969 61,969 -- 61,969
NET ASSETS OF DISCONTINUED
OPERATIONS......................... -- 510 -- 510
----------- --------- ----------- --------
Total assets................... $56,280 $93,784 $ 42 $93,826
=========== ========= =========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT):
Current maturities of long-term
debt............................. $-- $ 805 $ -- $ 805
Short-term debt.................... 600 1,400 (1,100) 300
Accounts payable and accrued
expenses......................... -- 11,476 -- 11,476
Payable to shareholder and
affiliates....................... -- 81 -- 81
Unearned revenue on service and
warranty contracts, current...... -- 1,738 -- 1,738
Billings in excess of cost and
estimated earnings on uncompleted
contracts........................ -- 1,108 -- 1,108
Deferred income taxes.............. -- 287 -- 287
Pro forma cash consideration due to
Founding Companies............... 34,800 34,800 (34,800) --
----------- --------- ----------- --------
Total current liabilities...... 35,400 51,695 (35,900) 15,795
----------- --------- ----------- --------
LONG-TERM DEBT, net of current
maturities......................... 16,967 20,341 (11,011) 9,330
UNEARNED REVENUE ON EXTENDED WARRANTY
CONTRACTS NONCURRENT............... -- 613 -- 613
DEFERRED INCOME TAXES................ -- 385 -- 385
OTHER NONCURRENT LIABILITIES......... -- 74 -- 74
Preferred stock.................... 500 500 (500) --
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock....................... (245) 5 4 9
Additional paid-in capital......... 21,591 23,535 47,749 71,284
Retained earnings (deficit)........ (19,526) (3,364) (300) (3,664)
Treasury stock..................... 1,593 -- -- --
----------- --------- ----------- --------
Total shareholders' equity
(deficit).................... 3,413 20,176 47,453 67,629
----------- --------- ----------- --------
Total liabilities and
shareholders' equity
(deficit).................... $56,280 $93,784 $ 42 $93,826
=========== ========= =========== ========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
F-4
<PAGE>
AMERICAN RESIDENTIAL SERVICES, INC., AND FOUNDING COMPANIES
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
GENERAL FLORIDA MERIDIAN
ARS HEATING ATLAS CROWN HAC & HOOSIER A-ABC CLIMATIC
--------- ------- ------- ------- ------- --------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES............................. $ -- $35,159 $22,048 $19,124 $14,510 $10,133 $8,707 $4,955
COST OF SERVICES..................... -- 28,866 17,811 11,333 10,541 7,281 5,709 3,679
--------- ------- ------- ------- ------- --------- ------ --------
Gross profit..................... -- 6,293 4,237 7,791 3,969 2,852 2,998 1,276
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 159 5,280 3,022 6,165 3,738 2,350 2,348 1,287
GOODWILL AMORTIZATION................ -- -- -- -- -- -- -- --
--------- ------- ------- ------- ------- --------- ------ --------
INCOME (LOSS) FROM OPERATIONS........ (159) 1,013 1,215 1,626 231 502 650 (11)
OTHER INCOME (EXPENSE):
Interest Income.................. -- 299 17 119 -- 24 -- 3
Interest Expense................. -- -- (134) (58) (12) (86) (84) --
Other............................ -- 58 20 (10) (8) 10 66 15
--------- ------- ------- ------- ------- --------- ------ --------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES..... (159) 1,370 1,118 1,677 211 450 632 7
PROVISION FOR INCOME TAXES........... -- -- 434 630 14 179 43 --
--------- ------- ------- ------- ------- --------- ------ --------
NET INCOME (LOSS) FROM CONTINUING
OPERATIONS......................... $ (159) $1,370 $ 684 $ 1,047 $ 197 $ 271 $ 589 $ 7
========= ======= ======= ======= ======= ========= ====== ========
</TABLE>
PRO FORMA
ADJUSTMENTS PRO FORMA
----------- ---------
REVENUES............................. $-- $114,636
COST OF SERVICES..................... (227)(l) 84,993
----------- ---------
Gross profit..................... 227 29,643
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... (1,808)(m) 22,321
(220)(n)
GOODWILL AMORTIZATION................ 1,549(o) 1,549
----------- ---------
INCOME (LOSS) FROM OPERATIONS........ 706 5,773
OTHER INCOME (EXPENSE):
Interest Income.................. -- 462
Interest Expense................. (491) (865)
Other............................ -- 151
----------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES..... 215 5,521
PROVISION FOR INCOME TAXES........... 1,249(p) 2,549
----------- ---------
NET INCOME (LOSS) FROM CONTINUING
OPERATIONS......................... $(1,034) $ 2,972
=========== =========
PRO FORMA NET INCOME PER SHARE FROM
CONTINUING OPERATIONS.............. $ .33
=========
SHARES USED IN COMPUTING PRO FORMA
NET INCOME PER SHARE FROM
CONTINUING OPERATIONS.............. 8,996 (q)
=========
See accompanying notes to unaudited pro forma combined financial statements.
F-5
<PAGE>
AMERICAN RESIDENTIAL SERVICES, INC., AND FOUNDING COMPANIES
PRO FORMA COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
GENERAL FLORIDA MERIDIAN
ARS HEATING ATLAS CROWN HAC & HOOSIER A-ABC CLIMATIC
--------- ------- ------ ------ ------- --------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES............................. $ -- $7,651 $4,939 $3,555 $3,919 $ 1,959 $1,704 $--
COST OF SERVICES..................... -- 6,401 3,994 2,155 2,990 1,422 1,192 --
--------- ------- ------ ------ ------- --------- ------ --------
Gross profit..................... -- 1,250 945 1,400 929 537 512 --
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... -- 1,351 688 1,348 894 512 508 --
GOODWILL AMORTIZATION................ -- -- -- -- --
--------- ------- ------ ------ ------- --------- ------ --------
INCOME (LOSS) FROM OPERATIONS........ -- (101) 257 52 35 25 4 --
--------- ------- ------ ------ ------- --------- ------ --------
OTHER INCOME (EXPENSE):
Interest Income.................. -- 21 -- 24 -- -- -- --
Interest Expense................. -- -- (54) (14) (1) (22) (7) --
Other............................ -- 33 47 (2) -- 13 16 --
--------- ------- ------ ------ ------- --------- ------ --------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES....................... -- (47) 250 60 34 16 13 --
PROVISION FOR INCOME TAXES........... -- -- 104 23 2 6 1 --
--------- ------- ------ ------ ------- --------- ------ --------
NET INCOME (LOSS) FROM
CONTINUING OPERATIONS.............. $ -- $ (47) $ 146 $ 37 $ 32 $ 10 $ 12 $--
========= ======= ====== ====== ======= ========= ====== ========
</TABLE>
PRO FORMA
ADJUSTMENTS PRO FORMA
----------- ---------
REVENUES............................. $-- $23,727
COST OF SERVICES..................... (57)(l) 18,097
----------- ---------
Gross profit..................... 57 5,630
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... (470)(m) 4,776
(55)(n)
GOODWILL AMORTIZATION................ 387(o) 387
----------- ---------
INCOME (LOSS) FROM OPERATIONS........ 195 467
----------- ---------
OTHER INCOME (EXPENSE):
Interest Income.................. -- 45
Interest Expense................. (123)(p) (221)
Other............................ -- 107
----------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES....................... 72 398
PROVISION FOR INCOME TAXES........... 48(q) 184
----------- ---------
NET INCOME (LOSS) FROM
CONTINUING OPERATIONS.............. $ 24 $ 214
=========== =========
PRO FORMA NET INCOME PER SHARE FROM
CONTINUING OPERATIONS.............. $ .02
=========
SHARES USED IN COMPUTING PRO FORMA
NET INCOME PER
SHARE FROM CONTINUING OPERATIONS... 8,996(r)
=========
See accompanying notes to unaudited pro forma combined financial statements.
F-6
<PAGE>
AMERICAN RESIDENTIAL SERVICES, INC., AND FOUNDING COMPANIES
PRO FORMA COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
GENERAL FLORIDA MERIDIAN
ARS HEATING ATLAS CROWN HAC & HOOSIER A-ABC CLIMATIC
--------- ------- --------- ------ ------- ---------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES............................. $ -- $7,033 $ 6,573 $4,152 $3,658 $2,638 $2,022 $--
COST OF SERVICES..................... -- 5,871 5,215 2,643 2,674 1,767 1,236 --
--------- ------- --------- ------ ------- ---------- ------ --------
Gross profit..................... -- 1,162 1,358 1,509 984 871 786 --
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 365 1,186 874 1,519 837 854 583 --
GOODWILL AMORTIZATION................ -- -- -- -- -- -- -- --
--------- ------- --------- ------ ------- ---------- ------ --------
INCOME (LOSS) FROM OPERATIONS........ (365) (24) 484 (10) 147 17 203 --
--------- ------- --------- ------ ------- ---------- ------ --------
OTHER INCOME (EXPENSE):
Interest Income.................. -- 78 -- 15 -- 9 -- --
Interest Expense................. -- -- (42) (16) (8) (29) (9) --
Other............................ -- 17 42 (9) -- 3 19 --
--------- ------- --------- ------ ------- ---------- ------ --------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES..... (365) 71 484 (20) 139 -- 213 --
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. -- -- 195 (4) 9 -- 3 --
--------- ------- --------- ------ ------- ---------- ------ --------
NET INCOME (LOSS) FROM CONTINUING
OPERATIONS......................... $ (365) $ 71 $ 289 $ (16) $ 130 $-- $ 210 $--
========= ======= ========= ====== ======= ========== ====== ========
</TABLE>
PRO FORMA
ADJUSTMENTS PRO FORMA
----------- ---------
REVENUES............................. $-- $26,076
COST OF SERVICES..................... (69)(l) 19,337
----------- ---------
Gross profit..................... 69 6,739
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... (493)(m) 5,670
(55)(n)
GOODWILL AMORTIZATION................ 387(o) 387
----------- ---------
INCOME (LOSS) FROM OPERATIONS........ 230 682
----------- ---------
OTHER INCOME (EXPENSE):
Interest Income.................. -- 102
Interest Expense................. (123)(p) (227)
Other............................ -- 72
----------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES..... 107 629
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. 87(q) 290
----------- ---------
NET INCOME (LOSS) FROM CONTINUING
OPERATIONS......................... $ 20 $ 339
=========== =========
PRO FORMA NET INCOME PER SHARE FROM
CONTINUING OPERATIONS.............. $ .04
=========
SHARES USED IN COMPUTING PRO FORMA
NET INCOME PER SHARE FROM
CONTINUING OPERATIONS.............. 8,996 (r)
=========
See accompanying notes to unaudited pro forma combined financial statements.
F-7
AMERICAN RESIDENTIAL SERVICES, INC., AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. AMERICAN RESIDENTIAL SERVICES, INC. BACKGROUND:
American Residential Services, Inc. (ARS) was formed to create a leading
national provider of (i) comprehensive maintenance, repair and replacement
services for heating, ventilating and air conditioning, plumbing, electrical and
other systems in homes and commercial buildings and (ii) new installation
services of those systems in homes and commercial facilities under construction.
ARS has conducted no operations to date and will acquire the Founding Companies
simultaneously with the consummation of the Offering.
2. HISTORICAL FINANCIAL STATEMENTS:
The historical financial statements represent the financial position and
results of operations of the Founding Companies and were derived from the
respective financial statements where indicated. All Founding Companies have a
December 31, 1995, year-end or they have been converted to a December 31, 1995,
year-end, except for Climatic which has an April 30 year-end, therefore,
quarterly statements of operations for Climatic are not included in the three
months ended March 31, 1995 and 1996. The audited historical financial
statements included elsewhere in this Prospectus have been included in
accordance with Securities and Exchange Commission (SEC) Staff Accounting
Bulletin No. 80.
3. ACQUISITION OF FOUNDING COMPANIES:
Concurrent with the closing of the Offering, ARS will acquire substantially
all of the net assets of the Founding Companies. The Acquisitions will be
accounted for using the purchase method of accounting, with ARS being treated as
the acquirer. The total estimated purchase price is $76.9 million, which
consists of (i) $34.8 million of cash to be paid to the Sellers upon the
consummation of the Offering and (ii) $42.1 million of shares (based on the
estimated initial offering price) of ARS Common Stock (3,236,613 shares) to be
issued to the Sellers ($21 million estimated fair value). The estimated purchase
price for the Acquisitions is subject to certain purchase price adjustments at
closing. See "Certain Relationships and Related-Party Transactions."
The holders of 3.2 million shares of Common Stock issued in partial payment
of the Acquisitions have agreed not to offer, sell or otherwise dispose of any
of those shares for a period of two years after the Offering (or for such
shorter period as the SEC may prescribe as the holding period for registered
securities under Rule 144). The fair value of these shares reflects this
restriction.
Of the estimated total purchase price of $55.8 million (based on the fair
value of the shares to be issued) of the Acquisitions, $53 million has been
allocated to the assets acquired and liabilities assumed. The remaining amount
of $2.8 million represents the purchase price paid to Enterprises Holding
Company, Inc. (EHC) in excess of its cost of Crown and A-ABC. As EHC is under
common control with ARS, such amount has been considered a distribution and
recorded as a reduction in shareholders' equity in the accompanying pro forma
balance sheet. Based upon management's preliminary analysis, it is anticipated
that the historical carrying value of the Founding Companies' assets and
liabilities will approximate fair value. The amount allocated to goodwill is
$61.9 million. Management of ARS has not identified any other material tangible
or identifiable intangible assets of the Founding Companies to which a portion
of the purchased price could reasonably be allocated.
4. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS:
(a) Records the additional cash to be borrowed from a bank.
(b) Records distribution of a Founding Company's S Corporation
Accumulated Adjustment Accounts.
F-8
AMERICAN RESIDENTIAL SERVICES, INC., AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Records the distribution of General's and Atlas' cash surrender
value of life insurance policies in the amounts of $462,000 and $124,000,
respectively to shareholders and the distribution of certain equipment and
the related obligations to certain shareholders of the Founding Companies.
(d) Records the purchase of Crown and A-ABC by EHC.
(e) Records the purchase of the Founding Companies (excluding Crown
and A-ABC), including the cash consideration due to the Founding Companies
and Common Stock portions and the related deferred income tax assets.
(f) Records the purchase of EHC by ARS.
(g) Records the proceeds from the issuance of 4,200,000 shares of
ARS Common Stock, net of estimated offering costs (based on the estimated
intitial public offering price of $13 per share). Offering costs primarily
consist of underwriting discounts and commissions, accounting fees, legal
fees and printing expenses.
(h) Records the repayment of certain debt obligations with proceeds
from the Offering.
(i) Records the cash portion to be paid to the Founding Companies in
connection with the Acquisitions.
(j) Records the retirement of EHC's preferred stock.
(k) Records the exercise of a warrant held by a bank lender of EHC
and the issuance of shares to employees, three officers and certain
consultants of ARS and its affiliates.
The following tables summarize unaudited pro forma combined balance sheet
adjustments:
<TABLE>
<CAPTION>
PRO FORMA
(A) (B) (C) (D) (E) (F) ADJUSTMENTS
--------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents............ $ 3,122 $ (4,496) $ $ $ $ $ (1,374)
Investments.......................... (2,000) (2,000)
Accounts receivable - trade.......... (3,329) (3,329)
Accounts receivable - shareholder and
affiliates......................... (2,124) (2,124)
Prepaid expenses and other current
assets............................. 251 251
Property and equipment, net.......... (70) 3,500 3,430
Other noncurrent assets.............. (586) 43 (543)
Goodwill............................. 12,676 49,293 61,969
Short-term debt...................... (1,100) 500 (600)
Pro forma cash consideration due to
Founding Companies................. (34,800) (34,800)
Long-term debt, net of current
maturities......................... (2,022) 56 (15,001) (16,967)
Preferred stock...................... (2,500) 2,000 (500)
Common stock......................... 150 97 (2) 245
Additional paid-in capital........... 9,825 600 1,086 (27,766) (5,336) (21,591)
Retained earnings (deficit).......... 2,213 14,475 2,838 19,526
Treasury stock....................... (1,593) (1,593)
--------- --------- --------- --------- --------- --------- -----------
$ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
========= ========= ========= ========= ========= ========= ===========
</TABLE>
F-9
AMERICAN RESIDENTIAL SERVICES, INC., AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
POST
MERGER
(G) (H) (I) (J) (K) ADJUSTMENTS
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents............ $ 47,411 $ (12,111) $ (34,800) $ (500) $ $ 0
Other noncurrent assets.............. (83) 125 42
Short-term debt...................... 1,100 1,100
Pro forma cash consideration due to
Founding Companies................. 34,800 34,800
Long-term debt, net of current
maturities......................... 11,011 11,011
Preferred stock...................... 500 500
Common stock......................... (4) (4)
Additional paid-in capital........... (47,324) (425) (47,749)
Retained earnings (deficit).......... 300 300
Treasury stock....................... 0
--------- --------- --------- --------- --------- -----------
$ 0 $ 0 $ 0 $ 0 $ 0 $ 0
========= ========= ========= ========= ========= ===========
</TABLE>
5. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS:
(l) Adjusts rent expense incurred due to the purchase of the
facility used by Crown, net of pro forma depreciation expense.
(m) Adjusts compensation to the level the owners of certain of the
Founding Companies have agreed to receive subsequent to Acquisition.
(n) Adjusts for the effect of assets distributed to and the costs of
certain leases assumed by the owners of certain Founding Companies.
(o) Records the pro forma goodwill amortization expense using a 40
year estimated life.
(p) Records pro forma interest expense for debt incurred in the
purchase of EHC net of pro forma debt reductions.
(q) Records the incremental provision for federal and state income
taxes relating to the Compensation Differential, S Corporation income and
other pro forma adjustments.
(r) The number of shares estimated to be outstanding on completion
of the Offering (i) includes shares issued as consideration in the
Acquisitions or on conversion in part of an ARS convertible note issued in
the organizational financing of ARS and (ii) includes 46,156 shares to be
awarded under the Company's 1996 Incentive Plan to certain employees of the
Company on the closing of one of the Acquisitions, but (iii) excludes an
aggregate 1,345,000 shares subject to options granted under the Company's
1996 Incentive Plan as the effect of such options is less than three
percent of total shares outstanding.
F-10
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Residential Services, Inc.:
We have audited the accompanying balance sheet of American Residential
Services, Inc. (a Delaware corporation), as of December 31, 1995, and the
related statements of operations, shareholders' deficit and cash flows from
Inception (October 24, 1995) through December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Residential
Services, Inc. as of December 31, 1995 and the results of its operations and its
cash flows from Inception through December 31, 1995 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
June 14, 1996
F-11
<PAGE>
AMERICAN RESIDENTIAL SERVICES, INC.
BALANCE SHEETS
DECEMBER 31, MARCH 31,
1995 1996
------------ ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 9,784 $102,541
Prepaid expenses and other
current assets................. 3,327 60,210
------------ ------------
Total current assets....... 13,111 162,751
PROPERTY AND EQUIPMENT, net.......... -- 12,327
OTHER NONCURRENT ASSETS.............. 19,325 121,517
------------ ------------
Total assets............... $ 32,436 $296,595
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Short-term debt................. $ 50,000 $500,000
Accounts payable and accrued
expenses....................... 141,077 320,760
------------ ------------
Total current
liabilities............ 191,077 820,760
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT:
Preferred Stock: $.001 par
value, 10,000,000 shares
authorized; none issued or
outstanding.................... -- --
Common stock, $.001 par,
50,000,000 shares authorized,
449,778 shares issued and
outstanding.................... 450 450
Additional paid-in capital...... 550 550
Deficit......................... (159,641) (525,165)
------------ ------------
Total shareholders'
deficit................ (158,641) (524,165)
------------ ------------
Total liabilities and
shareholders'
deficit................ $ 32,436 $296,595
============ ============
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
AMERICAN RESIDENTIAL SERVICES, INC.
STATEMENTS OF OPERATIONS
INCEPTION THREE
(OCTOBER 24, 1995) MONTHS
THROUGH ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------------- -----------
(UNAUDITED)
REVENUES............................. $-- $ --
COST OF SERVICES..................... -- --
------------------- -----------
Gross profit............... -- --
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 159,641 365,524
------------------- -----------
NET LOSS............................. $(159,641) $ (365,524)
=================== ===========
The accompanying notes are an integral part of these financial statements.
F-13
AMERICAN RESIDENTIAL SERVICES, INC.
STATEMENTS OF SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------- PAID-IN SHAREHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT DEFICIT
------- ------ ---------- --------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE, Inception, October 24,
1995............................... -- $ -- $ -- $ -- $ --
Stock Issuance.................. 449,778 450 550 -- 1,000
Net loss........................ -- -- -- (159,641) (159,641)
------- ------ ---------- --------- --------------
BALANCE, December 31, 1995........... 449,778 450 550 (159,641) (158,641)
Net loss (unaudited)............ -- -- -- (365,524) (365,524)
------- ------ ---------- --------- --------------
BALANCE, March 31, 1996
(unaudited)........................ 449,778 $ 450 $ 550 $(525,165) $ (524,165)
======= ====== ========== ========= ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE>
AMERICAN RESIDENTIAL SERVICES, INC.
STATEMENTS OF CASH FLOWS
INCEPTION
(OCTOBER 24, 1995) THREE MONTHS
THROUGH ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------------ -------------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................... $ (159,641) $(365,524)
Adjustments to reconcile net loss
to net cash used in operating
activities --
Changes in operating assets and
liabilities --
Increase in --
Prepaid expenses and other
current assets............. (3,327) (56,883)
Other noncurrent assets....... (19,325) (102,192)
Increase in --
Accounts payable and accrued
expenses................... 141,077 179,683
------------------ -------------
Net cash used in operating
activities.................... (41,216) (344,916)
------------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property and
equipment....................... -- (12,327)
------------------ -------------
Net cash used in investing
activities.................... -- (12,327)
------------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of short-term debt...... 50,000 450,000
Proceeds from issuance of common
stock........................... 1,000 --
------------------ -------------
Net cash provided by financing
activities.................... 51,000 450,000
------------------ -------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS........................ 9,784 92,757
CASH AND CASH EQUIVALENTS, beginning
of period.......................... -- 9,784
------------------ -------------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 9,784 $ 102,541
================== =============
The accompanying notes are an integral part of these financial statements.
F-15
AMERICAN RESIDENTIAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
American Residential Services, Inc. (ARS or the Company), was founded on
October 24, 1995 to create a leading national provider of (i) comprehensive
maintenance, repair and replacement services for heating, ventilating and air
conditioning, plumbing, electrical, and other systems in homes and commercial
buildings and (ii) new installation services of those systems in homes and
commercial facilities under construction. ARS intends to acquire seven local and
regional residential services companies (the Acquisitions), complete an initial
public offering (the Offering) of its common stock and, subsequent to the
Offering, continue to acquire, through merger or purchase, similar companies to
expand its national and regional operations.
ARS's primary assets at December 31, 1995, are cash and deferred offering
costs. ARS has not conducted any operations, and all activities to date have
related to the Acquisitions and the Offering. Cash of $1,000 was generated from
the initial capitalization of the Company (see Note 4). There is no assurance
that the Acquisitions discussed below will be completed and that ARS will be
able to generate future operating revenues. Funding for the deferred offering
costs has been provided by Equus II Incorporated (Equus II). ARS is dependent
upon the Offering to fund the amounts due to Equus II, the pending acquisitions
and future operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial statements as of March 31, 1996, and for the three
months ended March 31, 1996, are unaudited, and certain information and footnote
disclosures, normally included in financial statements prepared in accordance
with generally accepted accounting principles, have been omitted. In the opinion
of management, all adjustments, consisting only of normal recurring adjustments,
necessary to fairly present the financial position, results of operations and
cash flows with respect to the interim financial statements, have been included.
The results of operations for the interim periods are not necessarily indicative
of the results for the entire fiscal year.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.
INCOME TAXES
The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109.
Under this method, deferred income taxes are recorded based upon differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets or liabilities are received or settled.
The Company has recorded a full valuation allowance against all deferred
tax assets due to the uncertainty of ultimate realizability. Accordingly, no
income tax benefit has been recorded for current year losses.
F-16
AMERICAN RESIDENTIAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
NEW ACCOUNTING PRONOUNCEMENT
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Accordingly, in
the event that facts and circumstances indicate that property and equipment, and
intangible or other assets, may be impaired, an evaluation of recoverability
would be performed. If an evaluation is required, the estimated future cash
flows associated with the asset is compared to the asset's carrying amount to
determine if a write-down to market value or discounted cash flow value was
necessary. Adoption of this standard did not have a material effect on the
financial position or results of operations of the Company.
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts payable and accrued expenses consist of the following:
DECEMBER 31,
1995
------------
Accrued compensation and benefits.... $ 79,167
Other accrued expenses............... 61,910
------------
$141,077
============
Short-term debt:
The Company had borrowings from Equus II under a $1.6 million credit
facility totaling $50,000 at December 31, 1995. The borrowings are unsecured,
bear interest at prime (8.25 percent at December 31, 1995) and mature December
31, 1996. A portion of this facility is convertible into 10 percent of the
outstanding common stock of ARS upon completion of the Offering.
4. SHAREHOLDERS' DEFICIT:
In connection with the organization and initial capitalization of ARS, the
Company issued 1,000 shares of common stock for $1,000 (see Note 6).
5. COMMITMENTS AND CONTINGENCIES:
BONUS AWARDS
In June 1996, the Board of Directors granted certain key employees
incentive cash bonus awards for 1996 which are based on the performance of the
Common Stock after the Offering as compared to the performance of each of the
stocks included in the Standard & Poor's 500 Stock Index (the S&P 500). The
amount of each award will be determined by multiplying the officer's annual base
salary by a percentage determined by ranking the Common Stock's price
performance, including reinvested dividends, if any
F-17
AMERICAN RESIDENTIAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(Total Stockholder Return), among Total Stockholder Returns of all the stocks in
the S&P 500, as provided in the agreement.
6. SUBSEQUENT EVENTS:
ARS effected a 333-for-one-stock split on February 2, 1996, and an
approximately 1.35 for-one-stock split on June 14, 1996 of its common stock for
each share of common stock then outstanding. In addition, on February 2, 1996,
authorized shares were increased from 1,000 to 50,000,000. The effects of the
common stock dividends have been retroactively reflected on the balance sheet
and in the accompanying notes.
Pursuant to the Company's previous stock option plan, the Company has
granted to its directors, officers and certain key employees (including officers
of the Founding Companies) 10-year options to purchase 645,000 shares of Common
Stock. The Company intends to issue an additional 700,000 options upon
completion of the Offering. Certain of these options will be exchanged for
identical Options under the 1996 Incentive Plan.
ARS and separate wholly owned subsidiaries have signed definitive
agreements to acquire by merger seven companies (the Founding Companies) to be
effective with the Offering. The companies to be acquired are General Heating
Engineering Company, Inc.; Atlas Services, Inc., and Subsidiary; Enterprise
Holding Company; Florida Heating and Air Conditioning, Inc., and Related
Companies; DIAL ONE Meridian and Hoosier, Inc.; and Climatic Corporation of Vero
Beach. The aggregate consideration that will be paid by ARS to acquire the
Founding Companies is approximately $76.9 million (unaudited) based upon an
estimated offering price of $13 per share (unaudited) consisting of a
combination of cash and common stock.
On March 19, 1996, the Company issued to Equus II Incorporated a warrant to
purchase 100,000 shares of Common Stock exercisable at the Offering price. The
warrants are exercisable at any time after the closing of the Offering of the
Company until five years from such date. The number of shares represented by the
warrant is subject to adjustment for stock dividends and stock splits.
Subsequent to December 31, 1995, the Company has incurred additional costs,
including professional fees and travel, associated with the acquisition of the
Founding Companies and the Offering. Accordingly, accrued liabilities and
amounts due to Equus II have increased to approximately $1.0 million as of May
31, 1996. This note and any additional amounts advanced under this note will be
converted into 899,556 shares of ARS Common Stock in connection with the
Offering.
7. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
The Company has approved the 1996 Incentive Plan (the Plan) which provides
for the granting or awarding of stock options and stock appreciation rights to
officers and other key employees. The number of shares authorized and reserved
for issuance under the Plan is limited to 1,500,000 shares or 15 percent of the
number of shares of Common Stock outstanding on the last day of the preceding
calendar quarter. In general, the terms of the option awards (including vesting
schedules) will be established by the Compensation Committee of the Company's
Board of Directors. In connection with the Offering, the Company intends to
grant options covering an aggregate of 1,345,000 shares of common stock.
In June 1996, ARS filed a registration statement on Form S-1 for the sale
of its common stock.
F-18
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To General Heating Engineering Company, Inc.:
We have audited the accompanying balance sheets of General Heating
Engineering Company, Inc. (a Delaware corporation), as of December 31, 1994 and
1995, and the related statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of General Heating Engineering
Company, Inc., as of December 31, 1994 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
May 24, 1996
F-19
<PAGE>
GENERAL HEATING ENGINEERING COMPANY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------ MARCH 31,
1994 1995 1996
-------------- -------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 2,258,467 $ 3,369,929 $ 2,474,430
Investments..................... 2,475,000 2,000,000 2,000,000
Accounts receivable --
Trade, net of allowance of
$159,910, $126,650 and
$138,169................ 4,129,536 3,740,406 3,328,535
Other receivables.......... 129,308 47,588 105,560
Notes receivable --
Shareholders............... 92,500 308,139 348,139
Other...................... -- 39,870 39,870
Inventories..................... 2,375,590 2,215,659 2,613,425
Prepaid expenses and other
current assets................ 17,331 13,871 181,267
-------------- -------------- -----------
Total current
assets............. 11,477,732 11,735,462 11,091,226
PROPERTY AND EQUIPMENT, net.......... 1,941,076 2,100,638 2,097,986
OTHER NONCURRENT ASSETS.............. 376,017 483,014 483,669
-------------- -------------- -----------
Total assets.......... $ 13,794,825 $ 14,319,114 $13,672,881
============== ============== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses...................... $ 2,736,479 $ 3,248,968 $ 3,130,336
Unearned revenue on service and
warranty contracts............ 797,820 894,766 848,446
Billings in excess of costs and
estimated earnings on
uncompleted contracts......... 319,323 139,764 145,088
-------------- -------------- -----------
Total current
liabilities........ 3,853,622 4,283,498 4,123,870
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $20 par value,
5,000 shares authorized, 2,752
shares issued, 462 shares
outstanding................... 55,040 55,040 55,040
Additional paid-in capital...... 666,913 666,913 666,913
Retained earnings............... 10,811,994 10,906,407 10,419,802
Treasury stock, 2,290 shares at
cost.......................... (1,592,744) (1,592,744) (1,592,744)
-------------- -------------- -----------
Total shareholders'
equity............. 9,941,203 10,035,616 9,549,011
-------------- -------------- -----------
Total liabilities and
shareholders'
equity............. $ 13,794,825 $ 14,319,114 $13,672,881
============== ============== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
GENERAL HEATING ENGINEERING COMPANY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
------------------------------------------------- ------------------------------
1993 1994 1995 1995 1996
--------------- --------------- --------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES............................. $ 34,642,267 $ 36,333,827 $ 35,159,389 $ 7,650,560 $ 7,032,972
COST OF SERVICES..................... 27,393,298 29,927,352 28,866,207 6,400,539 5,871,056
--------------- --------------- --------------- -------------- --------------
Gross profit.................... 7,248,969 6,406,475 6,293,182 1,250,021 1,161,916
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 5,011,270 5,244,776 5,280,402 1,351,114 1,186,344
--------------- --------------- --------------- -------------- --------------
Income (loss) from operations... 2,237,699 1,161,699 1,012,780 (101,093) (24,428)
OTHER INCOME:
Interest income................. 189,223 177,149 299,116 20,613 77,956
Other........................... 7,891 66,724 58,517 33,336 17,867
--------------- --------------- --------------- -------------- --------------
NET INCOME (LOSS).................... $ 2,434,813 $ 1,405,572 $ 1,370,413 $ (47,144) $ 71,395
=============== =============== =============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
GENERAL HEATING ENGINEERING COMPANY, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK TOTAL
----------------- PAID-IN RETAINED ----------------------- SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT EQUITY
------ ------- ---------- -------------- ------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1993............. 2,752 $55,040 $ 648,912 $ 9,811,451 (2,290) $ (1,592,744) $ 8,922,659
Dividends....................... -- -- -- (1,744,798) -- -- (1,744,798)
Net income...................... -- -- -- 2,434,813 -- -- 2,434,813
------ ------- ---------- -------------- ------ -------------- ------------
BALANCE, December 31, 1993........... 2,752 55,040 648,912 10,501,466 (2,290) (1,592,744) 9,612,674
Capital contributions........... -- -- 18,001 -- -- -- 18,001
Dividends....................... -- -- -- (1,095,044) -- -- (1,095,044)
Net income...................... -- -- -- 1,405,572 -- -- 1,405,572
------ ------- ---------- -------------- ------ -------------- ------------
BALANCE, December 31, 1994........... 2,752 55,040 666,913 10,811,994 (2,290) (1,592,744) 9,941,203
Dividends....................... -- -- -- (1,276,000) -- -- (1,276,000)
Net income...................... -- -- -- 1,370,413 -- -- 1,370,413
------ ------- ---------- -------------- ------ -------------- ------------
BALANCE, December 31, 1995........... 2,752 55,040 666,913 10,906,407 (2,290) (1,592,744) 10,035,616
Dividends (unaudited)........... -- -- -- (558,000) -- -- (558,000)
Net income (unaudited).......... -- -- -- 71,395 -- -- 71,395
------ ------- ---------- -------------- ------ -------------- ------------
BALANCE, March 31, 1996
(unaudited)..................... 2,752 $55,040 $ 666,913 $ 10,419,802 (2,290) $ (1,592,744) $ 9,549,011
====== ======= ========== ============== ====== ============== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
GENERAL HEATING ENGINEERING COMPANY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
---------------------------------------- --------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................. $ 2,434,813 $ 1,405,572 $ 1,370,413 $ (47,144) $ 71,395
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities --
Depreciation and amortization.... 465,076 495,396 508,497 150,000 119,999
Loss on sale of investments...... -- -- 13,626 -- --
(Gain) loss on sale of property
and equipment.................. 4,811 (38,978) 56,152 -- --
Changes in operating assets and
liabilities --
(Increase) decrease in --
Accounts receivable......... (1,427,017) 210,329 470,850 749,377 353,899
Inventories................. (416,216) 49,258 159,931 (452,362) (397,766)
Prepaid expenses and other
current assets............ (37,843) (1,907) 3,460 -- (167,396)
Other noncurrent assets..... (83,112) (22,741) (106,997) 9,865 (655)
Increase (decrease) in --
Accounts payable and accrued
expenses.................. 631,061 143,263 512,489 436,097 (118,632)
Unearned revenue on service
and warranty contracts.... 17,782 31,739 96,946 23,534 (46,320)
Billings in excess of costs
and estimated earnings on
uncompleted contracts..... (732,654) (152,605) (179,559) -- 5,324
------------ ------------ ------------ ------------ ------------
Net cash provided by (used
in) operating
activities.............. 856,701 2,119,326 2,905,808 869,367 (180,152)
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and
equipment........................ 5,000 112,530 42,533 10,633 --
Additions of property and
equipment........................ (941,748) (786,863) (766,744) (293,071) (117,347)
Purchase of investments............ -- (2,475,000) (4,193,948) -- --
Proceeds from sale of
investments...................... -- -- 4,655,322 -- --
------------ ------------ ------------ ------------ ------------
Net cash used in investing
activities.............. (936,748) (3,149,333) (262,837) (282,438) (117,347)
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Increase) decrease in notes
receivable......................... -- 882,500 (255,509) (166,435) (40,000)
Dividends.......................... (1,744,798) (1,095,044) (1,276,000) (514,000) (558,000)
Capital contributions.............. -- 18,001 -- -- --
------------ ------------ ------------ ------------ ------------
Net cash used in financing
activities.............. (1,744,798) (194,543) (1,531,509) (680,435) (598,000)
------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... (1,824,845) (1,224,550) 1,111,462 (93,506) (895,499)
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 5,307,862 3,483,017 2,258,467 2,258,467 3,369,929
------------ ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 3,483,017 $ 2,258,467 $ 3,369,929 $ 2,164,961 $ 2,474,430
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
GENERAL HEATING ENGINEERING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
General Heating Engineering Company, Inc. (a Delaware corporation) (the
Company), is primarily engaged in the installation and maintenance, repair and
replacement of air conditioning, heating and fireplace systems in new and
preexisting residential and commercial buildings in Washington, D.C. and the
surrounding area.
The Company and its shareholders intend to enter into a definitive
agreement with American Residential Services, Inc. (ARS), pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of ARS's common stock concurrent with the consummation of the initial
public offering (the Offering) of the common stock of ARS.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial statements as of March 31, 1996, and for the three
months ended March 31, 1995 and 1996, are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
INVENTORIES
Inventories consist of duct materials, air conditioning equipment,
refrigeration supplies and accessories held for use in the ordinary course of
business and are valued at the lower of cost or market using the average cost
method.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the lease or the estimated useful life of the asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.
REVENUE RECOGNITION
The Company recognizes revenue when the services are performed except when
work is being performed under a construction contract. Revenues from the sale of
residential and commercial service and maintenance contracts are recognized over
the life of the contract on a straight-line basis.
Revenues from construction contracts are recognized on the
percentage-of-completion method measured by the percentage of costs incurred to
total estimated costs for each contract. Provisions for the total estimated
losses on uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions, estimated profitability
and final contract settlements may result in revisions to costs and income and
are recognized in the period in which the revisions are determined.
F-24
GENERAL HEATING ENGINEERING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
WARRANTY COSTS
The Company warrants labor for the first year after installation on new air
conditioning and heating units. A reserve for warranty costs is recorded upon
completion of installation or service.
INCOME TAXES
The Company has elected S Corporation status as defined by the Internal
Revenue Code, whereby the Company is not subject to taxation for federal
purposes. Under S Corporation status, each shareholder reports his share of the
Company's taxable earnings or losses in his personal federal and state tax
returns.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with
original maturities of three months or less to be cash equivalents.
NEW ACCOUNTING PRONOUNCEMENT
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Accordingly, in
the event that facts and circumstances indicate that property and equipment, and
intangible or other assets, may be impaired, an evaluation of recoverability
would be performed. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset is compared to the asset's
carrying amount to determine if a write-down to market value or discounted cash
flow value was necessary. Adoption of this standard did not have a material
effect on the financial position or results of operations of the Company.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
ESTIMATED DECEMBER 31
USEFUL LIVES --------------------------
IN YEARS 1994 1995
------------ ------------ ------------
Transportation equipment............. 7 $ 3,258,907 $ 3,376,461
Furniture and fixtures............... 7 159,227 169,453
Leasehold improvements............... 20 800,370 879,938
Machinery and equipment.............. 10 858,033 919,393
Computer and telephone equipment..... 5 442,853 467,219
------------ ------------
5,519,390 5,812,464
Less -- Accumulated depreciation and
amortization....................... 3,578,314 3,711,826
------------ ------------
Property and
equipment, net..... $ 1,941,076 $ 2,100,638
============ ============
F-25
<PAGE>
GENERAL HEATING ENGINEERING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Effective January 1, 1994, the Company adopted the provisions of SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities."
Adoption of this standard did not materially impact the Company's financial
statements. The following is a summary of investment securities:
DECEMBER 31
--------------------------
1994 1995
------------ ------------
Certificates of deposit.............. $ -- $ 2,000,000
U.S. Treasury notes.................. 2,475,000 --
------------ ------------
$ 2,475,000 $ 2,000,000
============ ============
Activity in the Company's allowance for doubtful accounts consist of the
following:
DECEMBER 31
----------------------------------
1993 1994 1995
---------- ---------- ----------
Balance at beginning of year......... $ 146,848 $ 127,443 $ 159,910
Additions charged to costs and
expenses............................. 45,996 104,613 71,930
Deductions for uncollectible
receivables written off............ (67,954) (103,848) (127,810)
Bad debt recoveries.................. 2,553 31,702 22,620
---------- ---------- ----------
$ 127,443 $ 159,910 $ 126,650
========== ========== ==========
Accounts payable and accrued expenses consist of the following:
DECEMBER 31
--------------------------
1994 1995
------------ ------------
Accounts payable, trade.............. $ 1,586,930 $ 1,998,941
Accrued compensation and benefits.... 823,476 916,013
Warranty accrual..................... 292,895 292,895
Other accrued expenses............... 33,178 41,119
------------ ------------
$ 2,736,479 $ 3,248,968
============ ============
Installation contracts in progress are as follows:
DECEMBER 31
------------------------------
1994 1995
-------------- --------------
Costs incurred on contracts in
progress............................. $ 19,975,656 $ 18,705,791
Estimated earnings, net of losses.... 9,912,429 8,989,404
-------------- --------------
29,888,085 27,695,195
Less -- Billings to date............. 30,207,408 27,834,959
-------------- --------------
Billings in excess of costs and
estimated earnings on uncompleted
contracts.......................... $ (319,323) $ (139,764)
============== ==============
5. EMPLOYEE BENEFIT PLANS:
The Company has adopted a retirement plan which qualifies under Section
401(k) of the Internal Revenue Code. The plan provides for 50 percent matching
contributions by the Company, up to a maximum liability of 1 percent of each
participating employee's annual compensation. The Company has the right to make
additional discretionary contributions. Total contributions by the Company under
this plan to provide
F-26
GENERAL HEATING ENGINEERING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
contributions and pay expenses were approximately $42,000, $67,000 and $78,000
during 1993, 1994 and 1995, respectively. Amounts due to this plan were
approximately $50,000 and $30,000 for the years ended December 31, 1994 and
1995, respectively.
The Company has also adopted a cafeteria plan pursuant to Section 125 of
the Internal Revenue Code that covers all employees from 90 days after the
commencement of employment. Under this plan, the employees may reduce their
compensation to fund medical or life insurance, dental and short-term disability
benefits. The funds withheld are used to pay actual claims, administrative
expenses and stop-loss insurance protection premiums. Such stop-loss insurance
covers claims to a maximum aggregate liability of $1,000,000 and $35,000 per
participant. For the years ended December 31, 1993, 1994 and 1995, the Company
contributed approximately $57,000, $91,000 and $129,000, respectively, to this
plan in addition to amounts withheld from employees. Contributions due to this
plan were approximately $91,000 and $216,000 for the years ended December 31,
1994 and 1995, respectively.
6. LEASES:
The Company conducts a portion of its operations in leased facilities under
operating lease agreements with a company primarily owned by the shareholders.
Total amounts paid under these related-party leases were approximately $261,000,
$387,000 and $384,000 for the years ended December 31, 1993, 1994 and 1995,
respectively. In January 1996, the Company extended each of these leases,
commencing January 1, 1996, for 10 years. The following schedule shows the
future minimum rentals to be made under these leases:
Year ending December 31 --
1996............................ $ 517,281
1997............................ 517,505
1998............................ 531,468
1999............................ 552,728
2000............................ 574,837
Thereafter...................... 3,367,564
------------
$ 6,061,383
============
7. RELATED-PARTY TRANSACTIONS:
The Company has notes receivable from its shareholders in the amounts of
$92,500 and $308,139 as of December 31, 1994 and 1995, respectively. These notes
are unsecured, bear interest at 7 percent per annum and are due upon demand.
Interest income recognized by the Company on these notes during the years ended
December 31, 1994 and 1995, was approximately $1,000 and $12,000, respectively.
8. COMMITMENTS AND CONTINGENCIES:
LITIGATION
The Company is involved in various legal actions arising in the ordinary
course of business. Management does not believe that the outcome of such legal
actions will have a material adverse effect on the Company's financial position
or results of operations.
INSURANCE
The Company carries a broad range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies.
LETTER OF CREDIT
At December 31, 1995, the Company had an outstanding letter of credit of
$75,000 to secure the purchase of certain inventories.
F-27
GENERAL HEATING ENGINEERING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. SALES TO SIGNIFICANT CUSTOMERS:
During 1993, 1994 and 1995, one customer accounted for approximately 13
percent, 16 percent and 21 percent, respectively, of the Company's revenue.
10. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In June 1996, the Company and its shareholders entered into a definitive
agreement with ARS, providing for the acquisition of the Company by ARS.
In connection with the acquisition, the Company will distribute certain
assets to the shareholders, consisting of the cash surrender value of life
insurance, with a total carrying value of approximately $462,000, as of March
31, 1996. In addition, prior to the closing of the acquisition, the Company will
make distributions in respect of the Company's estimated S Corporation
accumulated adjustment account at the time of closing. Had these transactions
been recorded at March 31, 1996, the effect on the accompanying balance sheet
would be a decrease in assets of approximately $8,265,000, an increase in
liabilities of $2,022,000 and a decrease in shareholders' equity of $10,287,000.
F-28
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Atlas Services, Inc.:
We have audited the accompanying consolidated balance sheets of Atlas
Services, Inc. (a South Carolina corporation), and subsidiary as of June 30,
1994 and 1995, and December 31, 1995, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended June 30, 1995, and the year ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Atlas Services, Inc., and subsidiary as of June 30, 1994 and 1995, and December
31, 1995, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended June 30, 1995, and the year
ended December 31, 1995, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
May 24, 1996
F-29
<PAGE>
ATLAS SERVICES, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30
-------------------------- DECEMBER 31, MARCH 31,
1994 1995 1995 1996
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 204,883 $ 383,190 $ 241,263 $ 533,732
Accounts receivable --
Trade, net of allowance of
$29,989, $39,866, $39,866 and
$39,866....................... 1,634,219 2,098,213 2,163,990 2,400,744
Affiliates...................... 188,829 178,554 211,939 225,997
Inventories........................ 478,447 474,093 531,819 780,623
Prepaid expenses and other current
assets.......................... 20,763 112,207 146,283 144,481
Costs and estimated earnings in
excess of billings on
uncompleted contracts........... 323,901 382,653 254,039 273,709
------------ ------------ ------------ ------------
Total current assets....... 2,851,042 3,628,910 3,549,333 4,359,286
PROPERTY AND EQUIPMENT, net.......... 3,203,143 3,169,128 3,136,363 3,066,004
OTHER NONCURRENT ASSETS.............. 280,321 342,776 406,316 425,875
------------ ------------ ------------ ------------
Total assets............... $ 6,334,506 $ 7,140,814 $7,092,012 $ 7,851,165
============ ============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
debt............................ $ 577,545 $ 619,851 $ 596,941 $ 170,202
Short-term debt.................... 220,807 207,335 209,948 300,000
Accounts payable and accrued
expenses........................ 2,328,709 2,859,998 2,391,955 2,916,489
Unearned revenue on service and
warranty contracts.............. 135,487 150,628 162,755 164,492
Billings in excess of costs and
estimated earnings on
uncompleted contracts........... 192,408 355,186 475,731 468,242
------------ ------------ ------------ ------------
Total current
liabilities............. 3,454,956 4,192,998 3,837,330 4,019,425
LONG-TERM DEBT, net of current
maturities......................... 2,047,763 1,702,324 1,564,309 1,845,054
DEFERRED INCOME TAXES................ 150,506 187,806 187,237 193,961
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $1 par value; 100,000
shares authorized, 2,254, 2,345
and 24,303 shares issued and
outstanding..................... 2,254 2,345 24,303 24,303
Additional paid-in capital......... 48,011 81,877 105,040 105,040
Retained earnings.................. 631,016 973,464 1,373,793 1,663,382
------------ ------------ ------------ ------------
Total shareholders'
equity.................. 681,281 1,057,686 1,503,136 1,792,725
------------ ------------ ------------ ------------
Total liabilities and
shareholders'
equity.................. $ 6,334,506 $ 7,140,814 $7,092,012 $ 7,851,165
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
<PAGE>
ATLAS SERVICES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30 YEAR ENDED MARCH 31
---------------------------------------- DECEMBER 31, ------------------------
1993 1994 1995 1995 1995 1996
------------ ------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUES............................. $ 10,209,885 $ 15,625,211 $ 21,228,756 $22,048,103 $ 4,938,607 $ 6,573,201
COST OF SERVICES..................... 8,182,867 12,676,789 17,714,515 17,810,928 3,993,389 5,215,134
------------ ------------ ------------ ------------ ----------- -----------
Gross profit..................... 2,027,018 2,948,422 3,514,241 4,237,175 945,218 1,358,067
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 1,760,805 2,421,016 2,985,258 3,021,692 688,215 873,864
------------ ------------ ------------ ------------ ----------- -----------
Income from operations........... 266,213 527,406 528,983 1,215,483 257,003 484,203
OTHER INCOME (EXPENSE):
Interest income.................. 12,086 12,742 13,004 16,671 -- --
Interest expense................. (189,927) (129,303) (143,123) (134,236) (53,867) (41,635)
Other............................ (27,690) 26,814 165,821 20,327 47,213 42,343
------------ ------------ ------------ ------------ ----------- -----------
INCOME BEFORE INCOME TAXES........... 60,682 437,659 564,685 1,118,245 250,349 484,911
PROVISION FOR INCOME TAXES........... 24,914 170,478 222,237 434,258 103,720 195,322
------------ ------------ ------------ ------------ ----------- -----------
NET INCOME........................... $ 35,768 $ 267,181 $ 342,448 $ 683,987 $ 146,629 $ 289,589
============ ============ ============ ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
F-31
ATLAS SERVICES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------- PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE, June 30, 1992............... 2,191 $ 2,191 $ 32,611 $ 328,067 $ 362,869
Stock issuance.................. 30 30 6,850 -- 6,880
Net income...................... -- -- -- 35,768 35,768
------ ------- ---------- ---------- --------------
BALANCE, June 30, 1993............... 2,221 2,221 39,461 363,835 405,517
Stock issuance.................. 33 33 8,550 -- 8,583
Net income...................... -- -- -- 267,181 267,181
------ ------- ---------- ---------- --------------
BALANCE, June 30, 1994............... 2,254 2,254 48,011 631,016 681,281
Stock issuance.................. 91 91 33,866 -- 33,957
Net income...................... -- -- -- 342,448 342,448
------ ------- ---------- ---------- --------------
BALANCE, June 30, 1995............... 2,345 $ 2,345 $ 81,877 $ 973,464 $1,057,686
====== ======= ========== ========== ==============
BALANCE, December 31, 1994........... 2,345 $ 2,345 $ 81,877 $ 689,806 $ 774,028
Stock split (10 for 1).......... 21,105 21,105 (21,105) -- --
Stock issuance.................. 853 853 44,268 -- 45,121
Net income...................... -- -- -- 683,987 683,987
------ ------- ---------- ---------- --------------
BALANCE, December 31, 1995........... 24,303 24,303 105,040 1,373,793 1,503,136
Net income (unaudited).......... -- -- -- 289,589 289,589
------ ------- ---------- ---------- --------------
BALANCE, March 31, 1996
(unaudited)........................ 24,303 $24,303 $ 105,040 $1,663,382 $1,792,725
====== ======= ========== ========== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-32
<PAGE>
ATLAS SERVICES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30 YEAR ENDED MARCH 31
---------------------------------- DECEMBER 31, ----------------------
1993 1994 1995 1995 1995 1996
---------- ---------- ---------- ------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 35,768 $ 267,181 $ 342,448 $ 683,987 $ 146,629 $ 289,589
Adjustments to reconcile net income
to net cash provided by operating
activities --
Depreciation and amortization.... 271,683 375,186 501,796 490,554 111,549 128,012
Deferred income taxes
(benefit)....................... (1,144) 20,022 (22,265) (50,894) (7,432) 6,544
Loss on sale of property and
equipment....................... 54,786 -- -- --
Changes in operating assets and
liabilities --
(Increase) decrease in --
Accounts receivable......... (13,227) (822,197) (453,719) (505,195) (168,834) (250,812)
Inventories................. (175,733) (134,837) 4,354 (139,118) (182,283) (248,804)
Prepaid expenses and other
current assets............. 13,350 (1,800) (31,878) 7,150 (40,367) 1,802
Costs and estimated earnings
in excess of billings on
uncompleted contracts...... (27,506) (276,261) (58,752) 539,181 292,941 (19,670)
Other noncurrent assets..... (62,020) (63,362) (101,110) (66,703) 26,094 (27,571)
Increase (decrease) in --
Accounts payable and accrued
expenses................... 211,091 1,233,347 531,289 (219,215) 241,646 524,534
Unearned revenue on service
and warranty contracts..... 49,963 53,271 15,141 (10,274) (76,399) 1,737
Billings in excess of costs
and estimated earnings on
uncompleted contracts...... (10,909) 51,603 162,778 52,327 (147,461) (7,489)
---------- ---------- ---------- ------------ ---------- ----------
Net cash provided by
operating activities... 346,102 702,153 890,082 781,800 196,083 397,872
---------- ---------- ---------- ------------ ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and
equipment......................... 173,037 -- -- -- -- --
Additions to property and
equipment......................... (439,920) (980,761) (429,127) (258,257) (104,133) (49,461)
---------- ---------- ---------- ------------ ---------- ----------
Net cash used in
investing activities... (266,883) (980,761) (429,127) (258,257) (104,133) (49,461)
---------- ---------- ---------- ------------ ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of long- and short-term
debt.............................. 478,187 887,990 347,001 442,394 85,205 120,014
Principal payments of long- and
short-term debt................... (513,870) (529,624) (663,606) (843,201) (202,561) (175,956)
Proceeds from stock issuance....... 6,880 8,583 33,957 45,121 -- --
---------- ---------- ---------- ------------ ---------- ----------
Net cash provided by
(used in) financing
activities............. (28,803) 366,949 (282,648) (355,686) (117,356) (55,942)
---------- ---------- ---------- ------------ ---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.................... 50,416 88,341 178,307 167,857 (25,406) 292,469
CASH AND CASH EQUIVALENTS, beginning
of period........................... 66,126 116,542 204,883 73,406 73,406 241,263
---------- ---------- ---------- ------------ ---------- ----------
CASH AND CASH EQUIVALENTS, end of
period.............................. $ 116,542 $ 204,883 $ 383,190 $ 241,263 $ 48,000 $ 533,732
========== ========== ========== ============ ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for --
Interest......................... $ 286,112 $ 210,549 $ 225,374 $ 177,031 $ 50,498 $ 41,635
Income taxes..................... $ -- $ 56,477 $ 271,924 $ 251,750 $ 32,248 $ 150,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-33
ATLAS SERVICES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Atlas Services, Inc., (a South Carolina corporation) and subsidiary (the
Company), are primarily engaged in the installation and maintenance, repair and
replacement of plumbing, air conditioning and heating and electrical systems in
new and preexisting residential and commercial buildings throughout South
Carolina.
The Company and its shareholders intend to enter into a definitive
agreement with American Residential Services, Inc. (ARS), pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of ARS's common stock concurrent with the consummation of the initial
public offering (the Offering) of the common stock of ARS.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The consolidated financial statements include the accounts and results of
operations of Atlas Services, Inc., and its wholly owned subsidiary. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
INTERIM FINANCIAL INFORMATION
The interim consolidated financial statements as of March 31, 1996, and for
the three months ended March 31, 1995 and 1996, are unaudited, and certain
information and footnote disclosures, normally included in financial statements
prepared in accordance with generally accepted accounting principles, have been
omitted. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to fairly present the financial
position, results of operations and cash flows with respect to the consolidated
interim financial statements, have been included. The results of operations for
the interim periods are not necessarily indicative of the results for the entire
fiscal year.
INVENTORIES
Inventories consist of parts and supplies held for use in the ordinary
course of business and are valued at the lower of cost or market using the
weighted-average method.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the lease or the estimated useful life of the asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property or equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.
Included in property and equipment are certain assets subject to capital
leases. These assets are amortized using the straight-line method over the
lesser of the life of the leases or the estimated useful life of the asset.
REVENUE RECOGNITION
The Company recognizes revenue when the services are performed except when
work is being performed under a construction contract. Revenues on residential
and commercial service and maintenance contracts are recorded and collected
monthly. Revenues from sales of extended warranties are recognized over the life
of the contract on a straight-line basis.
F-34
ATLAS SERVICES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenues from construction contracts are recognized on the
percentage-of-completion method measured by the percentage of costs incurred to
total estimated costs for each contract. Provisions for the total estimated
losses on uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions, estimated profitability
and final contract settlements may result in revisions to costs and income and
are recognized in the period in which the revisions are determined.
WARRANTY COSTS
The Company warrants labor for the first year after installation on new air
conditioning and heating units. The Company generally warrants labor for 30 days
after servicing of existing air conditioning and heating units. A reserve for
warranty costs is recorded upon completion of installation or service.
INCOME TAXES
The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109.
Under this method, deferred income taxes are recorded based upon differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets or liabilities are recovered or settled.
STOCK-SPLIT
During 1995, the Company effected a ten-for-one stock split of the
Company's Common Stock.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
NEW ACCOUNTING PRONOUNCEMENT
Effective January 1, 1995, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Accordingly, in the event that facts and circumstances indicate that
property and equipment, and intangible or other assets, may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset is
compared to the asset's carrying amount to determine if a write-down to market
value or discounted cash flow value was necessary. Adoption of this standard did
not have a material effect on the financial position or results of operations of
the Company.
F-35
ATLAS SERVICES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED JUNE 30
USEFUL LIVES -------------------------- DECEMBER 31,
IN YEARS 1994 1995 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Land and land improvements........... -- $ 508,129 $ 508,129 $ 508,129
Buildings and leasehold
improvements......................... 40 1,387,578 1,396,235 1,387,599
Transportation equipment............. 5 1,703,373 1,955,070 2,068,795
Machinery and equipment.............. 5 - 7 591,299 666,548 738,347
Furniture and fixtures............... 5 - 10 233,373 290,961 313,025
------------ ------------ ------------
4,423,752 4,816,943 5,015,895
Less -- Accumulated depreciation..... 1,220,609 1,647,815 1,879,532
------------ ------------ ------------
Property and equipment,
net..................... $ 3,203,143 $ 3,169,128 $ 3,136,363
============ ============ ============
</TABLE>
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Activity in the Company's allowance for doubtful accounts consist of the
following:
<TABLE>
<CAPTION>
JUNE 30
---------------------------------- DECEMBER 31,
1993 1994 1995 1995
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Balance at beginning of year......... $ 0 $ 0 $ 29,989 $ 29,989
Additions charged to costs and
expenses........................... 79,128 84,119 45,952 40,381
Deductions for uncollectible
receivables
written off........................ (79,128) (54,130) (36,075) (30,504)
---------- ---------- ---------- ------------
$ 0 $ 29,989 $ 39,866 $ 39,866
========== ========== ========== ============
</TABLE>
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
JUNE 30
-------------------------- DECEMBER 31,
1994 1995 1995
------------ ------------ ------------
<S> <C> <C> <C>
Accounts payable, trade.............. $ 1,707,084 $ 2,113,376 $1,600,736
Accrued compensation and benefits.... 369,780 236,780 224,767
Accrued insurance.................... 98,456 257,741 269,135
Other accrued expenses............... 153,389 252,101 297,317
------------ ------------ ------------
$ 2,328,709 $ 2,859,998 $2,391,955
============ ============ ============
</TABLE>
Installation contracts in progress are as follows:
<TABLE>
<CAPTION>
JUNE 30
-------------------------- DECEMBER 31,
1994 1995 1995
------------ ------------ ------------
<S> <C> <C> <C>
Costs incurred on contracts in
progress........................... $ 1,293,427 $ 2,592,291 $2,411,212
Estimated earnings, net of losses.... 586,972 719,579 1,077,841
------------ ------------ ------------
1,880,399 3,311,870 3,489,053
Less -- Billings to date............. 1,748,906 3,284,403 3,710,745
------------ ------------ ------------
$ 131,493 $ 27,467 $ (221,692)
============ ============ ============
</TABLE>
F-36
ATLAS SERVICES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following are included in the accompanying balance sheets under the
following captions:
JUNE 30
------------------------ DECEMBER 31,
1994 1995 1995
----------- ----------- ------------
Costs and estimated earnings in
excess of billings on uncompleted
contracts.......................... $ 323,901 $ 382,653 $ 254,039
Billings in excess of costs and
estimated earnings on uncompleted
contracts.......................... (192,408) (355,186) (475,731)
----------- ----------- ------------
$ 131,493 $ 27,467 $ (221,692)
=========== =========== ============
5. SHORT- AND LONG-TERM DEBT:
Short-term debt consists of a revolving line of credit payable to a bank,
due July 21, 1996, with interest due monthly at 9.375 percent and is secured by
accounts receivable and inventory. The amounts outstanding as of June 30, 1994
and 1995, and December 31, 1995, are $220,807, $207,335 and $209,948,
respectively.
Long-term debt consists of the following:
JUNE 30
-------------------------- DECEMBER 31,
1994 1995 1995
------------ ------------ ------------
Mortgage note payable to a bank, with
monthly installments of $8,056
principal plus interest at 7.25%,
secured by real estate and life
insurance policies, due December
1998............................... $ 1,401,667 $ 1,305,000 $1,256,666
Mortgage note payable to a bank, with
monthly installments of $1,000
principal plus interest at prime
plus 1.25% (9.75% at December 31,
1995), secured by real estate, due
May 1997........................... 103,400 93,400 87,977
Mortgage note payable to a bank, with
monthly installments of $581,
bearing interest at 9.5%, secured
by real estate, due June 2017...... 56,775 56,173 53,185
Transportation equipment notes
payable and capitalized leases,
with monthly installments totaling
$48,255, due from July 1994 to
January 1998, bearing interest from
5.9% to 13.3%, secured by
transportation equipment........... 816,486 675,929 574,953
Note payable on equipment, with
monthly installments of $2,083
principal plus interest at prime
plus 1.50% (10% at December 31,
1995), secured by equipment, due
June 1998.......................... 100,000 75,000 62,500
Other................................ 146,980 116,673 125,969
------------ ------------ ------------
2,625,308 2,322,175 2,161,250
Less -- Current maturities........... 577,545 619,851 596,941
------------ ------------ ------------
$ 2,047,763 $ 1,702,324 $1,564,309
============ ============ ============
F-37
ATLAS SERVICES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The aggregate maturities of long-term debt as of December 31, 1995, are as
follows:
Year ending December 31 --
1996............................ $ 596,941
1997............................ 334,907
1998............................ 158,688
1999............................ 110,343
2000............................ 109,567
Thereafter...................... 850,804
-------------
$ 2,161,250
=============
Management estimates that the fair value of its debt obligations
approximates the historical value of $2,371,198 at December 31, 1995.
6. RETIREMENT PLANS:
The Company has a defined contribution profit-sharing plan covering
substantially all employees. The Company's contribution for each of the years
ended June 30, 1993, 1994 and 1995, and December 31, 1995, amounted to
approximately $25,000, $35,000, $30,000 and $21,000, respectively.
7. LEASES:
The Company leases four facilities under noncancelable leases, which expire
in January 1998, January 2005, May 2005 and February 2006. Rental expense for
the years ended June 30, 1993, 1994 and 1995, and December 31, 1995, was
approximately $44,000, $72,000, $127,000 and $174,000, respectively. Included in
these amounts are rent expenses and commissions paid to related parties of $0,
$2,000, $39,000 and $82,000 for the years ended June 30, 1993, 1994 and 1995,
and December 31, 1995, respectively. The following represents future minimum
rental payments under noncancelable operating leases:
Year ending December 31 --
1996............................ $ 259,577
1997............................ 266,680
1998............................ 230,187
1999............................ 228,600
2000............................ 228,600
Thereafter...................... 1,045,550
-------------
$ 2,259,194
=============
The Company leases certain owned facilities under three noncancelable
leases to third parties, which expire in September 1997, October 1998 and
November 2000. The following represents future minimum rental income under
noncancelable leases:
Year ending December 31 --
1996............................ $ 167,250
1997............................ 148,500
1998............................ 83,875
1999............................ 42,000
2000............................ 38,500
-------------
$ 480,125
=============
F-38
ATLAS SERVICES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES:
Federal and state income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30 YEAR ENDED
----------------------------------- DECEMBER 31,
1993 1994 1995 1995
--------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Federal --
Current......................... $ 23,106 $ 129,390 $ 215,040 $419,486
Deferred........................ (3,107) 18,236 (19,913) (43,440)
State --
Current......................... 2,952 21,066 29,462 65,666
Deferred........................ 1,963 1,786 (2,352) (7,454)
--------- ----------- ----------- ------------
$ 24,914 $ 170,478 $ 222,237 $434,258
========= =========== =========== ============
</TABLE>
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate tax rate of 34 percent to income
before income tax as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30 YEAR ENDED
----------------------------------- DECEMBER 31,
1993 1994 1995 1995
--------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Tax provision at the statutory
rate............................... $ 20,632 $ 148,804 $ 191,993 $380,203
Increase (decrease) resulting from --
State income tax, net of benefit
for federal deduction........ 3,244 15,081 17,892 38,420
Nondeductible expenses.......... 5,272 14,264 33,308 29,088
Other........................... (4,234) (7,671) (20,956) (13,453)
--------- ----------- ----------- ------------
$ 24,914 $ 170,478 $ 222,237 $434,258
========= =========== =========== ============
</TABLE>
Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences representing deferred
tax assets and liabilities result principally from the following:
JUNE 30
-------------------------- DECEMBER 31,
1994 1995 1995
----------- ------------- ------------
Accruals and reserves not deductible
until paid......................... $ (65,224) $ (127,289) $ (180,124)
Depreciation and amortization........ 157,365 196,365 195,771
Other................................ 42,609 43,409 45,944
----------- ------------- ------------
Total deferred income tax
liabilities............. $ 134,750 $ 112,485 $ 61,591
=========== ============= ============
F-39
ATLAS SERVICES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net deferred tax assets and liabilities are comprised of the following:
JUNE 30
-------------------------- DECEMBER 31,
1994 1995 1995
----------- ------------- ------------
Deferred tax assets --
Current......................... $ (79,907) $ (163,948) $ (235,433)
Long-term....................... (1,865) (1,865) (6,723)
----------- ------------- ------------
Total..................... (81,772) (165,813) (242,156)
----------- ------------- ------------
Deferred tax liabilities --
Current......................... 64,151 88,627 109,787
Long-term....................... 152,371 189,671 193,960
----------- ------------- ------------
Total..................... 216,522 278,298 303,747
----------- ------------- ------------
Net deferred income tax
liabilities............. $ 134,750 $ 112,485 $ 61,591
=========== ============= ============
9. RELATED-PARTY TRANSACTIONS:
The Company has a receivable from its majority shareholder in the amount of
approximately $172,000, $171,000 and $195,000 as of June 30, 1994 and 1995, and
December 31, 1995, respectively. This receivable accrues interest at 8 percent.
Interest income recognized during the years ended June 30, 1993, 1994 and 1995,
and December 31, 1995, was approximately $10,000, $13,000, $13,000 and $17,000,
respectively.
10. COMMITMENTS AND CONTINGENCIES:
LITIGATION
The Company is involved in legal actions arising in the ordinary course of
business. Management does not believe that the outcome of such legal actions
will have a material adverse effect on the Company's financial position or
consolidated results of operations.
INSURANCE
The Company carries a broad range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies.
11. SALES TO SIGNIFICANT CUSTOMERS:
During the years ended June 30, 1993 and 1995, one customer accounted for
approximately 11 percent, and 11 percent, respectively, of the Company's
revenue.
12. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In June 1996, the Company and its shareholders entered into a definitive
agreement with ARS, providing for the acquisition of the Company by ARS.
In connection with the acquisition, the Company will distribute certain
assets to the shareholders, consisting of cash surrender value of life insurance
and equipment net of distributed liabilities, with a total net carrying value of
approximately $124,000 and $14,000 as of March 31, 1996. Had these transactions
been recorded at March 31, 1996, the effect on the accompanying balance sheet
would be a decrease in assets of appproximately $194,000, liabilities of $56,000
and shareholders' equity of $138,000.
F-40
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Service Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets of Service
Enterprises, Inc. (a Texas corporation), and subsidiaries as of December 31,
1994 and 1995, and the related consolidated statements of operations,
shareholder's equity and cash flows for each of the three years in the period
ended December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Service Enterprises, Inc., and subsidiaries as of December 31, 1994 and 1995,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
May 24, 1996
F-41
SERVICE ENTERPRISES, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
-------------------------- MARCH 31,
1994 1995 1996
------------ ------------ -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 1,093,394 $ 2,100,996 $ 372,144
Certificates of deposit......... 1,100,000 1,100,000 --
Accounts receivable --
Trade, net of allowance of
$53,257, $58,575 and
$58,575................. 340,961 411,139 363,323
Shareholder and
affiliates.............. 278,187 10,308 2,123,616
Other receivables.......... 53,780 59,737 73,391
Inventories..................... 632,614 737,495 832,141
Prepaid expenses and other
current assets................ 194,038 251,941 249,442
------------ ------------ -----------
Total current
assets............. 3,692,974 4,671,616 4,014,057
PROPERTY AND EQUIPMENT, net.......... 988,147 1,277,677 1,184,145
OTHER NONCURRENT ASSETS.............. 185,333 193,333 195,333
------------ ------------ -----------
Total assets.......... $ 4,866,454 $ 6,142,626 $ 5,393,535
============ ============ ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
debt.......................... -- 129,000 --
Short-term debt................. $ 620,312 $ 251,562 $ --
Accounts payable and accrued
expenses...................... 672,082 890,945 904,443
------------ ------------ -----------
Total current
liabilities........ 1,292,394 1,271,507 904,443
LONG-TERM DEBT, net of current
maturities......................... -- 366,451 --
DEFERRED INCOME TAXES................ 130,367 114,133 114,133
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY:
Preferred stock, $.01 par;
1,000,000 shares authorized,
none issued................... -- -- --
Common stock, $.01 stated value;
2,000,000, 50,000,000 and
50,000,000 shares authorized,
2,000,000, 14,000,000 and
14,000,000 issued and
outstanding................... 20,000 140,000 140,000
Additional paid-in capital...... 1,205,760 1,085,760 1,085,760
Retained earnings............... 2,217,933 3,164,775 3,149,199
------------ ------------ -----------
Total shareholder's
equity............. 3,443,693 4,390,535 4,374,959
------------ ------------ -----------
Total liabilities and
shareholder's
equity............. $ 4,866,454 $ 6,142,626 $ 5,393,535
============ ============ ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-42
SERVICE ENTERPRISES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31 ENDED MARCH 31
---------------------------------------------- --------------------------
1993 1994 1995 1995 1996
-------------- -------------- -------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES............................. $ 16,268,452 $ 16,843,520 $ 19,123,858 $ 3,555,446 $ 4,152,017
COST OF SERVICES..................... 10,331,520 10,314,231 11,333,228 2,155,171 2,643,026
-------------- -------------- -------------- ----------- -----------
Gross profit.................... 5,936,932 6,529,289 7,790,630 1,400,275 1,508,991
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 5,698,182 5,836,643 6,164,598 1,347,708 1,519,226
-------------- -------------- -------------- ----------- -----------
Income (loss) from operations... 238,750 692,646 1,626,032 52,567 (10,235)
OTHER INCOME (EXPENSE):
Interest income................. 149,124 93,370 119,074 23,506 15,957
Interest expense................ (158,943) (76,544) (58,065) (14,401) (16,248)
Equity in losses of
unconsolidated affiliate...... (130,022) (61,751) -- -- --
Other........................... (661,414) 156,796 (10,546) (1,490) (9,220)
-------------- -------------- -------------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES.... (562,505) 804,517 1,676,495 60,182 (19,746)
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. (215,106) 589,241 629,653 23,298 (4,170)
-------------- -------------- -------------- ----------- -----------
NET INCOME (LOSS).................... $ (347,399) $ 215,276 $ 1,046,842 $ 36,884 $ (15,576)
============== ============== ============== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-43
SERVICE ENTERPRISES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
---------------------- PAID-IN RETAINED SHAREHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS EQUITY
---------- -------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1992........... 2,000,000 $ 20,000 $ 982,010 $2,650,056 $3,652,066
Net loss........................ -- -- -- (347,399) (347,399)
---------- -------- ---------- ---------- --------------
BALANCE, December 31, 1993........... 2,000,000 20,000 982,010 2,302,657 3,304,667
Capital contribution............ -- -- 223,750 -- 223,750
Dividend........................ -- -- -- (300,000) (300,000)
Net income...................... -- -- -- 215,276 215,276
---------- -------- ---------- ---------- --------------
BALANCE, December 31, 1994........... 2,000,000 20,000 1,205,760 2,217,933 3,443,693
Dividend........................ -- -- -- (100,000) (100,000)
Stock split (7 for 1)........... 12,000,000 120,000 (120,000) -- --
Net income...................... -- -- -- 1,046,842 1,046,842
---------- -------- ---------- ---------- --------------
BALANCE, December 31, 1995........... 14,000,000 140,000 1,085,760 3,164,775 4,390,535
Net loss (unaudited)............ -- -- -- (15,576) (15,576)
---------- -------- ---------- ---------- --------------
BALANCE, March 31, 1996
(unaudited)........................ 14,000,000 $140,000 $1,085,760 $3,149,199 $4,374,959
========== ======== ========== ========== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-44
SERVICE ENTERPRISES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31 ENDED MARCH 31
--------------------------------------- -----------------------
1993 1994 1995 1995 1996
------------ ------------ ----------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................. $ (347,399) $ 215,276 $ 1,046,842 $ 36,884 $ (15,576)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities --
Depreciation and amortization.... 328,882 364,708 371,402 82,558 93,532
Deferred income taxes
(benefit)........................ (233,911) 55,319 7,309 -- --
Equity in losses of
unconsolidated affiliate....... 130,022 61,751 -- -- --
Loss on sale of real estate...... 475,159 18,114 -- -- --
Gain on sale of property and
equipment...................... (99,629) (21,069) (13,699) -- --
Gain on sale of investment....... -- (219,125) -- -- --
Changes in operating assets and
liabilities --
(Increase) decrease in --
Accounts receivable......... 59,245 (51,248) (76,135) 98,071 34,162
Inventories................. 3,113 158,356 (104,881) (153,073) (94,646)
Prepaid expenses and other
current assets............ 50,525 72,648 (89,446) (240,528) 499
Increase (decrease) in --
Accounts payable and accrued
expenses.................. 85,821 11,014 218,863 469,611 13,498
------------ ------------ ----------- --------- ----------
Net cash provided by
operating activities.... 451,828 665,744 1,360,255 293,523 31,469
------------ ------------ ----------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of real
estate........................... -- 978,727 -- -- --
Proceeds from sale of property and
equipment........................ 115,906 38,628 24,793 -- --
Additions of property and
equipment........................ (861,640) (233,903) (672,026) -- --
(Purchase) sale of certificates of
deposit.......................... -- (1,100,000) -- -- 1,100,000
Proceeds from sale of investment... -- 450,961 -- --
Purchase of marketable
securities....................... -- (110,188) -- -- --
Proceeds from note receivable...... -- 100,000 -- -- --
------------ ------------ ----------- --------- ----------
Net cash provided by (used
in) investing
activities.............. (745,734) 124,225 (647,233) -- 1,100,000
------------ ------------ ----------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Advances) payments of receivable
from shareholder and
affiliates....................... (558,319) 1,636,469 267,879 (184,852) (2,113,308)
Borrowings of long- and short-term
debt............................. 1,804,649 137,500 495,451 -- --
Principal payments of long- and
short-term debt.................. (1,006,266) (1,495,266) (368,750) (97,187) (747,013)
Dividends.......................... -- (300,000) (100,000) -- --
Capital contribution............... -- 223,750 -- -- --
------------ ------------ ----------- --------- ----------
Net cash provided by (used
in) financing
activities.............. 240,064 202,453 294,580 (282,039) (2,860,321)
------------ ------------ ----------- --------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... (53,842) 992,422 1,007,602 11,484 (1,728,852)
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 154,814 100,972 1,093,394 1,093,394 2,100,996
------------ ------------ ----------- --------- ----------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 100,972 $ 1,093,394 $ 2,100,996 $1,104,878 $ 372,144
============ ============ =========== ========= ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for --
Interest......................... $ 98,522 $ 78,294 $ 61,230 $ 14,401 $ 23,399
Income taxes..................... $ 135,000 $ 220,951 $ 540,000 $ -- $ 10,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-45
SERVICE ENTERPRISES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Service Enterprises, Inc. (SEI) (a Texas corporation), and subsidiaries
(the Company) are primarily engaged in the maintenance, repair and replacement
service-related activities of plumbing, air conditioning, electrical repair and
other home improvement services in Houston and the surrounding areas.
On March 19, 1996, all of the outstanding stock of SEI and certain real
estate owned by the former shareholder of SEI was acquired by Enterprise Holding
Company (EHC) for $17,500,000. EHC was formed solely for the purpose of
acquiring the Company and has no other operations. The accompanying unaudited
financial statements of the Company for the quarter ended March 31, 1996, do not
reflect the effect of the purchase of the Company by EHC.
In April 1996, the Company entered into a stock purchase agreement with
ADCOT, Inc. (ADCOT), to purchase all of the outstanding common stock of ADCOT
for $2,000,000. (See ADCOT's financial statements included elsewhere herein.)
EHC intends to enter into a definitive agreement with American Residential
Services, Inc. (ARS), pursuant to which EHC will be acquired by ARS. All
outstanding shares of EHC's common stock and a portion of EHC's preferred stock
will be exchanged for cash and shares of ARS's common stock concurrent with the
consummation of the initial public offering of the common stock of ARS.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The consolidated financial statements include the accounts and results of
operations of Service Enterprises, Inc., and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
INTERIM FINANCIAL INFORMATION
The interim consolidated financial statements as of March 31, 1996, and for
the three months ended March 31, 1995 and 1996, are unaudited, and certain
information and footnote disclosures, normally included in financial statements
prepared in accordance with generally accepted accounting principles, have been
omitted. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to fairly present the financial
position, results of operations and cash flows with respect to the consolidated
interim financial statements, have been included. The results of operations for
the interim periods are not necessarily indicative of the results for the entire
fiscal year.
INVENTORIES
Inventories consist of parts and supplies held for use in the ordinary
course of business and are valued at the lower of cost or market using the
first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the
lease life or the estimated useful life of the asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.
F-46
SERVICE ENTERPRISES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REVENUE RECOGNITION
The Company recognizes revenues when services are performed.
INCOME TAXES
The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109.
Under this method, deferred income taxes are recorded based upon differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets or liabilities are recovered or settled.
STOCK SPLIT
During 1994, the Company effected a seven-for-one stock split of Company
Common Stock.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
NEW ACCOUNTING PRONOUNCEMENT
Effective January 1, 1995, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Accordingly, in the event that facts and circumstances indicate that
property and equipment, and intangible or other assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset is
compared to the asset's carrying amount to determine if a write-down to market
value or discounted cash flow value is necessary. Adoption of this standard did
not have a material effect on the financial position or consolidated results of
operations of the Company.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31
USEFUL LIVES --------------------------
IN YEARS 1994 1995
------------- ------------ ------------
<S> <C> <C> <C>
Leasehold improvements............... 5 - 10 $ 140,983 $ 140,333
Transportation equipment............. 5 1,357,588 1,930,724
Tools and equipment.................. 3 - 7 182,797 181,893
Telephone equipment.................. 5 - 7 230,582 181,886
Furniture and fixtures............... 3 - 7 509,423 453,034
------------ ------------
2,421,373 2,887,870
Less -- Accumulated depreciation and
amortization......................... 1,433,226 1,610,193
------------ ------------
Property and equipment,
net..................... $ 988,147 $ 1,277,677
============ ============
</TABLE>
4. INVESTMENT IN AFFILIATED COMPANY:
During July 1994, the Company sold a portion of its investment in American
Natural Gas Power, Inc. (ANGP), for $225,000 and an unsecured
noninterest-bearing note receivable for $35,000 due on demand or, if no demand
is made, due in June 1996. After the sale, the Company's interest in ANGP
decreased from approximately 33 percent at December 31, 1993, to approximately 8
percent at December 31, 1994, and
F-47
SERVICE ENTERPRISES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accordingly is no longer accounted for under the equity method. Included in
other income is a net realized gain on sale of $228,353 for the year ended
December 31, 1994.
5. NOTE RECEIVABLE:
In January 1994, the Company sold an investment in real estate to an
individual. The consideration included a note receivable for $300,000,
collateralized by a second lien on the real estate, which bears interest at 4
percent, payable monthly, with principal due January 1999.
In the event that the aggregate of all principal payments made on or before
the third anniversary of this note, January 25, 1997, equals $200,000, this note
shall be discounted such that the note is fully discharged by the prepayment of
such $200,000 within the initial three-year period. This note has been recorded
at its prepayment value of $200,000, discounted to a market rate of interest,
and is included in other noncurrent assets on the accompanying consolidated
balance sheet.
Management estimates that the fair value of its note receivable
approximates its discounted historical carrying value of $193,000 at December
31, 1995.
6. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Activity in the Company's allowance for doubtful accounts consist of the
following:
DECEMBER 31
-------------------------------
1993 1994 1995
--------- --------- ---------
Balance at beginning of year......... 22,000 $ 38,080 $ 53,257
Additions charged to costs and
expenses........................... 36,429 55,407 46,996
Deductions for uncollectible
receivables written off............ (24,118) (54,212) (53,495)
Bad debt recoveries.................. 3,769 13,982 11,817
--------- --------- ---------
$ 38,080 $ 53,257 $ 58,575
========= ========= =========
Accounts payable and accrued expenses consist of the following:
DECEMBER 31
----------------------
1994 1995
---------- ----------
Accounts payable, trade.............. $ 303,280 $ 507,810
Accrued compensation and benefits.... 120,501 143,708
Accrued income taxes................. 29,809 71,781
Accrued taxes other than income
taxes................................ 146,389 131,388
Other accrued expenses............... 72,103 36,258
---------- ----------
$ 672,082 $ 890,945
========== ==========
7. SHORT- AND LONG-TERM DEBT:
Short-term debt consists of the following:
DECEMBER 31
----------------------
1994 1995
---------- ----------
$850,000 demand line of credit with
bank; collateralized by
transportation equipment, accounts
receivable and inventory, interest
at prime plus 1% (9.5% at December
31, 1995), payable monthly,
principal due June 1996............ $ 200,000 $ 200,000
Demand note payable to bank;
cross-collateralized with the line
of credit, bearing interest at
prime plus 1%, principal of $25,000
plus interest, payable in monthly
installments through January
1996............................... 300,000 --
Demand note payable to bank;
cross-collateralized with the line
of credit, interest at prime plus
1%, payable monthly, principal due
September 1996..................... 120,312 51,562
---------- ----------
$ 620,312 $ 251,562
========== ==========
F-48
SERVICE ENTERPRISES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Long-term debt consists of the following:
DECEMBER 31
----------------------
1994 1995
---------- ----------
Note payable to bank;
cross-collateralized with the line
of credit, interest at prime plus
1%, interest only through June
1996, payable monthly, then
principal of $21,500, plus
interest, payable in monthly
installments through June 1998..... $ -- $ 495,451
Less -- Current portion......... -- 129,000
---------- ----------
$ -- $ 366,451
========== ==========
The aggregate maturities of long-term debt are as follows:
Year ending December 31 --
1996............................ $ 129,000
1997............................ 258,000
1998............................ 108,451
----------
$ 495,451
==========
In connection with the bank indebtedness, the Company has entered into an
agreement which provides for certain affirmative covenants and restrictions,
including certain required financial ratios and restrictions on retained
earnings. As of December 31, 1995, the Company was in compliance with these
covenants.
The notes payable have been personally guaranteed by the Company's
shareholder.
Management estimates that the fair value of its debt obligations
approximates the historical value of $747,013 at December 31, 1995.
8. LEASES:
The Company operates in leased facilities under an agreement with its
shareholder and affiliates. The amount paid under these leases was $291,600,
$291,600 and $301,600 in 1993, 1994 and 1995, respectively. These leases were
canceled concurrent with the purchase of the Company and the leased facilities
by EHC.
During 1994, the Company renewed a parking lot lease agreement with an
affiliated company, which expired September 30, 1995. The Company continued its
lease on a month-to-month basis. Amounts paid under this lease in 1993, 1994 and
1995 totaled $22,500, $30,000 and $25,000, respectively.
The Company has entered into two operating sublease agreements with a
company at its facilities, and these agreements expire in June 1997 and November
1998, respectively. Rental income recognized during 1993, 1994 and 1995 was
approximately $13,650, $11,400 and $16,400, respectively.
Future minimum rental income under the sublease agreements is as follows:
Year ending December 31 --
1996............................ $ 41,400
1997............................ 35,700
1998............................ 25,000
----------
$ 102,100
==========
F-49
SERVICE ENTERPRISES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES:
Federal and state income taxes are as follows:
YEAR ENDED DECEMBER 31
------------------------------------
1993 1994 1995
------------ ---------- ----------
Federal --
Current......................... $ 18,602 $ 466,159 $ 553,973
Deferred........................ (205,440) 48,585 6,419
State --
Current......................... 203 67,764 68,371
Deferred........................ (28,471) 6,733 890
------------ ---------- ----------
$ (215,106) $ 589,241 $ 629,653
============ ========== ==========
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate tax rate of 34 percent to income
before income taxes as follows:
YEAR ENDED DECEMBER 31
------------------------------------
1993 1994 1995
------------ ---------- ----------
Provision (benefit) at the statutory
rate............................... $ (191,252) $ 273,536 $ 570,008
Increase (decrease) resulting from --
State income tax, net of benefit
for federal deduction......... (18,657) 49,169 45,713
Nondeductible expenses.......... 6,553 184,418 18,743
Related-party gain on sale...... -- 76,075 --
Other................................ (11,750) 6,043 (4,811)
------------ ---------- ----------
$ (215,106) $ 589,241 $ 629,653
============ ========== ==========
Deferred income tax provision results from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences representing deferred
tax assets and liabilities result principally from the following:
DECEMBER 31
----------------------
1994 1995
---------- ----------
Depreciation and amortization........ $ 56,200 $ 36,213
Net operating loss carryforward...... (33,098) (33,098)
Accruals and reserves not deductible
until paid......................... (65,203) (40,685)
Other................................ 109,857 112,635
---------- ----------
Net deferred income
tax liabilities.... $ 67,756 $ 75,065
========== ==========
The net deferred tax assets and liabilities are comprised of the following:
DECEMBER 31
----------------------
1994 1995
---------- ----------
Deferred tax assets --
Current......................... $ 62,611 $ 39,068
Long-term....................... 103,598 100,640
---------- ----------
Total................. 166,209 139,708
Deferred tax liabilities,
long-term.......................... 233,965 214,773
---------- ----------
Net deferred income
tax liabilities.... $ 67,756 $ 75,065
========== ==========
F-50
SERVICE ENTERPRISES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. RELATED-PARTY TRANSACTIONS:
The Company has receivables from its shareholder and from certain
affiliated entities related through common ownership and control in the amount
of $278,187 and $10,308 at December 31, 1994 and 1995, respectively. Receivables
from shareholder accrue interest at 5 1/2 percent. Interest income recognized
during 1993, 1994 and 1995 was approximately $147,800, $54,000 and $27,000,
respectively.
The Company acquired an investment in real estate held for sale from its
shareholder for $1,750,000 in January 1993. In January 1994, the investment was
sold for approximately $1,275,000, net of closing costs. At December 31, 1993,
the investment was written down to its net realizable value resulting in an
unrealized loss of approximately $475,000 included in other income (expense) on
the consolidated statement of operations.
In 1991, the Company received 250,000 shares of registered Exploration
Company of Louisiana (Exploration) common stock valued at $125,000 from its
shareholder in exchange for shares of stock in ANGP. During March 1994, the
Company sold the 250,000 shares of common stock of Exploration to its
shareholder for $348,750 resulting in a gain of $223,750 which has been
accounted for as additional paid-in capital.
11. COMMITMENTS AND CONTINGENCIES:
LITIGATION
The Company is involved in legal actions arising in the ordinary course of
business. Management does not believe that the outcome of such legal action will
have a material adverse effect on the Company's financial position or results of
operations.
INSURANCE
The Company carries a broad range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies.
GUARANTEES
The Company's former shareholder is required to make seven annual payments
of $75,000 each under a lawsuit settlement. The Company's former shareholder is
also required under this settlement to make four annual payments of $20,000
each, beginning in 2003. The Company has guaranteed these settlement payments.
12. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In June 1996, the Company and its shareholder entered into a definitive
agreement with ARS, providing for the acquisition of the Company by ARS.
Additionally, on May 28, 1996, the Company completed its acquisition of ADCOT.
F-51
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Florida Heating and Air Conditioning, Inc.:
We have audited the accompanying combined balance sheet of Florida Heating
and Air Conditioning, Inc. (a Florida corporation), and related companies as of
December 31, 1995, and the related combined statements of operations,
shareholders' equity and cash flows for the year then ended. These combined
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Florida
Heating and Air Conditioning, Inc., and related companies as of December 31,
1995, and the combined results of their operations and their cash flows for the
year then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
May 24, 1996
F-52
FLORIDA HEATING AND AIR CONDITIONING, INC.,
AND RELATED COMPANIES
COMBINED BALANCE SHEETS
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $1,022,154 $ 421,590
Accounts receivable --
Trade, net of allowance of
$41,305 and $41,305..... 1,394,895 1,426,487
Other receivables.......... 444,680 324,257
Inventories..................... 306,523 346,608
Prepaid expenses and other
current assets................. 52,992 112,086
------------ -----------
Total current
assets............ 3,221,244 2,631,028
PROPERTY AND EQUIPMENT, net.......... 495,110 626,144
OTHER NONCURRENT ASSETS.............. 38,509 38,421
------------ -----------
Total assets.......... $3,754,863 $ 3,295,593
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
debt........................... $ 100,166 $ 232,366
Accounts payable and accrued
expenses....................... 1,626,569 1,511,732
Payable to shareholder.......... 641,804 80,804
Billings in excess of costs and
estimated earnings on
uncompleted contracts.......... 367,519 345,673
Deferred income taxes........... 287,454 287,454
------------ -----------
Total current
liabilities....... 3,023,512 2,458,029
LONG-TERM DEBT, net of current
maturities......................... 18,017 --
DEFERRED INCOME TAXES................ 42,339 42,339
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock.................... 8,850 8,850
Additional paid-in capital...... 4,000 4,000
Retained earnings............... 658,145 782,375
------------ -----------
Total shareholders'
equity............ 670,995 795,225
------------ -----------
Total liabilities and
shareholders'
equity............ $3,754,863 $ 3,295,593
============ ===========
The accompanying notes are an integral part of these combined financial
statements.
F-53
FLORIDA HEATING AND AIR CONDITIONING, INC.,
AND RELATED COMPANIES
COMBINED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
YEAR ENDED MARCH 31
DECEMBER 31, --------------------------
1995 1995 1996
------------ ------------ ------------
(UNAUDITED)
REVENUES............................. $ 14,510,455 $ 3,919,169 $ 3,658,439
COST OF SERVICES..................... 10,541,122 2,990,025 2,674,081
------------ ------------ ------------
Gross profit.................... 3,969,333 929,144 984,358
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 3,738,253 894,415 837,485
------------ ------------ ------------
Income from operations.......... 231,080 34,729 146,873
OTHER INCOME (EXPENSE):
Interest expense................ (11,743) (1,275) (7,534)
Other........................... (8,238) 258 94
------------ ------------ ------------
INCOME BEFORE INCOME TAXES........... 211,099 33,712 139,433
PROVISION FOR INCOME TAXES........... 13,966 2,225 9,203
------------ ------------ ------------
NET INCOME........................... $ 197,133 $ 31,487 $ 130,230
============ ============ ============
The accompanying notes are an integral part of these combined financial
statements.
F-54
FLORIDA HEATING AND AIR CONDITIONING, INC.,
AND RELATED COMPANIES
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
---------------- PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- --------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994........... 1,700 $8,850 $4,000 $ 467,012 $479,862
Dividend........................ -- -- -- (6,000) (6,000)
Net income...................... -- -- -- 197,133 197,133
------ ------ ---------- --------- --------------
BALANCE, December 31, 1995........... 1,700 8,850 4,000 658,145 670,995
Dividend (unaudited)............ -- -- -- (6,000) (6,000)
Net income (unaudited).......... -- -- -- 130,230 130,230
------ ------ ---------- --------- --------------
BALANCE, March 31, 1996
(unaudited)........................ 1,700 $8,850 $4,000 $ 782,375 $795,225
====== ====== ========== ========= ==============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-55
FLORIDA HEATING AND AIR CONDITIONING, INC.,
AND RELATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
YEAR ENDED MARCH 31
DECEMBER 31, --------------------------
1995 1995 1996
------------ ------------ ------------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 197,133 $ 31,487 $ 130,230
Adjustments to reconcile net income
to net cash provided by (used
in) operating activities --
Depreciation and amortization... 195,662 45,393 45,804
Deferred income taxes........... 5,756 -- --
Gain on sale of property and
equipment..................... (12,303) (4,819) (4,117)
Changes in operating assets and
liabilities --
(Increase) decrease in --
Accounts receivable........... (45,342) 60,456 88,831
Inventories................... (37,228) (32,636) (40,085)
Prepaid expenses and other
current assets............. 8,064 (5,168) (59,094)
Other noncurrent assets....... (10,613) (51,906) 88
Increase (decrease) in --
Accounts payable and accrued
expenses................... 330,097 105,815 (114,837)
Billings in excess of costs
and estimated earnings on
uncompleted contracts...... (140,690) (195,999) (21,846)
------------ ------------ ------------
Net cash provided by (used in)
operating activities.......... 490,536 (47,377) 24,974
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and
equipment....................... 16,704 8,494 7,499
Additions of property and
equipment....................... (236,209) (178,901) (180,220)
------------ ------------ ------------
Net cash used in investing
activities.................... (219,505) (170,407) (172,721)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in payable to
shareholders.................... 1,357 (248,000) (561,000)
Borrowings of long-term debt....... 185,511 162,080 157,240
Principal payments of long-term
debt............................ (165,494) (54,193) (43,057)
Dividends.......................... (6,000) -- (6,000)
------------ ------------ ------------
Net cash provided by (used in)
financing activities.......... 15,374 (140,113) (452,817)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 286,405 (357,897) (600,564)
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 735,749 735,749 1,022,154
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of
period............................. $1,022,154 $ 377,852 $ 421,590
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for --
Interest........................ $ 11,743 $ 1,275 $ 7,534
Income taxes.................... $ -- $ -- $ 2,279
The accompanying notes are an integral part of these combined financial
statements.
F-56
FLORIDA HEATING AND AIR CONDITIONING, INC.,
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Florida Heating and Air Conditioning, Inc. (a Florida corporation) and its
three affiliated companies (collectively, the Company), are primarily engaged in
the installation and maintenance, repair and replacement of air conditioning and
heating systems in new and preexisting residential and commercial buildings in
Southeast Florida.
The Company and its shareholders intend to enter into a definitive
agreement with American Residential Services, Inc. (ARS), pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of ARS's common stock concurrent with the consummation of the initial
public offering (the Offering) of the common stock of ARS.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The combined financial statements include the accounts and results of
operations of Florida Heating and Air Conditioning, Inc., and its affiliated
companies (see Note 11) which are under common control and management of two
individuals. All significant intercompany transactions and balances have been
eliminated in combination.
INTERIM FINANCIAL INFORMATION
The interim combined financial statements as of March 31, 1996, and for the
three months ended March 31, 1995 and 1996, are unaudited, and certain
information and footnote disclosures, normally included in financial statements
prepared in accordance with generally accepted accounting principles, have been
omitted. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to fairly present the financial
position, results of operations and cash flows with respect to the interim
combined financial statements, have been included. The results of operations for
the interim periods are not necessarily indicative of the results for the entire
fiscal year.
INVENTORIES
Inventories consist of duct materials, air conditioning equipment,
refrigeration supplies and accessories held for use in the ordinary course of
business and are stated at the lower of cost or market using the first-in,
first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the lease or the estimated useful life of the asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.
REVENUE RECOGNITION
The Company recognizes revenue when the services are performed except when
work is being performed under a construction contract. Revenues on residential
and commercial service and maintenance contracts are recorded and collected
monthly.
F-57
FLORIDA HEATING AND AIR CONDITIONING, INC., AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Revenues from construction contracts are recognized on the
percentage-of-completion method measured by the percentage of costs incurred to
total estimated costs for each contract. Provisions for the total estimated
losses on uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions, estimated profitability
and final contract settlements may result in revisions to costs and income and
are recognized in the period in which the revisions are determined.
WARRANTY COSTS
The Company warrants labor for the first year after installation on new air
conditioning and heating units. The Company generally warrants labor for 30 days
after servicing of existing air conditioning and heating units. A reserve for
warranty costs is recorded upon completion of installation or service.
INCOME TAXES
The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109.
Under this method, deferred income taxes are recorded based upon differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets or liabilities are recovered or settled.
Certain of the companies in the affiliated group have elected S Corporation
status as defined by the Internal Revenue Code, whereby the Company is not
subject to taxation for federal purposes. Under S Corporation status, the
shareholders report their share of the Company's taxable earnings or losses in
their personal tax returns.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
NEW ACCOUNTING PRONOUNCEMENT
Effective January 1, 1996, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Accordingly, in the event that facts and circumstances indicate that
property and equipment, and intangible or other assets, may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset is
compared to the asset's carrying amount to determine if a write-down to market
value or discounted cash flow value was necessary. Adoption of this standard did
not have a material effect on the financial position or results of operations of
the Company.
F-58
FLORIDA HEATING AND AIR CONDITIONING, INC., AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
ESTIMATED
USEFUL LIVES DECEMBER 31,
IN YEARS 1995
------------ ------------
Transportation equipment............. 5 $1,051,880
Machinery and equipment.............. 7 115,774
Computer and telephone equipment..... 5 - 7 354,674
Leasehold improvements............... 7 57,151
Furniture and fixtures............... 7 39,308
------------
1,618,787
Less -- Accumulated depreciation and
amortization....................... 1,123,677
------------
Property and
equipment, net..... $ 495,110
============
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Activity in the Company's allowance for doubtful accounts consist of the
following:
DECEMBER 31,
1995
------------
Balance at beginning of year......... $ 41,305
Additions to costs and expenses...... 25,038
Deductions for uncollectible
receivables written off............ (25,038)
------------
$ 41,305
============
Accounts payable and accrued expenses consist of the following:
DECEMBER 31,
1995
------------
Accounts payable, trade.............. $1,283,034
Accrued compensation and benefits.... 198,175
Other accrued expenses............... 145,360
------------
$1,626,569
============
Installation contracts in progress are as follows:
DECEMBER 31,
1995
------------
Costs incurred on contracts in
progress........................... $ 985,003
Estimated earnings, net of losses.... 351,711
------------
1,336,714
Less -- Billings to date............. 1,704,233
------------
Billings in excess of costs and
estimated earnings on uncompleted
contracts.......................... $ (367,519)
============
5. LONG-TERM DEBT:
Long-term debt consists of installment notes payable for transportation
equipment. The debt is secured by the related transportation equipment. The
terms of the notes range from 24 months to 36 months with monthly payments of
principal and interest of approximately $10,500. The notes bear interest at
rates ranging from 7 percent to 9 percent.
F-59
FLORIDA HEATING AND AIR CONDITIONING, INC., AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The aggregate maturities of long-term debt as of December 31, 1995, are as
follows:
Year ending December 31 --
1996............................ $ 100,166
1997............................ 18,017
----------
$ 118,183
==========
Management estimates that the fair value of its debt obligations
approximates the historical value of $118,183 at December 31, 1995.
The Company has a $200,000 line of credit with a financial services
company. The line of credit expires August 31, 1996, and bears interest at prime
plus 1 percent per annum. The line of credit is secured by a lien on accounts
receivable and inventory and is guaranteed by the shareholders. There was no
balance outstanding under this line of credit at December 31, 1995.
6. LEASES:
The Company leases facilities from a company which is owned by the
shareholders. The lease expires in 2000 and provides for rents increasing at 5
percent per year. The rent paid under this related-party lease was approximately
$198,000 for the year ended December 31, 1995. The Company also leases a
facility from a third party, which expires in 1997. The rent paid under this
lease was approximately $15,000 for the year ended December 31, 1995. The leases
provide for the Company to pay taxes, maintenance, insurance and certain other
operating costs of the leased property. The leases contain renewal provisions.
The Company leases vehicles for a shareholder and affiliates. The lease
payments under these vehicle leases was approximately $45,000 for the year ended
December 31, 1995.
Future minimum lease payments for operating leases are as follows:
Year ending December 31 --
1996............................ $ 234,897
1997............................ 204,438
1998............................ 184,252
1999............................ 193,465
2000............................ 82,242
-----------
$ 899,294
===========
F-60
FLORIDA HEATING AND AIR CONDITIONING, INC., AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES:
The S Corporation in the affiliated group will terminate its S Corporation
status concurrent with the effective date of the Offering. The Company is
subject to taxation in certain states based upon the jurisdiction in which
revenues are earned.
Federal and state income taxes are as follows:
YEAR ENDED
DECEMBER 31,
1995
------------
Federal --
Current......................... $ 6,733
Deferred........................ 4,915
State --
Current......................... 1,477
Deferred........................ 841
------------
$ 13,966
============
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate tax rate of 34 percent to income
before income taxes as follows:
YEAR ENDED
DECEMBER 31,
1995
------------
Provision at the statutory rate...... $ 71,774
Increase (decrease) resulting from --
Income of S Corporation......... (59,557)
State income tax, net of benefit
for federal deduction......... 1,398
Other........................... 351
------------
$ 13,966
============
Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences representing deferred
tax assets and liabilities result principally from the following:
DECEMBER 31, 1995
-----------------
Loss from limited partnership
investment......................... $ 230,844
Cash to accrual adjustment........... 136,674
Other................................ (37,725)
-----------------
Net deferred income tax
liabilities.......................... $ 329,793
=================
F-61
FLORIDA HEATING AND AIR CONDITIONING, INC., AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The net deferred tax assets and liabilities are comprised of the following:
DECEMBER 31, 1995
-----------------
Deferred tax assets --
Current......................... $ 11,972
Long-term....................... 25,998
-----------------
Total...................... 37,970
Deferred tax liabilities --
Current......................... 299,426
Long-term....................... 68,337
-----------------
Total...................... 367,763
-----------------
Net deferred income tax
liabilities............. $ 329,793
=================
8. RELATED-PARTY TRANSACTIONS:
One of the shareholders loans the Company funds as needed. The loans are
payable on demand and, under certain conditions, bear interest at prime plus 1
percent. The amount payable to the shareholder is $641,804 at December 31, 1995.
No interest was incurred or paid during the year ended December 31, 1995,
related to these loans.
9. COMMITMENTS AND CONTINGENCIES:
LITIGATION
The Company is involved in legal actions arising in the ordinary course of
business. Management does not believe the outcome of such legal action will have
a material adverse effect on the Company's financial position or combined
results of operations.
INSURANCE
The Company carries a broad range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies.
10. SALES TO SIGNIFICANT CUSTOMER:
During 1995, one customer accounted for approximately 14 percent of the
Company's sales.
11. SHAREHOLDERS' EQUITY:
The common stock ownership of the corporate entities is as follows:
SHARES SHARES PAR
AUTHORIZED OUTSTANDING VALUE
----------- ----------- ------
Florida Heating and Air Conditioning,
Inc. .............................. 1,000 800 $10.00
Florida Heating and Air Conditioning
Service, Inc. ..................... 600 600 1.00
Florida Heating and Air Duct, Inc.... 10,000 100 .50
Bullseye Air Conditioning, Inc. ..... 600 200 1.00
12. EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS (UNAUDITED):
In June 1996, the Company and its shareholders entered into a definitive
agreement with ARS, providing for the acquisition of the Company by ARS.
Concurrent with the acquisition, the Company will enter into agreements
with the shareholders to lease land and buildings used in the Company's
operations for a negotiated amount and term.
F-62
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To DIAL ONE Meridian and Hoosier, Inc.:
We have audited the accompanying balance sheets of DIAL ONE Meridian and
Hoosier, Inc. (an Indiana corporation), as of December 31, 1994 and 1995, and
the related statements of operations, shareholder's equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of DIAL ONE Meridian and
Hoosier, Inc., as of December 31, 1994 and 1995, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
May 24, 1996
F-63
DIAL ONE MERIDIAN AND HOOSIER, INC.
BALANCE SHEETS
DECEMBER 31
-------------------------- MARCH 31,
1994 1995 1996
------------ ------------ -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 427,005 $ 856,754 $ 957,275
Investments........................ 150,000 -- --
Accounts receivable --
Trade, net of allowance of
$41,595, $54,050 and
$59,725....................... 869,316 989,963 1,035,645
Shareholder and affiliates...... 6,316 14,261 21,487
Other receivables............... 19,098 26,459 --
Inventories........................ 345,934 249,773 322,995
Prepaid expenses and other current
assets.......................... 72,239 96,545 81,441
Costs and estimated earnings in
excess of billings on
uncompleted contracts........... 42,717 16,825 18,778
------------ ------------ -----------
Total current assets....... 1,932,625 2,250,580 2,437,621
PROPERTY AND EQUIPMENT, net.......... 829,316 919,238 1,563,545
OTHER NONCURRENT ASSETS.............. 28,567 18,819 145,332
------------ ------------ -----------
Total assets............... $ 2,790,508 $ 3,188,637 $ 4,146,498
============ ============ ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
debt............................ $ 262,046 $ 266,830 $ 275,358
Accounts payable and accrued
expenses........................ 488,197 638,224 654,091
Unearned revenue on service
contracts....................... 353,045 423,259 406,612
Billings in excess of costs and
estimated earnings on
uncompleted contracts........... 78,049 32,131 112,691
------------ ------------ -----------
Total current
liabilities............. 1,181,337 1,360,444 1,448,752
LONG-TERM DEBT, net of current
maturities......................... 610,180 544,483 1,334,898
DEFERRED INCOME TAXES................ -- 13,309 18,517
OTHER NONCURRENT LIABILITIES......... -- -- 73,909
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY:
Common stock, no par value; 1,000
shares authorized,
598 shares issued and 588
outstanding..................... 7,201 7,201 7,201
Additional paid-in capital......... 35,000 35,000 35,000
Retained earnings.................. 956,890 1,228,300 1,228,321
Treasury stock, 10 shares at
cost............................ (100) (100) (100)
------------ ------------ -----------
Total shareholder's
equity.................. 998,991 1,270,401 1,270,422
------------ ------------ -----------
Total liabilities and
shareholder's equity.... $ 2,790,508 $ 3,188,637 $ 4,146,498
============ ============ ===========
The accompanying notes are an integral part of these financial statements.
F-64
DIAL ONE MERIDIAN AND HOOSIER, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31 ENDED MARCH 31
---------------------------- --------------------------
1994 1995 1995 1996
------------ -------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES............................. $ 8,066,155 $ 10,132,706 $ 1,958,498 $ 2,638,043
COST OF SERVICES..................... 5,797,066 7,280,888 1,421,980 1,767,046
------------ -------------- ------------ ------------
Gross profit............... 2,269,089 2,851,818 536,518 870,997
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 1,988,791 2,349,482 511,719 854,416
------------ -------------- ------------ ------------
Income from operations..... 280,298 502,336 24,799 16,581
OTHER INCOME (EXPENSE):
Interest income................. 8,517 23,399 -- 8,637
Interest expense................ (56,585) (86,097) (21,818) (28,500)
Other........................... 36,817 10,259 12,732 3,318
------------ -------------- ------------ ------------
INCOME BEFORE INCOME TAXES........... 269,047 449,897 15,713 36
PROVISION FOR INCOME TAXES........... 110,365 178,487 5,793 15
------------ -------------- ------------ ------------
NET INCOME........................... $ 158,682 $ 271,410 $ 9,920 $ 21
============ ============== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-65
DIAL ONE MERIDIAN AND HOOSIER, INC.
STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
---------------- PAID-IN RETAINED TREASURY SHAREHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
------ ------ ---------- ---------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993........... 588 $7,201 $ 35,000 $ 798,208 $ (100) $ 840,309
Net income...................... -- -- -- 158,682 -- 158,682
------ ------ ---------- ---------- -------- --------------
BALANCE, December 31, 1994........... 588 7,201 35,000 956,890 (100) 998,991
Net income...................... -- -- -- 271,410 -- 271,410
------ ------ ---------- ---------- -------- --------------
BALANCE, December 31, 1995........... 588 7,201 35,000 1,228,300 (100) 1,270,401
Net income (unaudited).......... -- -- -- 21 -- 21
------ ------ ---------- ---------- -------- --------------
BALANCE, March 31, 1996
(unaudited)........................ 588 $7,201 $ 35,000 $1,228,321 $ (100) $1,270,422
====== ====== ========== ========== ======== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-66
DIAL ONE MERIDIAN AND HOOSIER, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31 ENDED MARCH 31
-------------------------- ------------------------
1994 1995 1995 1996
------------ ------------ ---------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 158,682 $ 271,410 $ 9,920 $ 21
Adjustments to reconcile net income
to net cash provided by
operating activities --
Depreciation and amortization... 205,310 245,028 61,070 70,870
Deferred income taxes
(benefit)..................... 108,303 45,302 -- (45,800)
Changes in operating assets and
liabilities --
(Increase) decrease in --
Accounts receivables....... (183,259) (128,008) (25,367) 131,261
Inventories................ (129,922) 96,161 48,989 34,066
Prepaid expenses and other
current assets.......... (14,768) (29,873) (16,122) 37,918
Costs and estimated
earnings in excess of
billings on uncompleted
contracts............... 29,530 25,892 42,717 17,721
Other noncurrent assets.... 2,606 (16,678) (5,397) (62,643)
Increase (decrease) in --
Accounts payable and
accrued expenses........ 86,294 150,027 (74,932) (131,315)
Unearned revenue on service
contracts............... 60,469 70,214 (7,854) (16,647)
Billings in excess of costs
and estimated earnings
on uncompleted
contracts............... 27,852 (45,918) 18,752 18,292
Other noncurrent
liabilities............. -- -- -- 73,909
------------ ------------ ---------- ------------
Net cash provided by operating
activities................. 351,097 683,557 51,776 127,653
------------ ------------ ---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property and
equipment..................... (318,444) (334,950) (59,008) (534,680)
Purchase of investment.......... (150,000) -- -- --
Proceeds from sale of
investment.................... -- 150,000 -- --
Cash paid for acquisition, net
of cash acquired.............. -- -- -- (259,533)
------------ ------------ ---------- ------------
Net cash used in investing
activities................. (468,444) (184,950) (59,008) (794,213)
------------ ------------ ---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt.... 451,815 200,639 17,783 849,273
Principal payments of long-term
debt.......................... (183,134) (261,552) (65,686) (74,966)
(Advances) payments of
receivable from shareholder
and affiliates................ 17,940 (7,945) (184) (7,226)
------------ ------------ ---------- ------------
Net cash provided by (used in)
financing activities....... 286,621 (68,858) (48,087) 767,081
------------ ------------ ---------- ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 169,274 429,749 (55,319) 100,521
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 257,731 427,005 427,005 856,754
------------ ------------ ---------- ------------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 427,005 $ 856,754 $ 371,686 $ 957,275
============ ============ ========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for --
Interest................... $ 56,585 $ 86,097 $ 21,818 $ 28,500
Income taxes............... $ 20,000 $ 126,137 $ -- $ 32,167
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-67
DIAL ONE MERIDIAN AND HOOSIER, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
DIAL ONE Meridian and Hoosier, Inc., (an Indiana corporation) (the
Company), is primarily engaged in the installation and maintenance, repair and
replacement of residential and commercial air conditioning and heating systems
in Indianapolis and the surrounding areas.
The Company and its shareholder intend to enter into a definitive agreement
with American Residential Services, Inc. (ARS), pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of ARS's common stock concurrent with the consummation of the initial
public offering (the Offering) of the common stock of ARS.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial statements as of March 31, 1996, and for the three
months ended March 31, 1995 and 1996, are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
INVENTORIES
Inventories consist of parts and supplies for use in the ordinary course of
business and are valued at the lower of cost or market using the first-in,
first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the lease or the estimated useful life of the asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.
Included in property and equipment are certain assets subject to capital
leases. These assets are amortized using the straight-line method over the
lesser of the life of the leases or the estimated useful life of the asset.
REVENUE RECOGNITION
The Company recognizes revenue when the services are performed except when
work is being performed under a construction contract. Revenues on residential
and commercial service and maintenance contracts are recorded and collected
monthly.
Revenues from construction contracts are recognized on the
percentage-of-completion method measured by the percentage of costs incurred to
total estimated costs for each contract. Provisions for the total estimated
losses on uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions, estimated profitability
and final contract settlements may result in revisions to costs and income and
are recognized in the period in which the revisions are determined.
F-68
DIAL ONE MERIDIAN AND HOOSIER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
WARRANTY COSTS
The Company warrants labor for one or five years after installation on new
air conditioning and heating units. The Company generally warrants labor for 30
days after servicing of existing air conditioning and heating units. A reserve
for warranty costs is recorded upon completion of installation or service.
INCOME TAXES
The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109.
Under this method, deferred income taxes are recorded based upon differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets or liabilities are received or settled.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
NEW ACCOUNTING PRONOUNCEMENT
Effective January 1, 1996, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Accordingly, in the event that facts and circumstances indicate that
property and equipment, and intangible or other assets, may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset is
compared to the asset's carrying amount to determine if a write-down to market
value or discounted cash flow value was necessary. Adoption of this standard did
not have a material effect on the financial position or results of operations of
the Company.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
ESTIMATED DECEMBER 31
USEFUL LIVES --------------------------
IN YEARS 1994 1995
------------ ------------ ------------
Land and building.................... 30 $ 145,920 $ 183,320
Leasehold improvements............... 10 191,823 212,461
Transportation equipment............. 3 - 4 827,628 950,262
Machinery and equipment.............. 7 162,243 165,367
Furniture and fixtures............... 5 280,527 369,956
Telephone equipment.................. 7 - 10 47,291 109,016
------------ ------------
1,655,432 1,990,382
Less -- Accumulated depreciation and
amortization......................... 826,116 1,071,144
------------ ------------
Property and equipment,
net..................... $ 829,316 $ 919,238
============ ============
F-69
DIAL ONE MERIDIAN AND HOOSIER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Activity in the Company's allowance for doubtful accounts consist of the
following:
DECEMBER 31
--------------------
1994 1995
-------- --------
Balance at beginning of year............................... $13,609 $41,595
Additions charged to costs and expenses.................... 43,451 32,071
Deductions for uncollectible receivables written off....... (15,465) (19,616)
-------- --------
$41,595 $54,050
======== ========
Accounts payable and accrued expenses consist of the following:
DECEMBER 31
--------------------
1994 1995
--------- ---------
Accounts payable, trade.............................. $ 128,155 $ 185,409
Accrued compensation and benefits.................... 228,886 254,393
Warranty accrual..................................... 60,754 79,102
Other accrued expenses............................... 70,402 119,320
--------- ---------
$ 488,197 $ 638,224
========= =========
Installation contracts in progress are as follows:
DECEMBER 31
--------------------
1994 1995
--------- ---------
Costs incurred on contracts in progress................ $ 195,350 $ 243,727
Estimated earnings, net of losses...................... 93,439 96,263
--------- ---------
288,789 339,990
Less -- Billings to date............................... 324,121 355,296
--------- ---------
$ (35,332) $ (15,306)
========= =========
The following are included in the accompanying balance sheets under the
following captions:
DECEMBER 31
--------------------
1994 1995
--------- ---------
Costs and estimated earnings in excess of billings
on uncompleted contracts.......................... $ 42,717 $ 16,825
Billings in excess of costs and estimated earnings
on uncompleted contracts.......................... (78,049) (32,131)
---------- ----------
$ (35,332) $ (15,306)
========== ==========
F-70
DIAL ONE MERIDIAN AND HOOSIER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT AND CAPITAL LEASES:
Long-term debt and capital leases consists of the following:
DECEMBER 31
----------------------
1994 1995
---------- ----------
Note payable, due in monthly installments of
$4,167 plus interest at prime plus 1.25%
(9.75% at December 31, 1995) and secured by
accounts receivable, inventory and equipment,
matures November 30, 1999............................ $ 245,837 $ 195,833
Land contract, maturing in November 2003, due in
monthly installments of $1,456 including interest
at 8%, collateralized with the related property deed
held in escrow....................................... 111,123 102,238
Note payable, due in monthly installments of $2,500
plus interest at prime plus 1.25% and secured by
accounts receivable, inventory and equipment, matures
July 31, 1998........................................ 107,500 77,500
Capital leases, maturing from 1996 to 2000, interest
ranging from 8.94% to 10%, secured by transportation
equipment............................................ 403,057 420,536
Other.................................................. 4,709 15,206
---------- ----------
872,226 811,313
Less -- Current maturities............................. 262,046 266,830
---------- ----------
$ 610,180 $ 544,483
========== ==========
The Company has a $250,000 bank line of credit expiring July 31, 1996, with
interest payable monthly at prime plus .75 percent. As of December 31, 1995,
there were no borrowings on this agreement. In addition, the Company has a
$100,000 bank lease line of credit expiring January 2, 2000, with interest at
8.94 percent payable monthly. As of December 31, 1995, borrowings on the lease
line were $23,214 and are included in capital leases.
The notes payable contain covenants which require the Company to maintain
specified financial covenants. As of December 31, 1995, the Company was in
compliance with these covenants.
The aggregate maturities of long-term debt as of December 31, 1995, are as
follows:
Year ending December 31 --
1996............................ $ 93,071
1997............................ 94,220
1998............................ 83,015
1999............................ 61,867
2000............................ 13,263
Thereafter...................... 45,341
----------
$ 390,777
==========
F-71
DIAL ONE MERIDIAN AND HOOSIER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The future minimum lease payments under capital leases are as follows:
Year ending December 31 --
1996............................ $ 219,291
1997............................ 159,026
1998............................ 95,352
1999............................ 23,855
2000............................ --
----------
Total minimum lease
payments................ 497,524
Less -- Amounts representing
interest............................. (76,988)
----------
Net minimum lease
payments................ 420,536
Less -- Current portion of
obligations under capital leases... 173,759
----------
Long-term portion of
obligations under
capital leases.......... $ 246,777
==========
Management estimates that the fair value of its debt obligations
approximates the historical value of $811,313 at December 31, 1995.
6. LEASES:
The Company leases a facility from its shareholder. The lease was renewed
on January 1, 1995, and expires on December 31, 1999. The lease requires monthly
payments of $7,500. The amount paid under this lease in 1994 and 1995 was
approximately $76,000 and $90,000, respectively.
7. INCOME TAX:
Federal and state income taxes are as follows:
YEAR ENDED
DECEMBER 31
----------------------
1994 1995
---------- ----------
Federal --
Current......................... $ -- $ 97,907
Deferred........................ 85,943 39,549
State --
Current......................... 2,062 35,278
Deferred........................ 22,360 5,753
---------- ----------
$ 110,365 $ 178,487
========== ==========
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate tax rate of 34 percent to income
before income tax as follows:
Tax provision at the statutory
rate................................. $ 91,476 $ 152,965
Increase (decrease) resulting from --
State income taxes, net of
related tax effect............ 16,118 27,080
Nondeductible expenses.......... 3,080 321
Other........................... (309) (1,879)
---------- ----------
$ 110,365 $ 178,487
========== ==========
F-72
DIAL ONE MERIDIAN AND HOOSIER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences representing deferred
tax assets and liabilities result principally from the following:
DECEMBER 31
----------------------
1994 1995
---------- ----------
Depreciation and amortization........ $ 4,675 $ 13,859
Accruals and reserves not deductible
until paid......................... (50,724) (43,433)
Other................................ (27,652) 1,175
---------- ----------
Total deferred income tax
assets.................. $ (73,701) $ (28,399)
========== ==========
The net deferred tax assets and liabilities are comprised of the following:
DECEMBER 31
----------------------
1994 1995
---------- ----------
Deferred tax assets --
Current......................... $ (47,275) $ (41,708)
Long-term....................... (26,426) --
---------- ----------
Total...................... (73,701) (41,708)
Deferred tax liabilities,
long-term.......................... -- 13,309
---------- ----------
Net deferred income tax
assets.................. $ (73,701) $ (28,399)
========== ==========
8. FRANCHISE AGREEMENTS:
In October 1993, the Company renewed a four-year franchise agreement with
DIAL ONE of Central Indiana, Inc. (DIAL ONE), a company wholly owned by the
shareholder of the Company. The Company pays $15,000 annually plus a royalty fee
of 3 percent of gross sales in excess of a predefined base. Total amounts
incurred in 1994 and 1995 under this agreement were approximately $92,000 and
$56,000, respectively.
The Company pays the LINC Corporation for consulting services under a
franchise agreement through its commercial division. Fees are based on a royalty
fee on gross revenues with a minimum payment of $15,000 a year. In 1994 and
1995, the Company incurred approximately $58,000 and $61,000, respectively,
under the terms of the agreement.
9. EMPLOYEE BENEFIT PLANS:
The Company has adopted a retirement plan which qualifies under Section
401(k) of the Internal Revenue Code. The plan provides for 50 percent matching
contributions by the Company for the first $200 of each participant's
contribution. The Company has the right to make additional discretionary
contributions. Total contributions by the Company under this plan were
approximately $64,000 and $86,000 for 1994 and 1995, respectively.
10. RELATED-PARTY TRANSACTIONS:
The Company is a DIAL ONE franchise (see Note 8) under an agreement with
DIAL ONE. The Company also shares certain costs with DIAL ONE for personnel and
overhead, which are billed monthly to DIAL ONE, based on that company's pro rata
share of those expenses. In 1995, the Company received $24,000 in rental income
from DIAL ONE for space occupied in the building that the Company owns. At
December 31, 1994 and 1995, the Company had a balance due from DIAL ONE of
approximately $6,000 and $14,000, respectively.
F-73
DIAL ONE MERIDIAN AND HOOSIER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES:
LITIGATION
The Company is involved in legal actions arising in the ordinary course of
business. Management does not believe that the outcome of such legal actions
will have a material adverse effect on the Company's financial position or
results of operations.
INSURANCE
The Company carries a broad range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies.
12. SUBSEQUENT EVENT:
Effective January 1, 1996, the Company acquired 100 percent of the
outstanding shares of stock in Sagamore Heating & Cooling, Inc. (Sagamore) for
$281,000. Consideration paid by the Company included $100,000 in cash and a
$181,000 note payable to the former owner. The Company consolidated Sagamore
effective as of the date of acquisition.
13. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In June 1996, the Company and its shareholder entered into a definitive
agreement with ARS, providing for the acquisition of the Company by ARS.
Concurrent with the acquisition, the Company will enter into agreements
with the shareholder to lease land and buildings used in the Company's
operations for a negotiated amount and term.
F-74
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ADCOT, Inc.:
We have audited the accompanying balance sheets of ADCOT, Inc. (a Texas
corporation), as of December 31, 1994 and 1995, and the related statements of
operations, shareholder's deficit and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ADCOT, Inc., as of December
31, 1994 and 1995, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
May 24, 1996 (except with respect to
the matter discussed in Note 4, as to
which the date is June 5, 1996)
F-75
ADCOT, INC.
BALANCE SHEETS
DECEMBER 31
---------------------------- MARCH 31,
1994 1995 1996
------------- ------------ -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 122,966 $ 256,104 $ 48,788
Accounts receivable --
Trade...................... 3,132 -- 28,113
Shareholder and
affiliates.............. 10,476 11,968 10,725
Inventories..................... 416,332 411,892 644,623
Prepaid expenses and other
current assets................ -- 23,607 49,944
------------- ------------ -----------
Total current
assets............. 552,906 703,571 782,193
PROPERTY AND EQUIPMENT, net.......... 294,820 299,757 355,242
OTHER NONCURRENT ASSETS.............. -- 999 31,345
NET ASSETS OF DISCONTINUED
OPERATIONS......................... 34,065 123,494 510,235
------------- ------------ -----------
Total assets.......... $ 881,791 $ 1,127,821 $ 1,679,015
============= ============ ===========
LIABILITIES AND SHAREHOLDER'S DEFICIT
CURRENT LIABILITIES:
Current maturities of long-term
debt.......................... $ 15,692 $ 77,263 $ 83,138
Accounts payable and accrued
expenses...................... 770,780 754,768 1,447,989
Payable to shareholders and
affiliates.................... 266,297 241,008 --
Unearned revenue on extended
warranty contracts, current... 375,668 351,514 317,881
------------- ------------ -----------
Total current
liabilities........ 1,428,437 1,424,553 1,849,008
LONG-TERM DEBT, net of current
maturities......................... -- 96,277 142,789
UNEARNED REVENUE ON EXTENDED WARRANTY
CONTRACTS, noncurrent.............. 637,614 579,307 612,942
OTHER LONG-TERM LIABILITIES.......... 39,014 -- --
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S DEFICIT:
Common stock, $1 par value;
100,000 shares authorized,
10,000 issued and
outstanding................... 10,000 10,000 10,000
Deficit......................... (1,233,274) (982,316) (935,724)
------------- ------------ -----------
Total shareholder's
deficit............ (1,223,274) (972,316) (925,724)
------------- ------------ -----------
Total liabilities and
shareholder's
deficit............ $ 881,791 $ 1,127,821 $ 1,679,015
============= ============ ===========
The accompanying notes are an integral part of these financial statements.
F-76
ADCOT, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31 MARCH 31
-------------------------- --------------------------
1994 1995 1995 1996
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES............................. $ 8,675,616 $ 8,707,403 $ 1,704,276 $ 2,022,260
COST OF SERVICES..................... 5,574,296 5,709,114 1,191,947 1,236,174
------------ ------------ ------------ ------------
Gross profit.................... 3,101,320 2,998,289 512,329 786,086
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 2,443,678 2,347,954 508,333 582,837
------------ ------------ ------------ ------------
Income from operations.......... 657,642 650,335 3,996 203,249
OTHER INCOME (EXPENSE):
Interest expense................ (36,224) (83,754) (6,591) (9,207)
Other........................... 24,430 65,530 15,908 19,241
------------ ------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS
BEFORE STATE INCOME TAXES.......... 645,848 632,111 13,313 213,283
PROVISION FOR STATE INCOME TAXES..... -- 43,165 660 3,558
------------ ------------ ------------ ------------
NET INCOME FROM CONTINUING
OPERATIONS......................... 645,848 588,946 12,653 209,725
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS, net of applicable state
income taxes....................... (141,923) (114,900) 3,207 (76,012)
------------ ------------ ------------ ------------
NET INCOME........................... $ 503,925 $ 474,046 $ 15,860 $ 133,713
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-77
ADCOT, INC.
STATEMENTS OF SHAREHOLDER'S DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
-------------------- SHAREHOLDER'S
SHARES AMOUNT DEFICIT DEFICIT
--------- ------- -------------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1993........... 10,000 $10,000 $ (1,737,199) $ (1,727,199)
Net income...................... -- -- 503,925 503,925
--------- ------- -------------- -------------
BALANCE, December 31, 1994........... 10,000 10,000 (1,233,274) (1,223,274)
Dividends....................... -- -- (223,088) (223,088)
Net income...................... -- -- 474,046 474,046
--------- ------- -------------- -------------
BALANCE, December 31, 1995........... 10,000 10,000 (982,316) (972,316)
Dividends (unaudited)........... -- -- (87,121) (87,121)
Net income (unaudited).......... -- -- 133,713 133,713
--------- ------- -------------- -------------
BALANCE, March 31, 1996
(unaudited)........................ 10,000 $10,000 $ (935,724) $ (925,724)
========= ======= ============== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-78
ADCOT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31 MARCH 31
-------------------------- --------------------------
1994 1995 1995 1996
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 503,925 $ 474,046 $ 15,860 $ 133,713
Adjustments to reconcile net income
to net cash provided by (used
in) operating activities --
Depreciation and amortization... 271,420 261,704 60,063 49,976
Gain on sale of property and
equipment..................... (18,251) (19,519) (16,963) --
Write-off of property and
equipment..................... -- 26,118 -- --
Changes in operating assets and
liabilities -- (Increase)
decrease in --
Accounts receivable........... (6,318) 1,640 471 (26,870)
Inventories................... 225,814 4,440 (212,987) (232,731)
Prepaid expenses and other
current assets............. 127,891 (23,607) (51,407) (26,337)
Other noncurrent assets....... 10,369 (999) -- (30,346)
Increase (decrease) in --
Accounts payable and accrued
expenses................... (786,089) (16,012) (7,835) 693,221
Unearned revenue on extended
warranty contracts......... (8,288) (82,461) (20,615) 2
------------ ------------ ------------ ------------
Net cash provided by (used
in) operating
activities.............. 320,473 625,350 (233,413) 560,628
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and
equipment....................... 19,503 21,188 17,625 --
Additions to property and
equipment....................... (49,403) (294,428) (84,798) (105,461)
Cash provided by (used in)
discontinued operations......... 188,714 (89,429) 181,904 (386,741)
------------ ------------ ------------ ------------
Net cash provided by (used
in) investing
activities.............. 158,814 (362,669) 114,731 (492,202)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in payable to shareholder
and affiliates.................. (314,134) (25,289) -- (241,008)
Borrowings of long-term debt....... -- 214,553 57,100 98,809
Principal payments of long-term
debt............................ (106,035) (56,705) (9,759) (46,422)
Increase (decrease) in other
long-term liabilities........... 39,014 (39,014) (27,480) --
Dividends.......................... -- (223,088) -- (87,121)
------------ ------------ ------------ ------------
Net cash provided by (used
in) financing
activities.............. (381,155) (129,543) 19,861 (275,742)
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 98,132 133,138 (98,821) (207,316)
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 24,834 122,966 122,966 256,104
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 122,966 $ 256,104 $ 24,145 $ 48,788
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for --
Interest........................ $ 79,658 $ 111,536 $ 8,788 $ 12,413
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-79
ADCOT, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
ADCOT, Inc. (a Texas corporation) (the Company) (d.b.a. A-ABC Appliance),
is primarily engaged in the sales of consumer appliances and the service-related
activities of plumbing, air conditioning, appliance and electrical repair and
other home improvement services in Houston and the surrounding areas.
In April 1996, the Company and its shareholder entered into a stock
purchase agreement with Service Enterprises, Inc. (SEI) to sell all of its
outstanding common stock for $2,000,000 to SEI.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial statements as of March 31, 1996, and for the three
months ended March 31, 1995 and 1996, are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
INVENTORIES
Inventories consist of appliances and service-related parts and supplies
held for use in the ordinary course of business and are valued at the lower of
cost or market using the weighted-average cost method.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the lease or the estimated useful life of the asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property or equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.
INCOME TAXES
The Company has elected S Corporation status as defined by the Internal
Revenue Code, whereby the Company is not subject to taxation for federal
purposes. Under S Corporation status, the shareholder reports his share of the
Company's taxable earnings or losses in his personal tax return.
The Company is subject to Texas franchise tax which is an income-based tax.
Accordingly, the Company has recorded a provision for this tax in the
accompanying statement of operations for 1995. No provision for franchise taxes
was recorded in the 1994 statement of operations as the Company's franchise tax
was offset by a business loss carryover.
REVENUE RECOGNITION
The Company recognizes service revenue and parts sales revenue when a
product is delivered or the services are performed. Revenues from sales of
extended warranties are recognized over the life of the contract on a
straight-line basis.
F-80
ADCOT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Accordingly, in
the event that facts and circumstances indicate that property and equipment, and
intangible or other assets, may be impaired, an evaluation of recoverability
would be performed. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset is compared to the asset's
carrying amount to determine if a write-down to market value or discounted cash
flow value was necessary. Adoption of this standard did not have a material
effect on the financial position or results of operations of the Company.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
DECEMBER 31
USEFUL LIVES --------------------------
IN YEARS 1994 1995
------------ ------------ ------------
Leasehold improvements............... 5 - 15 $ 221,120 $ 256,245
Transportation equipment............. 5 815,190 849,183
Computer and telephone equipment..... 5 - 7 351,383 --
Furniture and fixtures............... 5 - 7 1,053,293 1,109,215
------------ ------------
2,440,986 2,214,643
Less -- Accumulated depreciation and
amortization....................... 2,146,166 1,914,886
------------ ------------
Property and equipment,
net..................... $ 294,820 $ 299,757
============ ============
4. DISCONTINUED OPERATIONS:
Subsequent to the purchase of the Company by SEI, the board of directors of
SEI's parent company (Enterprise Holding Company) approved the disposition of
the Company's retail appliance sales division. The allocation of purchase price
to the fair market value of the net assets of the Company acquired by SEI will
be based on preliminary estimates of fair value and may be revised when
additional information concerning asset and liability valuations is obtained.
Accordingly, any gain or loss on the sale of the appliance sales division will
be considered an adjustment of purchase price.
The net losses of these operations prior to April 1, 1996, are included in
the statements of operations under discontinued operations. Revenues, cost of
sales, selling, general and administrative expenses, other income and expense,
and income taxes for fiscal years 1994 and 1995 exclude amounts associated with
the discontinued division. Revenues from such operations were approximately
$12,101,000 and $11,915,000 for the years ended December 31, 1994 and 1995,
respectively. Certain expenses have been allocated to
F-81
ADCOT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
discontinued operations, which were allocated based upon estimated divisional
usage. All assets of the operations are expected to be sold in 1996.
The components of net assets of discontinued operations included in the
balance sheets are as follows:
DECEMBER 31
----------------------
1994 1995
---------- ----------
Net working capital (deficit)........ $ (64,208) $ 55,667
Property and equipment, net.......... 98,273 99,919
Other liabilities.................... -- (32,092)
---------- ----------
$ 34,065 $ 123,494
========== ==========
5. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts payable and accrued expenses consist of the following:
DECEMBER 31
----------------------
1994 1995
---------- ----------
Accounts payable, trade.............. $ 488,819 $ 495,031
Accrued compensation and benefits.... 93,193 87,725
Accrued taxes, other than income..... 147,066 101,383
Other accrued expenses............... 41,702 70,629
---------- ----------
$ 770,780 $ 754,768
========== ==========
6. INVENTORY FLOOR PLAN LIABILITY:
The Company maintains certain inventories on a floor plan financing method
with General Electric Capital Corporation (GECC) in connection with its
discontinued retail appliance sales division. The terms of the floor plan allow
an interest-free period of 90 days after purchase followed by interest accruing
at a rate of prime plus 2.5 percent on the remaining unpaid balance. Payment is
due as the inventory is sold.
The Company also has floor plan financing available from three other
companies with similar terms. However, the Company does not utilize these, and
had no balances outstanding at December 31, 1994 and 1995.
The inventory floor plan facilities are personally guaranteed by the sole
shareholder and/or an officer of the Company.
7. LONG-TERM DEBT:
Long-term debt consists of the installment notes payable for transportation
equipment. The debt is secured by the related transportation equipment. The
terms of the notes are 36 months with monthly payments of principal and interest
of approximately $9,000. The notes bear interest at rates ranging from 8.25
percent to 11 percent.
The aggregate maturities of long-term debt as of December 31, 1995, are as
follows:
Year ending December 31 --
1996............................ $ 77,263
1997............................ 67,241
1998............................ 29,036
----------
$ 173,540
==========
F-82
ADCOT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Management estimates that the fair value of its debt obligations
approximates the historical value of $173,540 at December 31, 1995.
8. LEASES:
OPERATING LEASES
The Company leases certain facilities from its sole shareholder and his
affiliates. The leases expire from 1997 through 2010. The rent paid under these
related-party leases was approximately $305,000 and $370,000 in 1994 and 1995,
respectively.
Other nonrelated-party leases for retail facilities expire in 1997. The
rent paid under nonrelated-party leases was approximately $183,000 and $162,000
in 1994 and 1995, respectively.
The lease terms generally range from five to 15 years. The leases generally
provide for the Company to pay taxes, maintenance, insurance and certain other
operating costs of the leased property. The leases on most of the properties
contain renewal provisions.
Future minimum lease payments for operating leases are as follows:
Year ending December 31 --
1996............................ $ 558,140
1997............................ 430,034
1998............................ 330,288
1999............................ 292,848
2000............................ 240,432
Thereafter...................... 725,820
------------
$ 2,577,562
============
9. RELATED-PARTY TRANSACTIONS:
The Company has payables to its sole shareholder and certain other related
parties in the amounts of $266,297 and $241,008 at December 31, 1994 and 1995,
respectively. Interest accrues on these payables at 8 percent per annum.
10. COMMITMENTS AND CONTINGENCIES:
LITIGATION
The Company is involved in legal actions arising in the ordinary course of
business. Management does not believe that the outcome of such legal actions
will have a material adverse effect on the Company's financial position or
results of operations.
INSURANCE
The Company carries a broad range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies.
11. EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In June 1996, the Company and its shareholder entered into a definitive
agreement with ARS, providing for the acquisition of the Company by ARS.
F-83
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES
OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, IN ANY STATE TO ANY
PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH STATE. THE DELIVERY
OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary ........................................................ 3
Risk Factors .............................................................. 10
The Company ............................................................... 14
Use of Proceeds ........................................................... 16
Dividend Policy ........................................................... 17
Capitalization ............................................................ 17
Dilution .................................................................. 18
Selected Financial Data ................................................... 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations ........................................................... 21
Business .................................................................. 33
Management ................................................................ 42
Certain Transactions ...................................................... 51
Security Ownership of Certain
Beneficial Owners and Management ........................................ 55
Shares Eligible for Future Sale ........................................... 56
Description of Capital Stock .............................................. 57
Underwriting .............................................................. 63
Legal Matters ............................................................. 64
Experts ................................................................... 64
Additional Information .................................................... 64
Index to Financial Statements ............................................. F-1
Until , 1996 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Common Stock, whether or not participating
in this distribution, may be required to deliver a Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus when acting as
Underwriters and with respect to their unsold allotments or subscriptions.
4,200,000 SHARES
LOGO
COMMON STOCK
------------
PROSPECTUS
AUGUST , 1996
------------
SMITH BARNEY INC.
MONTGOMERY
SECURITIES
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses (other than underwriting
discounts and commissions) in connection with the offering described in this
Registration Statement, all of which shall be paid by the Company. All of such
amounts (except the SEC Registration Fee, the NASD Filing Fee and the New York
Stock Exchange Listing Fee) are estimated.
SEC Registration Fee................. $ 21,652
NASD Filing Fee...................... 6,779
NYSE Filing Fee...................... *
Blue Sky Fees and Expenses........... *
Printing and Engraving Costs......... *
Legal Fees and Expenses.............. *
Accounting Fees and Expenses......... *
Transfer Agent and Registrar Fees and
Expenses........................... *
Miscellaneous........................ *
------------
Total...................... $ *
============
- ------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
DELAWARE GENERAL CORPORATION LAW
Section 145(a) of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgements, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 145(b) of the DGCL states that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the
II-1
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Section 145(c) of the DGCL provides that to the extent that a director,
officer, employee or agent of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of Section 145, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
Section 145(d) of the DGCL states that any indemnification under
subsections (a) and (b) of Section 145 (unless ordered by a court) shall be made
by the corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because he has met the applicable standard of conduct set
forth in subsections (a) and (b). Such determination shall be made (1) by the
board of directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (2) if such a quorum is
not obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders.
Section 145(e) of the DGCL provides that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation as authorized in Section 145. Such
expenses (including attorneys' fees) incurred by other employees and agents may
be so paid upon such terms and conditions, if any, as the board of directors
deems appropriate.
Section 145(f) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, the other subsections of
Section 145 shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office.
Section 145(g) of the DGCL provides that a corporation shall have the power
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of Section 145.
Section 145(j) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent, and shall inure to the
benefit of the heirs, executors and administrators of such a person.
CERTIFICATE OF INCORPORATION
The Restated Certificate of Incorporation of the Company provides that a
director of the Company shall not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL or (iv) for any transaction from which the director
derived an improper personal benefit. If the DGCL is amended to authorize the
further elimination or limitation of the liability of directors, then the
liability of a director of the Company, in addition to the limitation on
personal liability described above, shall be limited to the fullest extent
permitted by the amended DGCL. Further, any repeal or modification of such
provision of the Restated Certificate of Incorporation by the stockholders of
the Company shall be prospective only, and shall not
II-2
adversely affect any limitation on the personal liability of a director of the
Company existing at the time of such repeal or modification.
BYLAWS
The Bylaws of the Company provide that each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was or has agreed to become a director or officer of the
Company or is or was serving or has agreed to serve at the request of the
Company as a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director or officer or in any other
capacity while serving or having agreed to serve as a director or officer, shall
be indemnified and held harmless by the Company to the fullest extent authorized
by the DGCL, as the same exists or may thereafter be amended (but, in the case
of any such amendment, only to the extent that such amendment permits the
Company to provide broader indemnification rights than said law permitted the
Company to provide prior to such amendment) against all expense, liability and
loss (including, without limitation, attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith, and such
indemnification shall continue as to a person who has ceased to serve in the
capacity which initially entitled such person to indemnity thereunder and shall
inure to the benefit of his or her heirs, executors and administrators;
provided, however, that the Company shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
board of directors of the Company. The Bylaws further provide that the right to
indemnification conferred thereby shall be a contract right and shall include
the right to be paid by the Company the expenses incurred in defending any such
proceeding in advance of its final disposition; provided, however, that, if the
DGCL requires, the payment of such expenses incurred by a current, former or
proposed director or officer in his or her capacity as a director or officer or
proposed director or officer (and not in any other capacity in which service was
or is or has been agreed to be rendered by such person while a director or
officer, including, without limitation, service to an employee benefit plan) in
advance of the final disposition of a proceeding, shall be made only upon
delivery to the Company of an undertaking, by or on behalf of such indemnified
person, to repay all amounts so advanced if it shall ultimately be determined
that such indemnified person is not entitled to be indemnified under the Bylaws
or otherwise. In addition, the Bylaws provide that the Company may, by action of
its board of directors, provide indemnification to employees and agents of the
Company, individually or as a group, with the same scope and effect as the
indemnification of directors and officers provided for in the Bylaws.
INDEMNIFICATION AGREEMENTS
The Company has entered into Indemnification Agreements with each of its
directors. The Indemnification Agreements provide that the Company shall
indemnify the director and hold him harmless from any losses and expenses which,
in type or amount, are not insured under the directors and officers' liability
insurance maintained by the Company, and generally indemnifies the director
against losses and expenses as a result of a claim or claims made against him
for any breach of duty, neglect, error, misstatement, misleading statement,
omission or other act done or wrongfully attempted by the director or any of the
foregoing alleged by any claimant or any claim against the director solely by
reason of his being a director or officer of the Company, subject to certain
exclusions. The Indemnification Agreements also provide certain procedures
regarding the right to indemnification and for the advancement of expenses.
UNDERWRITING AGREEMENT
The Underwriting Agreement provides for the indemnification of the
directors and officers of the Company in certain circumstances.
II-3
INSURANCE
The Company intends to maintain liability insurance for the benefit of its
directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following information relates to securities of the Company issued or
sold within the past three years which were not registered under the Securities
Act:
On November 8, 1996, the Company issued 168,666, 168,666 and 112,445 shares
of Common Stock to C. Clifford Wright, William P. McCaughey and Howard S.
Hoover, Jr., respectively, the founders of the Company, for $1.00 per share.
Such issuances were exempt from the registration requirements of the Securities
Act by virtue of Section 4(2) thereof as transactions not involving any public
offering.
On February 2, 1996, each outstanding share of Common Stock was
reclassified into 333 shares of Common Stock (the "First Stock Split"). All
share amounts reflected in the previous paragraph of this item 15 have been
adjusted to reflect the First Stock Split (and the Second Stock Split referred
to below). The First Stock Split was exempt from the registration requirements
of the Securities Act as it did not involve a "sale," as defined in Section
2(3) of the Securities Act.
On March 19, 1996, the Company issued to Equus II Incorporated a revolving
convertible note with a maximum principal amount of $1.6 million. Of the amount
outstanding under such convertible note, $0.5 million in principal amount is
convertible into a number of shares of Common Stock equal to 10% of the shares
of Common Stock outstanding upon consummation of the Company's initial public
offering. Such issuance was exempt from the registration requirements of the
Securities Act by virtue of Section 4(2) thereof as a transaction not involving
any public offering.
On March 19, 1996, the Company issued to Equus II Incorporated a warrant to
purchase 100,000 shares of Common Stock exercisable at the initial per share
public offering price. The warrants are exercisable at any time after the
closing of the initial public offering of the Company until five years from such
date. The number of shares represented by the warrant is subject to adjustment
for stock dividends and stock splits after the closing of the Company's initial
public offering. Such issuance was exempt from the registration requirements of
the Securities Act by virtue of Section 4(2) thereof as a transaction not
involving any public offering.
On June 14, 1996, each outstanding share of Common Stock was reclassified
into 1.350685 shares of Common Stock (the "Second Stock Split"). Except where
the context otherwise requires, all share amounts reflected in the preceding
paragraphs of this item 15 have been adjusted to reflect the Second Stock Split.
The Second Stock Split was exempt from the registration requirements of the
Securities Act as it did not involve a "sale," as defined in Section 2(3) of
the Securities Act.
Simultaneously with the completion of this Offering, the Company will issue
4,336,171 shares of Common Stock in connection with the acquisition of the
Founding Companies. Such issuances will be exempt from the registration
requirements of Section 4(2) thereof as transactions not involving any public
offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
EXHIBIT
NUMBER DESCRIPTION
------- -----------
*1.1 -- Form of Underwriting Agreement.
2.1 -- Agreement and Plan of Reorganization dated as of June 13, 1996
by and among the Company, ARS Climatic Inc., Climatic
Corporation of Vero Beach and the stockholders named therein.
2.2 -- Agreement and Plan of Reorganization dated as of June 13, 1996
by and among the Company, ARS FHAC Inc., Florida Heating and
Air Conditioning, Inc. and the stockholders named therein.
II-4
2.3 -- Agreement and Plan of Reorganization dated as of June 13, 1996
by and among the Company, ARS Atlas Inc., Atlas Services, Inc.
and the stockholders named therein.
2.4 -- Agreement and Plan of Reorganization dated as of June 13, 1996
by and among the Company, ARS DIAL Inc., DIAL ONE Meridian and
Hoosier, Inc. and the stockholders named therein.
2.5 -- Agreement and Plan of Reorganization dated as of June 13, 1996
by and among the Company, ARS Bullseye Inc., Bullseye Air
Conditioning, Inc. and the stockholders named therein.
2.6 -- Agreement and Plan of Reorganization dated as of June 13, 1996
by and among the Company, ARS Duct Inc., Florida Heating and
Air Conditioning Duct, Inc. and the stockholders named
therein.
2.7 -- Agreement and Plan of Reorganization dated as of June 13, 1996
by and among the Company, ARS Services Inc., Florida Heating
and Air Conditioning Service, Inc. and the stockholders named
therein.
2.8 -- Agreement and Plan of Reorganization dated as of June 13, 1996
by and among the Company, ARS General Inc., General Heating
Engineering Company, Inc. and the stockholders named therein.
2.9 -- Agreement and Plan of Reorganization dated as of June 13, 1996
by and among the Company, ARS Acquisition Inc., Enterprises
Holding Company and the stockholders named therein.
2.10 -- Form of Uniform Provisions for the Acquisition of Founding
Companies.
*3.1 -- Restated Certificate of Incorporation of the Company.
*3.2 -- Bylaws of the Company.
*3.3 -- Certificate of Designations of Series A Junior Participating
Preferred Stock.
*4.1 -- Form of Certificate representing Common Stock.
*4.2 -- Form of Rights Agreement of the Company, including form of
Rights Certificate as Exhibit B thereto.
4.3 -- Form of Registration Rights Agreement among the Company and
the stockholders listed on the signature pages thereto.
4.4 -- Stock Registration Agreement dated as of March 6, 1996 between
American Residential Services, Inc. and Equus II Incorporated.
4.5 -- Stock Piggyback Registration Agreement dated as of
March 19, 1996 between Enterprises Holding Company and
NationsBank of Texas, N.A.
*5.1 -- Opinion of Baker & Botts, L.L.P.
*10.1 -- American Residential Services, Inc. 1996 Incentive Plan.
*10.2 -- Employment Agreement dated as of November 1, 1995 between the
Company and Howard S. Hoover, Jr., as amended.
*10.3 -- Employment Agreement dated as of November 1, 1995 between the
Company and C. Clifford Wright, Jr., as amended.
*10.4 -- Employment Agreement dated as of November 1, 1995 between the
Company and William P. McCaughey, as amended.
*10.5 -- Employment Agreement dated as of March 6, 1996 between the
Company and John D. Held, as amended.
10.6 -- Employment Agreement dated as of March 6, 1996 between the
Company and A. Jefferson Walker, III.
10.7 -- Employment Agreement dated as of April 15, 1996 between the
Company and Michael Mamaux.
*10.8 -- Employment Agreement dated as of June 13, 1996 between the
Company and Elliot Sokolow.
II-5
*10.9 -- Employment Agreement dated as of June 13, 1996 between the
Company and Howard W. Hauser.
*10.10 -- Employment Agreement dated as of June 13, 1996 between the
Company and Gorden H. Timmons.
*10.11 -- Employment Agreement dated as of June 13, 1996 between the
Company and Gary Daymon.
*10.12 -- Employment Agreement dated as of June 13, 1996 between the
Company and Frank N. Menditch.
*10.13 -- Employment Agreement dated as of June 13, 1996 between the
Company and Howard C. Menditch.
*10.14 -- Employment Agreement dated as of June 13, 1996 between the
Company and Bruce L. Menditch.
*10.15 -- Form of Indemnification Agreement between the Company and each
of its directors and officers.
*21.1 -- Subsidiaries of the Company.
23.1 -- Consent of Arthur Andersen LLP.
*23.2 -- Consent of Baker & Botts, L.L.P.
(contained in Exhibit 5.1)
23.3 -- Consent of Gorden H. Timmons, as a nominee for directorship.
23.4 -- Consent of Elliot Sokolow, as a nominee for directorship.
23.5 -- Consent of Nolan Lehmann, as a nominee for directorship.
23.6 -- Consent of Randall B. Hale, as a nominee for directorship.
23.7 -- Consent of Robert J. Cruikshank, as a nominee for
directorship.
23.8 -- Consent of Don D. Sykora, as a nominee for directorship.
23.9 -- Consent of Frank N. Menditch, as a nominee for directorship.
23.10 -- Consent of Thomas Amonett, as a nominee for directorship.
24.1 -- Power of Attorney (included on the signature page of this
Registration Statement).
*27.1 -- Financial Data Schedule.
- ------------
* To be filed by amendment.
(b) Financial Statement Schedules.
All schedules are omitted because they are not applicable or because the
required information is contained in the Financial Statements or Notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the
Underwriters, at the closing specified in the Purchase Agreement, certificates
representing the shares of Common Stock offered hereby in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in
II-6
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For the purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as a part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-7
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON, STATE OF TEXAS,
ON JUNE 17, 1996.
AMERICAN RESIDENTIAL SERVICES, INC.
By: /s/ C. CLIFFORD WRIGHT, JR.
C. CLIFFORD WRIGHT, JR.
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
EACH PERSON WHOSE SIGNATURE APPEARS BELOW HEREBY APPOINTS C. CLIFFORD
WRIGHT, JR. AND HOWARD S. HOOVER, JR., AND BOTH OF THEM, EITHER OF WHOM MAY ACT
WITHOUT THE JOINDER OF THE OTHER, AS HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND
AGENTS, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS
NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS
(INCLUDING POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT AND ANY
REGISTRATION STATEMENT FOR THE SAME OFFERING FILED PURSUANT TO RULE 462 UNDER
THE SECURITIES ACT OF 1933, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO AND
ALL OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE COMMISSION, GRANTING UNTO
SAID ATTORNEYS-IN-FACT AND AGENTS FULL POWER AND AUTHORITY TO DO AND PERFORM
EACH AND EVERY ACT AND THING APPROPRIATE OR NECESSARY TO BE DONE, AS FULLY AND
FOR ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING
AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS OR THEIR SUBSTITUTE OR
SUBSTITUTES MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
CAPACITY IN
SIGNATURES WHICH SIGNED DATE
- --------------------------- -------------------------------- --------------
/s/ C. CLIFFORD WRIGHT, JR. President, Chief Executive June 17, 1996
C. CLIFFORD WRIGHT, JR. Officer, and Director
(Principal Executive Officer and
Principal Financial Officer)
/s/ HOWARD S. HOOVER, JR. Chairman of the Board June 17, 1996
HOWARD S. HOOVER, JR.
/s/ MICHAEL MAMAUX Controller June 17, 1996
MICHAEL MAMAUX (Principal Accounting Officer)
/s/ WILLIAM P. MCCAUGHEY Executive Vice President June 17, 1996
WILLIAM P. MCCAUGHEY and Director
II-8
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF JUNE 13, 1996
BY AND AMONG
AMERICAN RESIDENTIAL SERVICES, INC.,
ARS CLIMATIC INC.,
CLIMATIC CORPORATION OF VERO BEACH
AND
THE STOCKHOLDERS NAMED HEREIN
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS............................................1
ARTICLE II THE MERGER AND RELATED MATTERS.........................5
Section 2.01. Certificate of Merger................................5
Section 2.02. The Effective Time...................................5
Section 2.03. Certain Effects of the Merger........................5
Section 2.04. Effect of the Merger on Capital Stock................5
Section 2.05. Delivery, Exchange and Payment.......................6
Section 2.06. Fractional Shares....................................8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER.....8
Section 3.01. By each Stockholder..................................8
ARTICLE IV REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE STOCKHOLDERS....................9
Section 4.01. By the Company and Each Stockholder..................9
ARTICLE V REPRESENTATIONS AND WARRANTIES OF ARS AND NEWCO.......10
Section 5.01. By ARS and Newco....................................10
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME.............10
Section 6.01. Of Each Party.......................................10
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION..........................................11
Section 7.01. The Closing and Certain Conditions..................11
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME................12
Section 8.01. Of Each Party Other Than the Company................12
ARTICLE IX INDEMNIFICATION.......................................12
Section 9.01. Indemnification Rights and Obligations..............12
ARTICLE X LIMITATIONS ON COMPETITION............................12
Section 10.01. Prohibited Activities..............................12
Section 10.02. Damages............................................13
Section 10.03. Reasonable Restraint...............................13
Section 10.04. Severability; Reformation..........................13
Section 10.05. Independent Covenant...............................14
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Section 10.06. Materiality........................................14
ARTICLE XI GENERAL PROVISIONS....................................14
Section 11.01. Treatment of Confidential Information..............14
Section 11.02. Restrictions on Transfer of ARS Common Stock.......14
Section 11.03. Brokers and Agents.................................15
Section 11.04. Assignment; No Third Party Beneficiaries...........16
Section 11.05. Entire Agreement; Amendment; Waivers...............16
Section 11.06. Counterparts.......................................16
Section 11.07. Expenses...........................................16
Section 11.08. Notices............................................16
Section 11.09. Governing Law......................................17
Section 11.10. Exercise of Rights and Remedies....................18
Section 11.11. Time...............................................18
Section 11.12. Reformation and Severability.......................18
Section 11.13. Remedies Cumulative................................18
Section 11.14. Respecting the IPO.................................18
ARTICLE XII TERMINATION...........................................19
Section 12.01. Termination of This Agreement......................19
Section 12.02. Liabilities in Event of Termination................19
-ii-
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement")
is made as of June 13, 1996, by and among American Residential Services, Inc., a
Delaware corporation ("ARS"), ARS Climatic Inc., a Florida corporation and a
wholly owned subsidiary of ARS ("Newco"), Climatic Corporation of Vero Beach, a
Florida corporation (the "Company"), and the persons listed on the signature
pages hereof under the caption "Stockholders" (collectively, the "Stockholders,"
and each of those persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their
best long-term interests to effect a business combination pursuant to which:
(a) Newco will merge into the Company on the terms and subject
to the conditions set forth herein (that merger being the "Merger");
(b) ARS will acquire the stock of all or some of the entities
listed in the accompanying Addendum 1 (each an "Other Founding Company"
and, collectively with the Company, the "Founding Companies") pursuant
to agreements that are (i) similar to this Agreement and (ii) entered
into among those entities and their equity owners, ARS and subsidiaries
of ARS (collectively, the "Other Agreements"); and
(c) ARS shall effect a public offering of shares of its common
stock and issue and sell those shares.
The respective boards of directors of ARS, Newco and the
Company have approved and adopted this Agreement to effect a transaction subject
to Section 351 of the Code.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements, representations and undertakings contained herein, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. CERTAIN DEFINED TERMS. As used in this
Agreement, the following terms have the meanings assigned to them below in this
Section 1.01. Capitalized terms used in this Agreement and not defined below in
this Section 1.01 have the meanings assigned to them in the Preliminary
Statement or Article I of the Uniform Provisions (the text of which Article
hereby is incorporated herein by this reference), as the case may be.
-1-
"ADJUSTMENT DETERMINATION DATE" means the date that is 30 days
following delivery by ARS of the Post-closing Statement to the
Stockholders, unless the Closing Date Working Capital and the Positive
Working Capital Adjustment or the Negative Working Capital Adjustment,
as the case may be, are determined pursuant to Section 2.05 by Arthur
Andersen LLP, in which event the Adjustment Determination Date is the
date Arthur Andersen LLP delivers those determinations in writing to
ARS.
"AGREED RATE" means 8.0% per annum.
"AGREEMENT" means this Agreement, including the Disclosure
Statement relating to this Agreement and all attached Schedules,
Annexes and Exhibits, as each of the same may be amended, modified or
supplemented from time to time pursuant to the provisions hereof or
thereof.
"ARS means American Residential Services, Inc., a Delaware
corporation.
"ARS ACQUISITION CANDIDATE" means any Entity engaged in any of
the businesses of providing repair, maintenance, replacement or
warranty and annual contract maintenance services for Plumbing,
heating/air conditioning and electrical systems to owners or occupants
of single-family homes, duplexes, condominiums and small commercial
facilities, designing and installing of any of those systems in new
construction, selling and servicing home appliances and other similar
residential and building services (a) which was called on by any of the
Company, ARS or the Subsidiaries of the Company or ARS in connection
with the possible acquisition by any of them of that Entity or (b) of
which any of them has made an acquisition analysis.
"CLOSING DATE BALANCE SHEET" of the Company means a balance
sheet of the Company as at the IPO Closing Date which is prepared on a
basis consistent with the basis on which the Current Balance Sheet was
prepared.
"CLOSING DATE WORKING CAPITAL" of the Company means the
Company's Working Capital as determined from the Closing Date Balance
Sheet, provided, that if that determination is made pursuant to Section
2.05 by Arthur Andersen LLP, the amount equal to 50% of the fees and
expenses of Arthur Andersen LLP which are attributable to its review of
the Closing Date Balance Sheet and its making of that determination
will be deemed a liability of the Company for the purpose of
determining its Closing Date Working Capital and resulting Positive
Working Capital Adjustment or Negative Working Capital Adjustment, as
the case may be.
"CLOSING MEMORANDUM" means the form of closing memorandum to
be prepared by ARS for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided
in Article VII.
-2-
"COMPANY COMMON STOCK" means the common stock, par value $1.00
per share, of the Company.
"COUNSEL FOR ARS AND NEWCO" means Baker & Botts, L.L.P.
"COUNSEL FOR THE COMPANY AND THE STOCKHOLDERS" means Smith,
Williams & Humphries, P.A.
"CURRENT BALANCE SHEET" means the reviewed balance sheet of
the Company as at April 30, 1996 which is included in the Initial
Financial Statements.
"CURRENT BALANCE SHEET DATE" means April 30, 1996.
"DISCLOSURE STATEMENT" means the written statement executed by
the Company and each of the Stockholders and delivered to ARS prior to
the execution and delivery of this Agreement by ARS and Newco in which
either (a) exceptions are taken to each of certain of the
representations and warranties made by the Company and the Stockholders
herein or (b) it is confirmed that no exception is taken to that
representation and warranty.
"FBCA" means the Florida Business Corporation Act.
"HAUSER EMPLOYMENT AGREEMENT" means the Employment Agreement
entered into as of June 13, 1996 between ARS and H. W. Hauser has the
meaning specified in Section 7.01(b).
"INITIAL FINANCIAL STATEMENTS" means (a) the reviewed balance
sheets of the Company as at April 30, 1994, 1995 and 1996 and the
related reviewed statements of operations and retained earnings for
each of the Company's two fiscal years in the two-year period ended
April 30, 1995, and (b) the Current Balance Sheet and the related
statement of income for the Company's fiscal year ended April 30, 1996,
which the Company has delivered to ARS prior to the date hereof.
"MERGER CONSIDERATION" has the meaning specified in Section
2.04.
"NEGATIVE WORKING CAPITAL ADJUSTMENT" means the amount, if
any, by which $234,664 exceeds the Company's Closing Date Working
Capital.
"NEWCO" means ARS Climatic Inc., a Florida corporation.
"POSITIVE WORKING CAPITAL ADJUSTMENT" means (a) the amount, if
any, by which the Company's Closing Date Working Capital exceeds
$234,664, or if that Closing Date Working Capital equals $234,664, (b)
zero.
"POST-CLOSING STATEMENT" has the meaning specified in Section
2.05.
-3-
"PRO RATA SHARE" means for each Stockholder the fraction
expressed as a percentage and set forth in Schedule 2.04, (a) the
numerator of which is the number of shares of outstanding Company
Common Stock owned by that Person, as set forth in Schedule 2.04, and
(b) the denominator of which is the total number of shares of
outstanding Company Common Stock owned by all Stockholders, as set
forth in Schedule 2.04.
"RESPONSIBLE OFFICER" means H. W. Hauser.
"RETAINED AMOUNT" has the meaning specified in Section 2.05.
"SCHEDULED AGREEMENTS" means the agreements described in
Schedule 4.11.
"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement
entered into as of June 13, 1996 among ARS, the Stockholders and the
other Persons parties thereto.
"SURVIVING CORPORATION" means the Company, the Person to be
designated in the Certificate of Merger as the surviving corporation of
the Merger.
"TERRITORY" has the meaning specified in Section 10.01.
"THRESHOLD AMOUNT" means 2% of the Transaction Value.
"TRANSACTION VALUE" means (a) at any time prior to the
Adjustment Determination Date, $2,200,000, and (b) on and after the
Adjustment Determination Date, $2,200,000 plus the Positive Working
Capital Adjustment, if any, or minus the Negative Working Capital
Adjustment, if any.
"TRANSFER TAXES" has the meaning specified in Section 11.07.
"UNIFORM PROVISIONS" means the Uniform Provisions of ARS for
the Acquisition of Founding Companies attached hereto as Annex 1.
"WORKING CAPITAL" of the Company means, as at any date and as
determined by reference to a balance sheet of the Company as at that
date which is prepared in accordance with the accounting treatments and
policies used by the Company in the preparation of the Initial
Financial Statements, the amount by which (a) the sum, without
duplication of amounts, of all amounts that are included and classified
as current assets on that balance sheet exceeds, or is exceeded by, (b)
the sum, without duplication of amounts, of all amounts that are
included and classified as liabilities or as mandatorily redeemable
Capital Stock on that balance sheet; if at any time those current
assets are exceeded by those liabilities, Working Capital will be
expressed as a negative amount.
-4-
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. CERTIFICATE OF MERGER. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the date of the Closing to the
Department of State of the State of Florida.
Section 2.02. THE EFFECTIVE TIME. The effective time of the
Merger (the "Effective Time") will be the time on the IPO Closing Date which the
Certificate of Merger specifies or, if the Certificate of Merger does not
specify another time, 8:00 a.m., eastern daylight standard time, on the IPO
Closing Date.
Section 2.03. CERTAIN EFFECTS OF THE MERGER. At and as of the
Effective Time, (a) Newco will be merged with and into the Company in accordance
with the provisions of the FBCA, (b) Newco will cease to exist as a separate
legal entity, (c) the articles of incorporation of the Company will be amended
to change its authorized capital stock to 1,000 shares, par value $1.00 per
share, of Common Stock, (d) the Company will be the Surviving Corporation and,
as such, will, all with the effect provided by the FBCA, (i) possess all the
properties and rights, and be subject to all the restrictions and duties, of the
Company and Newco and (ii) be governed by the laws of the State of Florida, (e)
the Charter Documents of the Company then in effect (after giving effect to the
amendment of the Company's articles of incorporation specified in clause (c) of
this sentence) will become and thereafter remain (until changed in accordance
with (i) applicable law (in the case of the articles of incorporation) or (ii)
their terms (in the case of the bylaws)) the Charter Documents of the Surviving
Corporation, (f) the initial board of directors of the Surviving Corporation
will be the persons named in Schedule 2.03, and those persons will hold the
office of director of the Surviving Corporation subject to the provisions of the
applicable laws of the State of Florida and the Charter Documents of the
Surviving Corporation, and (g) the initial officers of the Surviving Corporation
will be as set forth in Schedule 2.03, and each of those persons will serve in
each office specified for that person in Schedule 2.03, subject to the
provisions of the Charter Documents of the Surviving Corporation, until that
person's successor is duly elected to, and, if necessary, qualified for, that
office.
Section 2.04. EFFECT OF THE MERGER ON CAPITAL STOCK. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the
right to receive, subject to the provisions of Section 2.05, without
interest, on surrender of the certificate evidencing those shares, (A)
the amount of cash and the number of whole and fractional shares of ARS
Common Stock set forth or determined as provided in Schedule 2.04 (the
"Merger Consideration"), (ii) cease to be outstanding and to exist and
(iii) be canceled and retired;
-5-
(b) each share of Company Common Stock held in the treasury of
the Company or any Company Subsidiary will (i) cease to be outstanding
and to exist and (ii) be canceled and retired; and
(c) each share of Newco Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into one
share of Common Stock, par value $1.00 per share, of the Surviving
Corporation, and the shares of Common Stock of the Surviving
Corporation issued on that conversion will constitute all the issued
and outstanding shares of Capital Stock of the Surviving Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, subject to the provisions of Section 2.05, without interest,
the Merger Consideration and the additional cash, if any, owing with respect to
those shares as provided in Section 2.06.
Section 2.05. DELIVERY, EXCHANGE AND PAYMENT. (a) At or after
the Effective Time: (i) each Stockholder, as the holder of certificates
representing shares of Company Common Stock, will, on surrender of those
certificates to ARS (or any agent that may be appointed by ARS for purposes of
this Section 2.05), receive, subject to the provisions of this Section 2.05 and
Section 2.06, the Merger Consideration; and (ii) until any certificate
representing Company Common Stock has been surrendered and replaced pursuant to
this Section 2.05, that certificate will, for all purposes, be deemed to
evidence ownership of the number of whole shares of ARS Common Stock included in
the Merger Consideration payable in respect of that certificate pursuant to
Section 2.04. All shares of ARS Common Stock issuable in the Merger will be
deemed for all purposes to have been issued by ARS at the Effective Time.
(b) Each Stockholder will deliver to ARS (or any agent that
may be appointed by ARS for purposes of this Section 2.05) on or before the IPO
Closing Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Person, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Person's expense, affixed and canceled. Each
Stockholder shall cure any deficiencies in the endorsement of the certificates
or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Person.
(c) No dividends (or interest) or other distributions declared
or earned after the Effective Time with respect to ARS Common Stock and payable
to the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of ARS Common Stock have been issued in the Merger until
those certificates are surrendered as provided herein, but (i) on that surrender
ARS will cause to be paid, to the Person in whose name the certificates
representing such shares of ARS Common Stock shall then be issued, the amount of
dividends or other distributions previously paid with respect
-6-
to such whole shares of ARS Common Stock with a record date, or which have
accrued, subsequent to the Effective Time, but prior to surrender, and the
amount of any cash payable to such Person for and in lieu of fractional shares
pursuant to Section 2.06 and (ii) at the appropriate payment date or as soon as
practicable thereafter, ARS will cause to be paid to that Person the amount of
dividends or other distributions with a record date, or which have been accrued,
subsequent to the Effective Time, but which are not payable until a date
subsequent to surrender, which are payable with respect to such whole shares of
ARS Common Stock, subject in all cases to any applicable escheat laws. No
interest will be payable with respect to the payment of such dividends or other
distributions or cash for and in lieu of fractional shares on surrender of
outstanding certificates.
(d) Prior to the date of the Closing, ARS will cause to be
prepared and delivered to the Stockholders a statement setting forth the Interim
Positive Working Capital Adjustment, if any, or the Interim Negative Working
Capital Adjustment, if any. If an Interim Positive Working Capital Adjustment
has been determined, ARS will, promptly after the Effective Time but subject to
the certificate surrender requirements of Section 2.05(a), pay to the
Stockholders, without interest, their respective Pro Rata Shares of the amount
of the Interim Positive Working Capital Adjustment. If an Interim Negative
Working Capital Adjustment has been determined, ARS will, notwithstanding the
provisions of Section 2.04, hold back from the Stockholders their respective Pro
Rata Shares of the amount of the Interim Negative Working Capital Adjustment
(the "Retained Amount") for disposition pursuant to Section 2.05(f).
(e) As soon as practicable, and in any event within 60 days,
following the Effective Time, ARS will cause to be prepared and delivered to the
Stockholders (i) the Closing Date Balance Sheet and (ii) a statement (the
"Post-closing Statement") of the Closing Date Working Capital and the Positive
Working Capital Adjustment, if any, or the Negative Working Capital Adjustment,
if any. The Post-closing Statement will be final and binding on ARS and the
Stockholders unless, within 30 days following the delivery of the Post-closing
Statement, a Stockholder notifies ARS in writing that the Stockholder does not
accept as correct the amount of the Closing Date Working Capital or the amount
of the Positive Working Capital Adjustment or the Negative Working Capital
Adjustment, as the case may be, as set forth in the Post-closing Statement. If
any Stockholder timely delivers to ARS that notice respecting the Post-closing
Statement, the Closing Date Balance Sheet will be reviewed, and the Closing Date
Working Capital and the Positive Working Capital Adjustment or the Negative
Working Capital Adjustment, as the case may be, will be determined within 30
days after the delivery of that notice, by Arthur Andersen LLP on a basis
consistent with the basis on which the Company's Working Capital was determined
from the Current Balance Sheet, and these determinations will be final and
binding on ARS and all the Stockholders.
(f) If a Positive Working Capital Adjustment is determined
with finality pursuant to Section 2.05(e), ARS will, promptly after the
Adjustment Determination Date, but subject to the certificate surrender
requirements of Section 2.05(a), pay to the Stockholders their respective Pro
Rata Shares of, the sum, together with interest thereon from (and including) the
IPO Closing Date to (but excluding) the Adjustment Determination Date at the
Agreed Rate, of (i) the entire Retained Amount , if any, and (ii) the amount by
which (A) the amount of the Positive Working Capital
-7-
Adjustment exceeds (B) the amount of the Interim Positive Working Capital
Adjustment, if any. If a Negative Working Capital Adjustment is determined with
finality pursuant to Section 2.05(e), then, subject to the certificate surrender
requirements of Section 2.05(a):
(i) ARS will (A) be entitled to retain for itself out of the
Retained Amount an amount equal to the lesser of (1) the amount of the
Negative Working Capital Adjustment, together with interest thereon at
the Agreed Rate from (and including) the IPO Closing Date to (but
excluding) the Adjustment Determination Date, and (2) the Retained
Amount, and if there is any remaining portion of the Retained Amount
that ARS is not entitled to retain for itself pursuant to the foregoing
provisions of this clause (i), (B) promptly pay to the Stockholders
their respective Pro Rata Shares of that remaining amount, together
with interest thereon at the Agreed Rate from (and including) the IPO
Closing Date to (but excluding) the Adjustment Determination Date; and
(ii) if the sum of the Negative Working Capital Adjustment and
the interest thereon at the Agreed Rate which has accrued during the
period referred to in clause (i)(A)(1) of this sentence exceeds the
Retained Amount, if any, the Stockholders will, no later than 10
Houston, Texas business days after ARS makes a written request
therefor, pay in cash their respective Pro Rata Shares of the sum of
(A) the amount of that excess and (B) the Interim Positive Working
Capital Adjustment, if any, together with interest on that sum at the
Agreed Rate from (and including) the IPO Closing Date to (but
excluding) the Adjustment Determination Date.
Section 2.06. FRACTIONAL SHARES. Notwithstanding any other
provision herein, no fractional shares of ARS Common Stock will be issued, and
any Stockholder entitled hereunder to receive a fractional share of ARS Common
Stock but for this Section 2.06 will be entitled hereunder to receive a cash
payment for and in lieu thereof in the amount (rounded to the nearest whole
cent) equal to that Person's fractional interest in a share of ARS Common Stock
multiplied by the IPO Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01. BY EACH STOCKHOLDER. The Stockholders jointly
and severally represent and warrant to ARS that all the following
representations and warranties in this Article III are as of the date of this
Agreement, and will be, as amended or supplemented pursuant to Section 6.08, on
the date of the Closing and the IPO Closing Date, true and correct:
(a) (i) each Stockholder will be acquiring the shares of ARS
Common Stock to be issued pursuant to Section 2.04 to the Stockholder
solely for the Stockholder's account, for investment purposes only and
with no current intention or plan to distribute, sell or otherwise
dispose of any of those shares in connection with any distribution;
(ii) neither Stockholder is
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a party to any agreement or other arrangement for the disposition of
any shares of ARS Common Stock other than this Agreement and the
Registration Rights Agreement; (iii) each Stockholder is an "accredited
investor" as defined in Securities Act Rule 501(a); (iv) each
Stockholder (A) is able to bear the economic risk of an investment in
the ARS Common Stock acquired pursuant to this Agreement, (B) can
afford to sustain a total loss of that investment, (C) has such
knowledge and experience in financial and business matters that he or
she is capable of evaluating the merits and risks of the proposed
investment in the ARS Common Stock, (D) has had an adequate opportunity
to ask questions and receive answers from the officers of ARS
concerning any and all matters relating to the transactions
contemplated hereby, including the background and experience of the
current and proposed officers and directors of ARS, the plans for the
operations of the business of ARS, the business, operations and
financial condition of the Other Founding Companies and any plans of
ARS for additional acquisitions, and (E) has asked all questions of the
nature described in preceding clause (D), and all those questions have
been answered to his or her satisfaction;
(b) the representations and warranties contained in Article
III of the Uniform Provisions (the text of which Article hereby is
incorporated herein by this reference) are true and correct, and the
agreements set forth in that Article hereby are agreed to; and
(c) (i) the terms and conditions of the Vero Beach triple-net
lease included in the Scheduled Agreements will have been amended
effective as of the IPO Closing Date to be no less favorable to the
Company than the Company reasonably could have expected to obtain in an
arm's-length transaction with a Person other than an Affiliate of the
Company and (ii) the rentals provided for in that lease then will not
exceed fair market rentals of the property being leased.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF
THE COMPANY AND THE STOCKHOLDERS
Section 4.01. BY THE COMPANY AND EACH STOCKHOLDER. The Company
and each Stockholder jointly and severally represent and warrant to, and agree
with, ARS that all the following representations and warranties in this Article
IV are as of the date of this Agreement, and will be, as amended or supplemented
pursuant to Section 6.08, on the date of the Closing and the IPO Closing Date,
true and correct:
(a) the Organization State of the Company is the State of
Florida, and the Company (i) is a corporation duly organized, validly
existing and in good standing under the laws of that State, (ii) has
all requisite corporate power and authority under those laws and its
Charter Documents to own or lease and to operate its properties and to
carry on its business as now conducted and (iii) is duly qualified and
in good standing as a foreign
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corporation in all jurisdictions (other than the State of Florida) in
which it owns or leases property or in which the carrying on of its
business as now conducted so requires except where the failure to be so
qualified, singly or in the aggregate, would not have a Material
Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is
comprised of 7,500 shares of Company Common Stock, of which 4,300
shares have been issued and are now outstanding and no shares are held
by the Company as treasury shares, and (ii) no outstanding Derivative
Securities of the Company exist; and
(c) the representations and warranties contained in Article IV
of the Uniform Provisions (the text of which Article (in which the term
"GAAP," as used in Section 4.13, means for the purposes hereof
generally accepted accounting principles in the United States as in
effect from time to time which have been applied by the Company on a
consistent basis in the preparation of the Financial Statements from
May 1, 1993 forward) hereby is incorporated herein by this reference)
are true and correct, and the agreements set forth in that Article
hereby are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ARS AND NEWCO
Section 5.01. BY ARS AND NEWCO. ARS and Newco jointly and
severally represent and warrant to the Company and each Stockholder that all the
following representations and warranties in this Article V are as of the date of
this Agreement, and will be on the date of the Closing and the IPO Closing Date,
true and correct: (a) Newco is a corporation duly organized, validly existing
and in good standing under the laws of the State of Florida, (b) no Derivative
Securities of Newco are outstanding, (c) Newco has been organized for the sole
purpose of participating in the Merger and has not, and will not, engage in any
activities other than those necessary to effectuate the Merger and (d) the
representations and warranties contained in Article V of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) are
true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01. OF EACH PARTY. Until the Effective Time, subject
to the waiver provisions of Section 11.05, each party hereto will comply with
each covenant for which provision is made in Article VI of the Uniform
Provisions (the text of which Article (in Section 6.10 of which the term "GAAP"
has the meaning specified in Section 4.01(c) for the purposes hereof) hereby is
incorporated herein by this reference) to be performed or observed by that
party.
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ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01. THE CLOSING AND CERTAIN CONDITIONS. (a) THE
CLOSING. On or before the IPO Pricing Date, the parties hereto will take all
actions necessary to (i) effect the Merger (including, as permitted by the FBCA,
(A) the execution of a Certificate of Merger (1) meeting the requirements of the
FBCA and (2) providing that the Merger will become effective on the IPO Closing
Date and (B) the filing of that Certificate with the Department of State of the
State of Florida), (ii) verify the existence and ownership of the certificates
evidencing the Company Common Stock to be exchanged for the Merger Consideration
pursuant to Section 2.05 and (iii) satisfy the document delivery requirements to
which the obligations of the parties to effect the Merger and the other
transactions contemplated hereby are conditioned by the provisions of this
Article VII (all those actions collectively being the "Closing"). The Closing
will take place at the offices of Baker & Botts, L.L.P., 38th Floor, 910
Louisiana, Houston, Texas at 10:00 a.m., Houston time, or at such later time on
the IPO Pricing Date as ARS shall specify by written notice to H. W. Hauser. The
actions taken at the Closing will not include the completion of either the
Merger or the delivery of the Company Common Stock or the Merger Consideration
pursuant to Section 2.05. Instead, on the IPO Closing Date, the Certificate of
Merger will become effective pursuant to Section 2.02, and all transactions
contemplated by this Agreement to be closed or completed on or before the IPO
Closing Date, including the surrender of the Company Common Stock in exchange
for the Merger Consideration (including a certified check or checks in an amount
equal to the cash portion of the Merger Consideration (less the Retained Amount,
if any)) will be closed or completed, as the case may be. During the period from
the Closing to the IPO Closing Date, this Agreement may be terminated by the
parties only pursuant to Section 12.01(b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND
THE STOCKHOLDERS. The obligations of the Company and the Stockholders with
respect to the actions to be taken by them at or before the Closing are subject
to the satisfaction on or before the date of the Closing, or waiver by them
pursuant to Section 11.05, of all the conditions set forth in Sections 7.02(a)
and 7.03. The obligations of the Stockholders with respect to the actions to be
taken on the IPO Closing Date are subject to the satisfaction on that date of
the following conditions: (i) each of the Stockholders' Agreement and the Hauser
Employment Agreement then shall be in full force and effect; and (ii) all the
conditions set forth in Sections 7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF ARS AND NEWCO.
The obligations of ARS and Newco with respect to actions to be taken by them at
or before the Closing are subject to the satisfaction on or before the date of
the Closing, or waiver by them pursuant to Section 11.05, of the following
conditions: (i) the Company shall have delivered to ARS a copy of the articles
of incorporation, as amended to the date of the Closing and certified by the
Department of State of the State of Florida as of a Current Date, of the
Company; and (ii) all the conditions set forth in Sections 7.02(a) and 7.04(a).
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(d) The obligations of ARS and Newco with respect to the
actions to be taken on the IPO Closing Date are subject to the satisfaction on
that date of the following conditions: (i) the Hauser Employment Agreement then
shall be in full force and effect; and (ii) all the conditions set forth in
Sections 7.02(b) and 7.04(b).
(e) The text of Article VII of the Uniform Provisions hereby
is incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01. OF EACH PARTY OTHER THAN THE COMPANY. From and
after the Effective Time, subject to the waiver provisions of Section 11.05,
each party hereto (other than the Company) will comply with each covenant for
which provision is made in Article VIII of the Uniform Provisions (the text of
which Article hereby is incorporated herein by this reference) to be performed
or observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01. INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text
of Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. Any provision contained in Article IX of the Uniform Provisions to
the contrary notwithstanding, the indemnification obligations of the
Stockholders pursuant to this Agreement shall be joint and several.
ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.01. PROHIBITED ACTIVITIES. The Stockholders agree,
jointly and severally, that neither Stockholder will, during the period
beginning on the date hereof and ending on the third anniversary of the date
hereof, directly or indirectly, for any reason, for his own account or on behalf
of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether
as an employee, independent contractor, consultant or advisor, or as a
sales representative or distributor of any kind, in any business
selling any products or providing any services in competition with the
Company, any Company Subsidiary or ARS or any Subsidiary of ARS (ARS
and its Subsidiaries collectively being "ARS" for purposes of this
Article X) within the Indian River, St. Lucie, Martin and Palm Beach
Counties (the "Treasure Coast Area") (those locations collectively
being the "Territory");
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(b) call on any natural person who is at that time employed by
the Company, any Company Subsidiary or ARS in any managerial capacity
with the purpose or intent of attracting that person from the employ of
the Company, any Company Subsidiary or ARS, provided that the
Stockholder may call on and hire any of his Immediate Family Members;
(c) call on any Person that at that time is, or at any time
within one year prior to that time was, a customer of the Company, any
Company Subsidiary or ARS within the Territory, (i) for the purpose of
soliciting or selling any product or service in competition with the
Company, any Company Subsidiary or ARS within the Territory and (ii)
with the knowledge of that customer relationship; or
(d) call on any ARS Acquisition Candidate, with the knowledge
of that Person's status as an ARS Acquisition Candidate, for the
purpose of acquiring that Person or arranging the acquisition of that
Person by any Person other than ARS.
Notwithstanding the foregoing, (a) either Stockholder may own and hold as a
passive investment up to 1% of the outstanding Capital Stock of a competing
Entity if that class of Capital Stock is listed on the New York Stock Exchange
or included in the Nasdaq National Market and (b) H. W. Hauser may continue to
own his equity interests in, and participate in the business of, consistent with
his past practice, the Entities listed in Schedule 10.01. For purposes hereof
and the respective tax reporting positions of the parties hereto, each party
hereto agrees that the percentage of the cash portion of the Merger
Consideration to be received by each Stockholder pursuant to Section 2.04 which
equals 1% of that Stockholder's Pro Rata Share of the Transaction Value will
represent, and be received as, consideration for that Stockholder's agreement to
observe the covenants in this Section 10.01.
Section 10.02. DAMAGES. Because of the difficulty of measuring
economic losses to ARS as a result of any breach by a Stockholder of his
covenants in Section 10.01, and because of the immediate and irreparable damage
that could be caused to ARS for which it would have no other adequate remedy,
each Stockholder agrees that ARS may enforce the provisions of Section 10.01 by
injunctions and restraining orders against that Stockholder if he breaches any
of those provisions.
Section 10.03. REASONABLE RESTRAINT. The parties hereto each
agree that Sections 10.01 and 10.02 impose a reasonable restraint on the
Stockholders in light of the activities and business of ARS on the date hereof,
the current business plans of ARS and the investment by each Stockholder in ARS
as a result of the Merger.
Section 10.04. SEVERABILITY; REFORMATION. The covenants in
this Article X are severable and separate, and the unenforceability of any
specific covenant in this Article X is not intended by any party hereto to, and
shall not, affect the provisions of any other covenant in this
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Article X. If any court of competent jurisdiction shall determine that the
scope, time or territorial restrictions set forth in Section 10.01 are
unreasonable as applied to any Stockholder, the parties hereto, including that
Stockholder, acknowledge their mutual intention and agreement that those
restrictions be enforced to the fullest extent the court deems reasonable, and
thereby shall be reformed to that extent as applied to that Stockholder and any
other Stockholder similarly situated.
Section 10.05. INDEPENDENT COVENANT. All the covenants in this
Article X are intended by each party hereto to, and shall, be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of any Stockholder against ARS,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by ARS of any covenant in this Article X. It is
specifically agreed that the period specified in Section 10.01 shall be computed
in the case of each Stockholder by excluding from that computation any time
during which that Stockholder is in violation of any provision of Section 10.01.
The covenants contained in this Article X shall not be affected by any breach of
any other provision hereof by any party hereto.
Section 10.06. MATERIALITY. The Company and each Stockholder,
severally and not jointly with any other Person, hereby agree that this Article
X is a material and substantial part of the transactions contemplated hereby.
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. TREATMENT OF CONFIDENTIAL INFORMATION. Each
party hereto will comply with each covenant for which provision is made in
Section 11.01 of the Uniform Provisions (the text of which Section hereby is
incorporated herein by this reference) to be performed or observed by that
party.
Section 11.02. RESTRICTIONS ON TRANSFER OF ARS COMMON STOCK.
(a) During the two-year period ending on the second anniversary of the IPO
Closing Date (the "Restricted Period") (or if the two-year "holding" period for
restricted securities under Rule 144 under the Securities Act is reduced by the
SEC, the Restricted Period will be correspondingly reduced), no Stockholder
voluntarily will, except pursuant to and in accordance with the applicable
provisions of the Registration Rights Agreement: (i) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint or otherwise dispose of (A) any
shares of ARS Common Stock received by any Stockholder in the Merger or (B) any
interest in (including any option to buy or sell) any of those shares of ARS
Common Stock, in whole or in part, and ARS will have no obligation to, and shall
not, treat any such attempted transfer as effective for any purpose; or (ii)
engage in any transaction, whether or not with respect to any shares of ARS
Common Stock or any interest therein, the intent or effect of which is to reduce
the risk of owning the shares of ARS Common Stock acquired pursuant to Section
2.04 (including, for example engaging in put, call, short-sale, straddle or
similar market transactions); provided, however, that this Section 11.02 shall
not restrict any transfer of ARS Common Stock acquired by a Stockholder pursuant
to Section 2.04 to any of that Stockholder's Related Persons who agree in
writing to be bound by the provisions of Section 11.01 and this Section 11.02.
The certificates evidencing the ARS Common Stock delivered to each Stockholder
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pursuant to Section 2.05 will bear a legend substantially in the form set forth
below and containing such other information as ARS may deem necessary or
appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE
OTHER PARTIES THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY
NOT BE VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED,
PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE
ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY
SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF ANY OF THOSE SHARES,
DURING THE TWO-YEAR PERIOD ENDING ON __________ [DATE THAT IS THE
SECOND ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED PERIOD")
(OR IF THE TWO-YEAR "HOLDING" PERIOD FOR RESTRICTED SECURITIES UNDER
RULE 144 UNDER THE SECURITIES ACT OF 1933 IS REDUCED BY THE SECURITIES
AND EXCHANGE COMMISSION, THE RESTRICTED PERIOD WILL BE CORRESPONDINGLY
REDUCED). ON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE
ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER
PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of ARS Common Stock to be delivered to
that Stockholder pursuant to Section 2.04 have not been and, except pursuant to
the Registration Rights Agreement, if applicable, will not be registered under
the Securities Act and therefore may not be resold by that Stockholder without
compliance with the Securities Act and (ii) covenants that none of the shares of
ARS Common Stock issued to that Stockholder pursuant to Section 2.04 will be
offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable provisions of
the Securities Act and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of ARS
Common Stock issued pursuant to Section 2.04 will bear the following legend in
addition to the legend prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF
THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE
SECURITIES LAWS.
In addition, certificates evidencing shares of ARS Common Stock issued pursuant
to Section 2.04 to each Stockholder will bear any legend required by the
securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03. BROKERS AND AGENTS. The Stockholders jointly
and severally represent and warrant to ARS that the Company has not directly or
indirectly employed or become obligated
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to pay any broker or similar agent in connection with the transactions
contemplated hereby and agree, without regard to the Threshold Amount
limitations set forth in Article IX, to indemnify ARS against all Damage Claims
arising out of claims for any and all fees and commissions of brokers or similar
agents employed or promised payment by the Company.
Section 11.04. ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of ARS, and the heirs and legal representatives
of the Stockholders (and, in the case of any trust, the successor trustees of
that trust). Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies hereunder or thereunder,
except as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise
provided expressly herein or therein.
Section 11.05. ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This
Agreement and the documents delivered pursuant hereto constitute the entire
agreement and understanding among the Stockholders, the Company, Newco and ARS
and supersede all prior agreements and understandings, both written and oral,
relating to the subject matter of this Agreement. This Agreement may be amended,
modified or supplemented, and any right hereunder may be waived, if, but only
if, that amendment, modification, supplement or waiver is in writing and signed
by each of the Stockholders, the Company and ARS. The waiver of any of the terms
and conditions hereof shall not be construed or interpreted as, or deemed to be,
a waiver of any other term or condition hereof.
Section 11.06. COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
Section 11.07. EXPENSES. Whether or not the transactions
contemplated hereby are consummated, (a) ARS will pay the fees, expenses and
disbursements of ARS and Newco and their Representatives which are incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance of and compliance
with all conditions to be performed by ARS and Newco under this Agreement,
including the costs of preparing the Registration Statement, (b) the
Stockholders will pay from personal funds, and not from funds of the Company or
any Company Subsidiary, all sales, use, transfer and other similar taxes and
fees (collectively, "Transfer Taxes") incurred in connection with the
transactions contemplated hereby and (c) the Company will pay the fees, expenses
and disbursements of Counsel for the Company and the Stockholders incurred in
connection with the subject matter of this Agreement and the Registration
Statement on or before the IPO Closing Date (which fees, expenses and
disbursements will, to the extent accrued through the IPO Closing Date but then
unpaid will be recorded as a liability of the Company for the purpose of
determining its Closing Date Working Capital and resulting Positive Working
Capital Adjustment or Negative Working Capital Adjustment, as the case may be).
The Stockholders will file all necessary documentation and Returns with respect
to all Transfer Taxes. In addition, each Stockholder acknowledges that he, and
not the Company or
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ARS or the Surviving Corporation, will pay all Taxes due upon receipt of the
consideration payable to that Stockholder pursuant to Article II.
Section 11.08. NOTICES. All notices required or permitted
hereunder shall be in writing, and shall be deemed to be delivered and received
(a) if personally delivered or if delivered by telex, telegram, facsimile or
courier service, when actually received by the party to whom notice is sent or
(b) if delivered by mail (whether actually received or not), at the close of
business on the third Houston, Texas business day next following the day when
placed in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
(i) if to ARS or Newco, addressed to it at:
American Residential Services, Inc.
5850 San Felipe
Suite 500
Houston, Texas 77057
Attn.: C. Clifford Wright, Jr.
Chief Executive Officer
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Baker & Botts, L.L.P.
One Shell Plaza
Houston, Texas 77002-4995
Attn: James L. Leader, Esq.;
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
Climatic Corporation of Vero Beach
1140 17th Place
Vero Beach, Florida 32960
Attn: H. W. Hauser
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with copies (which shall not constitute notice for purposes of this
Agreement) to:
Smith, Williams & Humphries, P.A.
201 E. Pine Street
Suite 701
Orlando, Florida 32801
Attn: J. Gregory Humphries, Esq.
SECTION 11.09. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF; PROVIDED, HOWEVER,
THAT ARTICLE X AND THE RIGHTS AND OBLIGATIONS THEREUNDER OF THE PARTIES THERETO
WILL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
SUBSTANTIVE LAWS OF THE STATE OF FLORIDA WITHOUT REGARD TO THE CONFLICTS OF LAW
PROVISIONS THEREOF.
Section 11.10. EXERCISE OF RIGHTS AND REMEDIES. Except as
otherwise provided herein, no delay or omission in the exercise of any right,
power or remedy accruing to any party hereto as a result of any breach or
default hereunder by any other party hereto shall impair any such right, power
or remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11. TIME. Time is of the essence in the performance
of this Agreement in all respects.
Section 11.12. REFORMATION AND SEVERABILITY. If any provision
of this Agreement is invalid, illegal or unenforceable, that provision shall, to
the extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13. REMEDIES CUMULATIVE. No right, remedy or
election given by any term of this Agreement shall be deemed exclusive, but each
shall be cumulative with all other rights, remedies and elections available at
law or in equity.
Section 11.14. RESPECTING THE IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither ARS or any of its
Representatives nor any
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prospective underwriters in the IPO will have any liability to the Company, the
Stockholders or any of their respective Affiliates or associates for any failure
of (i) the Registration Statement to become effective (provided, however, that
ARS will use its reasonable best efforts to cause the Registration Statement to
become effective prior to December 31, 1996) or (ii) the IPO to occur at a
particular price or within a particular range of prices or to occur at all; and
(c) the decision of Stockholders to enter into this Agreement, or to vote in
favor of or consent to the Merger, has been or will be made independent of, and
without reliance on, any statements, opinions or other communications of, or due
diligence investigations that have been or will be made or performed by, any
prospective underwriter relative to ARS or the IPO. The Underwriter shall have
no obligation to any of the Company and the Stockholders with respect to any
disclosure contained in the Registration Statement.
ARTICLE XII
TERMINATION
Section 12.01. TERMINATION OF THIS AGREEMENT. (a) This
Agreement may be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of ARS and the Company;
(ii) by the Stockholders or the Company, on the one hand, or
by ARS, on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated
by December 31, 1996, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the
case of the Stockholders and the Company, any of them) seeking to
terminate this Agreement to perform or adhere to any agreement required
hereby to be performed or adhered to by it prior to or at the Closing
or thereafter on the IPO Closing Date;
(iii) by the Stockholders or the Company, on the one hand, or
by ARS, on the other hand, if a material breach or default shall be
made by the other party (or in the case of the Stockholders and the
Company, any of them) in the observance or in the due and timely
performance of any of the covenants, agreements or conditions contained
herein; or
(iv) by ARS if it is entitled to do so as provided in Section
6.08;
(b) This Agreement may be terminated after the Closing solely:
(i) by ARS or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City business
days after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section 12.01, the
Merger will be deemed for all purposes to have been abandoned and of no force or
effect. If this Agreement is terminated pursuant to this Section 12.01 after the
Certificate of Merger has been filed with the Department of State of the State
of Florida, but before the IPO has been consummated, ARS will take all actions
that Counsel for the Company and the Stockholders advises ARS are required by
the applicable laws of the State of Florida in order to rescind the Merger.
Section 12.02. LIABILITIES IN EVENT OF TERMINATION. If this
Agreement is terminated pursuant to Section 12.01, there shall be no liability
or obligation on the part of any party hereto except (a) as provided in Section
11.07 and (b) to the extent that such liability is based on the breach by that
party of any of its representations, warranties or covenants set forth in this
Agreement.
-19-
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
AMERICAN RESIDENTIAL SERVICES, INC.
By: _______________________________
C. Clifford Wright, Jr.
Chief Executive Officer and President
ARS CLIMATIC INC.
By: _______________________________
C. Clifford Wright, Jr.
Chief Executive Officer and President
CLIMATIC CORPORATION OF VERO BEACH
By: _______________________________
H. W. Hauser
President
STOCKHOLDERS:
_______________________________
H. W. Hauser
-20-
_______________________________
Patricia Hauser
-21-
ADDENDUM 1
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Climatic Inc.,
Climatic Corporation of Vero Beach
and
the Stockholders named therein
A. Words and terms used in this Addendum which are defined in the
captioned Agreement to which this is an Addendum are used herein as therein
defined.
B. The Founding Companies are:
Atlas Services, Inc.
Bullseye Air Conditioning, Inc.
Climatic Corporation of Vero Beach
DIAL ONE Meridian and Hoosier, Inc.
Enterprises Holding Company
Florida Heating and Air Conditioning, Inc.
Florida Heating and Air Conditioning Service, Inc.
Florida Heating and Air Duct, Inc.
General Heating Engineering Company, Inc.
<PAGE>
SCHEDULE 2.03
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Climatic Inc.,
Climatic Corporation of Vero Beach
and
the Stockholders named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.03 are used
herein as defined therein.
B. The directors of the Surviving Corporation immediately after the
Effective Time are as follows: Howard S. Hoover, Jr., William P. McCaughey and
C. Clifford Wright, Jr.
C. The officers of the Surviving Corporation immediately following the
Effective Time are as follows:
President .....................................H. W. Hauser
Vice President and Assistant Secretary.........William P. McCaughey
Vice President and Secretary ..................John D. Held
Vice President and Assistant Secretary.........Mark Livingston
<PAGE>
SCHEDULE 2.04
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Climatic Inc.,
Climatic Corporation of Vero Beach
and
the Stockholders named therein
A. Words and terms used in this Schedule which are
defined in the captioned Agreement to which this Schedule is attached as
Schedule 2.04 are used herein as defined therein.
B. The name and address of each Stockholder are as
follows:
ADDRESS
H. W. Hauser............................. 185 Ocean Way
Vero Beach, Florida 32963
Patricia Hauser.......................... 185 Ocean Way
Vero Beach, Florida 32963
C. Subject to increase or reduction by the application of the
Positive Working Capital Adjustment or the Negative Working Capital Adjustment,
as the case may be, the aggregate Merger Consideration will be comprised of (1)
$550,000 in cash and (2) such number of whole and fractional shares of ARS
Common Stock as shall equal the quotient of (A) $1,650,000 divided by (B) the
IPO Price, and the Stockholders will be entitled to receive the Merger
Consideration pursuant to Section 2.04 as follows:
Shares of Pre-Merger Pro Rata Share
Company Common Stock of
OWNED MERGER CONSIDERATION
----- ------
STOCKHOLDERS:
H. W. Hauser .................. 2,150 50.00%
Patricia Hauser ............... 2,150 50.00%
----- ------
4,300 100.00%
===== ======
<PAGE>
SCHEDULE 3.01
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Climatic Inc.,
Climatic Corporation of Vero Beach
and
the Stockholders named therein
A. Words and terms used in this Schedule which are defined in
the captioned Agreement to which this Schedule is attached as Schedule 3.01 are
used herein as therein defined.
B. Each Stockholder is an "accredited investor" as defined in
Securities Act Rule 510(a).
<PAGE>
SCHEDULE 3.02
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Climatic Inc.,
Climatic Corporation of Vero Beach
and
the Stockholders named therein
A. Words and terms used in this Schedule which are defined in
the captioned Agreement to which this Schedule is attached as Schedule 3.02 are
used herein as therein defined.
B. H. W. Hauser and Patricia Hauser each own 2,650 of the
4,300 outstanding shares of Company Common Stock.
C. No exception is taken to the representations and warranties
in Section 3.02 of the captioned Agreement.
<PAGE>
SCHEDULE 3.07
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Climatic Inc.,
Climatic Corporation of Vero Beach
and
the Stockholder named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.07 are used
herein as defined therein.
B. The Stockholder is, alone or with one or more other Persons, the
controlling Affiliate of the following Entities, businesses or trades (other
than the Company and the Company Subsidiaries, if the Stockholder is an
Affiliate of the Company) that (a) are engaged in any line of business which is
the same as or similar to any line of business in which the Company or any
Company Subsidiary is engaged or (b) are, or have within the three-year period
ending on the date of this Agreement, engaged in any transaction with the
Company or any Company Subsidiary, except for transactions in the ordinary
course of business of the Company or that Company Subsidiary:
1. Anteus, Inc. - Holding company (Delaware) - To buy
businesses.
2. Service Consultants, Inc. - 25% Shareholder - New
York corporation.
3. Control Solutions, Inc. - Florida Corporation -
Atlantic 25% - Orlando based controls company.
4. Control Solutions, Inc. - Energy Services Group -
Florida Corporation - Performance contracting 25%.
5. Control Solutions, Inc. - Chicago, Illinois Corp. -
Controls Company 25%.
6. Youngstown Service Shop, Inc. - Ohio Corporation -
25% - Electrical Apparatus Company.
7. H.J. Service Company - Chicago, Illinois Corporation
- Electrical Service Company - 25%.
8. Coastal Mechanical Services, Inc. - Florida
Corporation - 80%.
9. CMS Mechanical Service Co. - Florida Corporation -
64%.
<PAGE>
10. Eastern Construction Co. - Florida Corporation - 64%.
<PAGE>
SCHEDULE 4.11
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Climatic Inc.,
Climatic Corporation of Vero Beach
and
the Stockholders named therein
A. Words and terms used in this Schedule which are defined in
the captioned Agreement to which this Schedule is attached as Schedule 4.11 are
used herein as defined therein.
B. The following Related Party Agreement will be permitted to
continue in effect past the date of the Closing in accordance with its terms,
subject to the following provisions of this Schedule:
(1) THE FT. PIERCE LEASE: Will continue until the day
following the IPO Closing Date, at which time this lease will be
terminated and the Company will pay the lessor a lease termination fee
of $18,000.
(2) THE VERO BEACH LEASE: If the Company satisfactorily
completes prior to August 1, 1996 the work generally outlined in the
memorandum of Dan Vunscoy dated June 6, 1996 as being necessary to
bring the facility into compliance with material Governmental
Requirements, this lease will be amended effective as of the IPO
Closing Date to extend for a five-year term thereafter at fair market
value rentals.
<PAGE>
SCHEDULE 6.04
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Climatic Inc.,
Cliamatic Corporation of Vero Beach
and
the Stockholder named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.04 are used
herein as defined therein.
B. The Company and the Company Subsidiaries may make the following
Restricted Payments prior to the Effective Time:
None
<PAGE>
SCHEDULE 6.12
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Climatic Inc.,
Climatic Corporation of Vero Beach
and
the Stockholder named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.12 are used
herein as defined therein.
B. The Company will make all arrangements and take all such actions as
are necessary and satisfactory to ARS to dispose, prior to the Effective Time,
of the following assets:
None
<PAGE>
SCHEDULE 8.05
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Climatic Inc.,
Climatic Corporation of Vero Beach
and
the Stockholder named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 8.05 are used
herein as defined therein.
B. At or within 60 days following the Effective Time, ARS will cause
the following Stockholder Guaranties to be terminated:
1. Guarantees related to loans to Indian River National
Bank for vehicles.
2. Guarantees related to CDCC floor plan financing.
<PAGE>
SCHEDULE 10.01
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Climatic Inc.,
Climatic Corporation of Vero Beach
and
the Stockholders named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 10.01 are
used herein as defined therein.
B. The Stockholders may continue to own equity interests in the
following companies:
1. Anteus, Inc. - Holding company (Delaware) - To buy
businesses.
2. Service Consultants, Inc. - 25% Shareholder - New
York corporation.
3. Control Solutions, Inc. - Florida Corporation -
Atlantic 25% - Orlando based controls company.
4. Control Solutions, Inc. - Energy Services Group -
Florida Corporation - Performance contracting 25%.
5. Control Solutions, Inc. - Chicago, Illinois Corp. -
Controls Company 25%.
6. Youngstown Service Shop, Inc. - Ohio Corporation -
25% - Electrical Apparatus Company.
7. H.J. Service Company - Chicago, Illinois Corporation
- Electrical Service Company - 25%.
8. Coastal Mechanical Services, Inc. - Florida
Corporation - 80%.
9. CMS Mechanical Service Co. - Florida Corporation -
64%.
10. Eastern Construction Co. - Florida Corporation - 64%.
EXHIBIT 2.2
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF JUNE 13, 1996
BY AND AMONG
AMERICAN RESIDENTIAL SERVICES, INC.,
ARS FHAC INC.,
FLORIDA HEATING AND AIR CONDITIONING, INC.
AND
THE STOCKHOLDER NAMED HEREIN
-1-
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS...............................................1
ARTICLE II THE MERGER AND RELATED MATTERS............................5
Section 2.01. Certificate of Merger..................................5
Section 2.02. The Effective Time.....................................5
Section 2.03. Certain Effects of the Merger..........................5
Section 2.04. Effect of the Merger on Capital Stock..................6
Section 2.05. Delivery, Exchange and Payment.........................6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER.........8
Section 3.01. By the Stockholder.....................................8
ARTICLE IV REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE STOCKHOLDER........................8
Section 4.01. By the Company and the Stockholder.....................8
ARTICLE V REPRESENTATIONS AND WARRANTIES OF ARS AND NEWCO..........10
Section 5.01. By ARS and Newco......................................10
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME................10
Section 6.01. Of Each Party.........................................10
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING
AND CONSUMMATION.........................................10
Section 7.01. The Closing and Certain Conditions....................10
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME...................11
Section 8.01. Of Each Party Other Than the Company..................11
ARTICLE IX INDEMNIFICATION..........................................12
Section 9.01. Indemnification Rights and Obligations................12
ARTICLE X LIMITATIONS ON COMPETITION...............................12
Section 10.01. Prohibited Activities................................12
Section 10.02. Damages..............................................13
Section 10.03. Reasonable Restraint.................................13
Section 10.04. Severability; Reformation............................13
Section 10.05. Independent Covenant.................................13
Section 10.06. Materiality..........................................13
-i-
ARTICLE XI GENERAL PROVISIONS.......................................14
Section 11.01. Treatment of Confidential Information................14
Section 11.02. [Intentionally Omitted] ..............................14
Section 11.03. Brokers and Agents...................................14
Section 11.04. Assignment; No Third Party Beneficiaries.............14
Section 11.05. Entire Agreement; Amendment; Waivers.................14
Section 11.06. Counterparts.........................................14
Section 11.07. Expenses.............................................14
Section 11.08. Notices..............................................15
Section 11.09. Governing Law........................................16
Section 11.10. Exercise of Rights and Remedies......................16
Section 11.11. Time.................................................16
Section 11.12. Reformation and Severability.........................17
Section 11.13. Remedies Cumulative..................................17
Section 11.14. Respecting the IPO...................................17
ARTICLE XII TERMINATION..............................................17
Section 12.01. Termination of This Agreement........................17
Section 12.02. Liabilities in Event of Termination..................18
-ii-
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement")
is made as of June 13, 1996, by and among American Residential Services, Inc., a
Delaware corporation ("ARS"), ARS FHAC Inc., a Florida corporation and a wholly
owned subsidiary of ARS ("Newco"), FLORIDA HEATING AND AIR CONDITIONING, INC., a
Florida corporation (the "Company"), and the person listed on the signature
pages hereof under the caption "Stockholder" (the "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their
best long-term interests to effect a business combination pursuant to which:
(a) the Company will merge into Newco on the terms and subject
to the conditions set forth herein (that merger being the "Merger");
(b) ARS will acquire the stock of all or some of the entities
listed in the accompanying Addendum 1 (each an "Other Founding Company"
and, collectively with the Company, the "Founding Companies") pursuant
to agreements that are (i) similar to this Agreement and (ii) entered
into among those entities and their equity owners, ARS and subsidiaries
of ARS (collectively, the "Other Agreements"); and
(c) ARS shall effect a public offering of shares of its common
stock and issue and sell those shares.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements, representations and undertakings contained herein, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. CERTAIN DEFINED TERMS. As used in this
Agreement, the following terms have the meanings assigned to them below in this
Section 1.01. Capitalized terms used in this Agreement and not defined below in
this Section 1.01 have the meanings assigned to them in the Preliminary
Statement or Article I of the Uniform Provisions (the text of which Article
hereby is incorporated herein by this reference), as the case may be.
"ADJUSTMENT DETERMINATION DATE" means the date that is 30 days
following the delivery by ARS of the Post-closing Statement to the
Stockholder, unless the Closing Date Working Capital and the Positive
Working Capital Adjustment or the Negative Working
-1-
Capital Adjustment, as the case may be, are determined pursuant to
Section 2.05 by Arthur Andersen LLP, in which event the Adjustment
Determination Date is the date Arthur Andersen LLP delivers those
determinations in writing to ARS.
"AGREED RATE" means 8.0% per annum.
"AGREEMENT" means this Agreement, including the Disclosure
Statement relating to this Agreement and all attached Schedules,
Annexes and Exhibits, as each of the same may be amended, modified or
supplemented from time to time pursuant to the provisions hereof or
thereof.
"ARS" means American Residential Services, Inc., a Delaware
corporation.
"ARS ACQUISITION CANDIDATE" means any Entity engaged in any of
the businesses of providing repair, maintenance, replacement or
warranty and annual contract maintenance services for Plumbing,
heating/air conditioning and electrical systems to owners or occupants
of single-family homes, duplexes, condominiums and small commercial
facilities, designing and installing of any of those systems in new
construction, selling and servicing home appliances and other similar
residential and building services (a) which was called on by any of the
Company, ARS or the Subsidiaries of the Company or ARS in connection
with the possible acquisition by any of them of that Entity or (b) of
which any of them has made an acquisition analysis.
"CLOSING DATE BALANCE SHEET" means a combined balance sheet of
the Combined Companies as at the IPO Closing Date which is prepared in
accordance with GAAP on a basis consistent with the basis on which the
Current Balance Sheet was prepared.
"CLOSING DATE WORKING CAPITAL" means the Working Capital as
determined from the Closing Date Balance Sheet, provided, that if that
determination is made pursuant to Section 2.05 by Arthur Andersen LLP,
the amount equal to 50% of the fees and expenses of Arthur Andersen LLP
which are attributable to its audit of the Closing Date Balance Sheet
and its making of that determination will be deemed a liability of the
Combined Companies for the purpose of determining the Closing Date
Working Capital and resulting Positive Working Capital Adjustment or
Negative Working Capital Adjustment, as the case may be.
"CLOSING MEMORANDUM" means the form of closing memorandum to
be prepared by ARS for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided
in Article VII.
"COMBINED COMPANIES" means Florida Heating and Air
Conditioning, Inc., Florida Heating and Air Conditioning Service, Inc.,
Florida Heating and Air Duct, Inc. and Bullseye Air Conditioning, Inc.,
each of which is a Florida corporation.
-2-
"COMBINED FINANCIAL STATEMENTS" means (a) the audited combined
balance sheet of the Combined Companies as of December 31, 1995 and the
related audited combined statements of operations, cash flows and
shareholders' equity for the year then ended, together with the related
audit report of Arthur Andersen LLP, and, if audited by Arthur Andersen
LLP, (b) the audited combined balance sheet of the Combined Companies
as of December 31, 1994 and the related audited combined statements of
operations, cash flows and shareholders' equity for the year then
ended, together with the related audit report of Arthur Andersen LLP.
"COMPANY" means Florida Heating and Air Conditioning, Inc., a
Florida corporation.
"COMPANY COMMON STOCK" means the common stock, par value
$10.00 per share, of the Company.
"COUNSEL FOR ARS AND NEWCO" means Baker & Botts, L.L.P.
"COUNSEL FOR THE COMPANY AND THE STOCKHOLDER" means Weinstein,
Rosenthal & Tobin, P.C.
"CURRENT BALANCE SHEET" means the audited combined balance
sheet of the Combined Companies at December 31, 1995.
"CURRENT BALANCE SHEET DATE" means December 31, 1995.
"DISCLOSURE STATEMENT" means the written statement executed by
the Company and the Stockholder and delivered to ARS prior to the
execution and delivery of this Agreement by ARS and Newco in which
either (a) exceptions are taken to each of certain of the
representations and warranties made by the Company and the Stockholder
herein or (b) it is confirmed that no exception is taken to that
representation and warranty.
"FBCA" means the Florida Business Corporation Act.
"INITIAL FINANCIAL STATEMENTS" means the Combined Financial
Statements.
"INTERIM DATE BALANCE SHEET" means the combined balance sheet
of the Combined Companies at the end of the Company's fiscal quarter
next preceding the date of the Closing which is included in the
Financial Statements.
"INTERIM DATE WORKING CAPITAL" means the Working Capital as
determined from the Interim Date Balance Sheet by ARS on a basis
consistent with the determination of the Working Capital from the
Current Balance Sheet.
-3-
"INTERIM NEGATIVE WORKING CAPITAL ADJUSTMENT" means the
amount, if any, by which $137,376 exceeds the Interim Date Working
Capital.
"INTERIM POSITIVE WORKING CAPITAL ADJUSTMENT" means (a) the
amount, if any, by which the Interim Date Working Capital exceeds
$137,376, or if that Closing Date Working Capital equals $137,376, (b)
zero.
"MERGER CONSIDERATION" has the meaning specified in Section
2.04.
"NEGATIVE WORKING CAPITAL ADJUSTMENT" means the amount, if
any, by which $137,376 exceeds the Company's Closing Date Working
Capital.
"NEWCO" means ARS FHAC Inc., a Florida corporation.
"POSITIVE WORKING CAPITAL ADJUSTMENT" means (a) the amount, if
any, by which the Closing Date Working Capital exceeds $137,376, or if
that Closing Date Working Capital equals $137,376, (b) zero.
"POST-CLOSING STATEMENT" has the meaning specified in Section
2.05.
"PRO RATA SHARE" of the Stockholder means 100%.
"RESPONSIBLE OFFICER" means Elliot Sokolow.
"RETAINED AMOUNT" has the meaning specified in Section 2.05.
"SCHEDULED AGREEMENT" means the agreement described in
Schedule 4.11.
"SOKOLOW EMPLOYMENT AGREEMENT" means the Employment Agreement
entered into as of June 13, 1996 between ARS and Elliot Sokolow.
"STOCKHOLDERS AGREEMENT" means the Stockholders' Agreement
entered into as of June 13, 1996 among ARS and the other Persons
parties thereto.
"SURVIVING CORPORATION" means Newco, the Person to be
designated in the Certificate of Merger as the surviving corporation of
the Merger.
"TERRITORY" has the meaning specified in Section 10.01.
"THRESHOLD AMOUNT" means 2% of the Transaction Value.
"TRANSACTION VALUE" means (a) at any time prior to the
Adjustment Determination Date, $4,999,999, and (b) on and after the
Adjustment Determination Date, $4,999,999 plus
-4-
the Positive Working Capital Adjustment, if any, or minus the Negative
Working Capital Adjustment, if any.
"TRANSFER TAXES" has the meaning specified in Section 11.07.
"UNIFORM PROVISIONS" means the Uniform Provisions of ARS for
the Acquisition of Founding Companies attached hereto as Annex 1.
"WORKING CAPITAL" means, as at any date and as determined by
reference to a combined balance sheet of the Combined Companies as at
that date which is prepared in accordance with GAAP, the amount by
which (a) the sum, without duplication of amounts, of all amounts that
are included and classified as current assets on that balance sheet
exceeds, or is exceeded by, (b) the sum, without duplication of
amounts, of all amounts that are included and classified as liabilities
or as mandatorily redeemable Capital Stock on that balance sheet; if at
any time those current assets are exceeded by those liabilities,
Working Capital will be expressed as a negative amount.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. CERTIFICATE OF MERGER. Subject to the terms and
conditions hereof, Newco will cause a Certificate of Merger to be duly executed
and delivered on or promptly after the date of the Closing to the Department of
State of the State of Florida.
Section 2.02. THE EFFECTIVE TIME. The effective time of the
Merger (the "Effective Time") will be the time on the IPO Closing Date which the
Certificate of Merger specifies or, if the Certificate of Merger does not
specify another time, 8:00 a.m., eastern daylight standard time, on the IPO
Closing Date.
Section 2.03. CERTAIN EFFECTS OF THE MERGER. At and as of the
Effective Time, (a) the Company will be merged with and into Newco in accordance
with the provisions of the FBCA, (b) the Company will cease to exist as a
separate legal entity, (c) the articles of incorporation of Newco will be
amended to change its name to "Florida Heating & Air Conditioning, Inc.", (d)
Newco will be the Surviving Corporation and, as such, will, all with the effect
provided by the FBCA, (i) possess all the properties and rights, and be subject
to all the restrictions and duties, of the Company and Newco and (ii) be
governed by the laws of the State of Florida, (e) the Charter Documents of Newco
then in effect (after giving effect to the amendment of Newco's articles of
incorporation specified in clause (c) of this sentence) will become and
thereafter remain (until changed in accordance with (i) applicable law (in the
case of the articles of incorporation) or (ii) their terms (in the case of the
bylaws)) the Charter Documents of the Surviving Corporation, (f) the initial
board of directors of the Surviving Corporation will be the persons named in
Schedule 2.03, and those persons will hold the office of director of the
Surviving Corporation subject to the provisions of the applicable laws
-5-
of the State of Florida and the Charter Documents of the Surviving Corporation,
and (g) the initial officers of the Surviving Corporation will be as set forth
in Schedule 2.03, and each of those persons will serve in each office specified
for that person in Schedule 2.03, subject to the provisions of the Charter
Documents of the Surviving Corporation, until that person's successor is duly
elected to, and, if necessary, qualified for, that office.
Section 2.04. EFFECT OF THE MERGER ON CAPITAL STOCK. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the
right to receive, subject to the provisions of Section 2.05, without
interest, on surrender of the certificates evidencing those shares, the
amount of cash set forth or determined as provided in Schedule 2.04
(the "Merger Consideration"), (ii) cease to be outstanding and to exist
and (iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of
the Company or any Company Subsidiary will (i) cease to be outstanding
and to exist and (ii) be canceled and retired; and
(c) each share of Newco Common Stock issued and outstanding
immediately prior to the Effective Time will remain unchanged and will
constitute all the issued and outstanding shares of Capital Stock of
the Surviving Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, subject to the provisions of Section 2.05, without interest,
the Merger Consideration.
Section 2.05. DELIVERY, EXCHANGE AND PAYMENT. (a) At or after
the Effective Time: (i) the Stockholder, as the holder of certificates
representing shares of Company Common Stock, will, on surrender of those
certificates to ARS (or any agent that may be appointed by ARS for purposes of
this Section 2.05), receive, subject to the provisions of this Section 2.05, the
Merger Consideration.
(b) The Stockholder will deliver to ARS (or any agent that may
be appointed by ARS for purposes of this Section 2.05) on or before the IPO
Closing Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Person, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Person's expense, affixed and canceled. The
Stockholder shall cure any deficiencies in the endorsement of the certificates
or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Person.
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(c) Prior to the date of the Closing, ARS will cause to be
prepared and delivered to the Stockholder a statement setting forth the Interim
Positive Working Capital Adjustment, if any, or the Interim Negative Working
Capital Adjustment, if any. If an Interim Positive Working Capital Adjustment
has been determined, ARS will, promptly after the Effective Time, but subject to
the certificate surrender requirements of Section 2.05(a), pay to the
Stockholder, without interest, the amount of the Interim Positive Working
Capital Adjustment. If an Interim Negative Working Capital Adjustment has been
determined, ARS will, notwithstanding the provisions of Section 2.04, hold back
from the Stockholder the amount of the Interim Negative Working Capital
Adjustment (the "Retained Amount") for disposition pursuant to Section 2.05(e).
(d) As soon as practicable, and in any event within 60 days,
following the Effective Time, ARS will cause to be prepared and delivered to the
Stockholder (i) the Closing Date Balance Sheet and (ii) a statement (the
"Post-closing Statement") of the Closing Date Working Capital and the Positive
Working Capital Adjustment, if any, or the Negative Working Capital Adjustment,
if any. The Post-closing Statement will be final and binding on ARS and the
Stockholder unless, within 30 days following the delivery of the Post-closing
Statement, the Stockholder notifies ARS in writing that the Stockholder does not
accept as correct the amount of the Closing Date Working Capital or the amount
of the Positive Working Capital Adjustment or the Negative Working Capital
Adjustment, as the case may be, as set forth in the Post-closing Statement. If
the Stockholder timely delivers to ARS that notice respecting the Post-closing
Statement, the Closing Date Balance Sheet will be audited, and the Closing Date
Working Capital and the Positive Working Capital Adjustment or the Negative
Working Capital Adjustment, as the case may be, will be determined within 30
days after the delivery to ARS of that notice, by Arthur Andersen LLP, and these
determinations will be final and binding on ARS and the Stockholder.
(e) If a Positive Working Capital Adjustment is determined
with finality pursuant to Section 2.05(d), ARS will, promptly after the
Adjustment Determination Date, but subject to the certificate surrender
requirements of Section 2.05(a), pay to the Stockholder the sum, together with
interest thereon from (and including) the IPO Closing Date to (but excluding)
the Adjustment Determination Date at the Agreed Rate, of (i) the entire Retained
Amount, if any, and (ii) the amount by which (A) the amount of the Positive
Working Capital Adjustment exceeds (B) the amount of the Interim Positive
Working Capital Adjustment, if any. If a Negative Working Capital Adjustment is
determined with finality pursuant to Section 2.05(d), then, subject to the
certificate surrender requirements of Section 2.05(a):
(i) ARS will (A) be entitled to retain for itself out of the
Retained Amount an amount equal to the lesser of (1) the amount of the
Negative Working Capital Adjustment, together with interest thereon at
the Agreed Rate from (and including) the IPO Closing Date to (but
excluding) the Adjustment Determination Date, and (2) the Retained
Amount, and if there is any remaining portion of the Retained Amount
that ARS is not entitled to retain for itself pursuant to the foregoing
provisions of this clause (i), (B) promptly pay to the Stockholder that
remaining amount, together with interest thereon at the Agreed Rate
from
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(and including) the IPO Closing Date to (but excluding) the Adjustment
Determination Date; and
(ii) if the sum of the Negative Working Capital Adjustment and
the interest thereon at the Agreed Rate which has accrued during the
period referred to in clause (i)(A)(1) of this sentence exceeds the
Retained Amount, if any, the Stockholder will, no later than 10
Houston, Texas business days after ARS makes a written request
therefor, pay in cash the sum of (A) the amount of that excess and (B)
the Interim Positive Working Capital Adjustment, if any, together with
interest on that sum at the Agreed Rate from (and including) the IPO
Closing Date to (but excluding) the Adjustment Determination Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
Section 3.01. BY THE STOCKHOLDER. The Stockholder represents
and warrants to ARS that all the following representations and warranties in
this Article III are as of the date of this Agreement, and will be, as amended
or supplemented pursuant to Section 6.08, on the date of the Closing and the IPO
Closing Date, true and correct:
(a) the representations and warranties contained in Article
III of the Uniform Provisions (the text of which Article hereby is
incorporated herein by this reference) are true and correct, and the
agreements set forth in that Article hereby are agreed to; and
(b) (i) the terms and conditions of the Scheduled Agreement
are no less favorable to the Company than the Company reasonably could
have expected to obtain in an arm's- length transaction with a Person
other than an Affiliate of the Company and (ii) the rentals provided
for in the Scheduled Agreement do not exceed fair market rentals of the
property being leased under the Scheduled Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF
THE COMPANY AND THE STOCKHOLDER
Section 4.01. BY THE COMPANY AND THE STOCKHOLDER. The Company
and the Stockholder jointly and severally represent and warrant to, and agree
with, ARS that all the following representations and warranties in this Article
IV are as of the date of this Agreement, and will be, as amended or supplemented
pursuant to Section 6.08, on the date of the Closing and the IPO Closing Date,
true and correct:
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(a) the Organization State of the Company is the State of
Florida, and the Company (i) is a corporation duly organized, validly
existing and in good standing under the laws of that State, (ii) has
all requisite corporate power and authority under those laws and its
Charter Documents to own or lease and to operate its properties and to
carry on its business as now conducted and (iii) is duly qualified and
in good standing as a foreign corporation in all jurisdictions (other
than the State of Florida) in which it owns or leases property or in
which the carrying on of its business as now conducted so requires
except where the failure to be so qualified, singly or in the
aggregate, would not have a Material Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is
comprised of 1,000 shares of Company Common Stock, of which 800 shares
have been issued and are now outstanding and no shares are held by the
Company as treasury shares, and (ii) no outstanding Derivative
Securities of the Company exist;
(c) the Combined Financial Statements (including the related
notes) delivered to ARS present fairly, in all material respects, the
combined financial position of the Combined Companies at December 31,
1995 and the combined results of their operations and their combined
cash flows and stockholders' equity for the year ended December 31,
1995 and have been prepared in accordance with GAAP. As of the Current
Balance Sheet Date, the Combined Companies then did not have any
outstanding indebtedness to any Person or any liabilities of any kind
(including contingent obligations, tax assessments or unusual forward
or long-term commitments), or any unrealized or anticipated loss, which
in the aggregate then were Material to the Combined Companies and
required to be reflected in the Combined Financial Statements or in the
notes related thereto in accordance with GAAP which were not so
reflected;
(d) the Company has made an election with the IRS to be taxed
as an S corporation within the meaning of Section 1361 of the Code, and
that election is in effect. The Company owns no assets the disposition
of which would cause the Company to have a net recognized built-in gain
within the meaning of Section 1374 of the Code. The Company has no item
of income that has not been taken into account by the Company and that
would be treated as a recognized built-in gain under Section 1374(d)(5)
of the Code. The transfer of the Company's assets pursuant to the
Merger shall not cause the Company to be liable for any federal, state,
city or local taxes; and
(e) the representations and warranties contained in Article IV
of the Uniform Provisions (the text of which Article hereby is
incorporated herein by this reference) are true and correct, and the
agreements set forth in that Article hereby are agreed to.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ARS AND NEWCO
Section 5.01. BY ARS AND NEWCO. ARS and Newco jointly and
severally represent and warrant to the Company and the Stockholder that all the
following representations and warranties in this Article V are as of the date of
this Agreement, and will be on the date of the Closing and the IPO Closing Date,
true and correct: (a) Newco is a corporation duly organized, validly existing
and in good standing under the laws of the State of Florida, (b) no Derivative
Securities of Newco are outstanding and (c) the representations and warranties
contained in Article V of the Uniform Provisions (the text of which Article
hereby is incorporated herein by this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01. OF EACH PARTY. Until the Effective Time, subject
to the waiver provisions of Section 11.05, each party hereto will comply with
each covenant for which provision is made in Article VI of the Uniform
Provisions (the text of which Article hereby is incorporated herein by this
reference) to be performed or observed by that party. For purposes of Section
6.10, the financial statements required to be delivered by the Company will
include financial statements of the Combined Companies corresponding to the
financial statements of the Company referred to therein.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01. THE CLOSING AND CERTAIN CONDITIONS. (a) THE
CLOSING. On the IPO Pricing Date, the parties hereto will take all actions
necessary to (i) effect the Merger (including, as permitted by the FBCA, (A) the
execution of a Certificate of Merger (1) meeting the requirements of the FBCA
and (2) providing that the Merger will become effective on the IPO Closing Date
and (B) the filing of that Certificate with the Department of State of the State
of Florida), (ii) verify the existence and ownership of the certificates
evidencing the Company Common Stock to be exchanged for the Merger Consideration
pursuant to Section 2.05 and (iii) satisfy the document delivery requirements to
which the obligations of the parties to effect the Merger and the other
transactions contemplated hereby are conditioned by the provisions of this
Article VII (all those actions collectively being the "Closing"). The Closing
will take place at the offices of Baker & Botts, L.L.P., 38th Floor, 910
Louisiana, Houston, Texas at 10:00 a.m., Houston time, or at such later time on
the IPO Pricing Date as ARS shall specify by written notice to Elliot Sokolow.
The actions taken at the Closing will not include the completion of either the
Merger or the delivery of the Company Common Stock or the Merger Consideration
pursuant to Section 2.05. Instead, on the IPO Closing
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Date, the Certificate of Merger will become effective pursuant to Section 2.02,
and all transactions contemplated by this Agreement to be closed or completed on
or before the IPO Closing Date, including the surrender of the Company Common
Stock in exchange for the Merger Consideration (including a certified check or
checks in an amount equal to the Merger Consideration (less the Retained Amount,
if any)) will be closed or completed, as the case may be. During the period from
the Closing to the IPO Closing Date, this Agreement may be terminated by the
parties only pursuant to Section 12.01(b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND
THE STOCKHOLDER. The obligations of the Company and the Stockholder with respect
to the actions to be taken by them at or before the Closing are subject to the
satisfaction on or before the date of the Closing, or waiver by them pursuant to
Section 11.05, of all the conditions set forth in Sections 7.02(a) and 7.03. The
obligations of the Stockholder with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date to the following
conditions: (i) the Sokolow Employment Agreement then shall be in full force and
effect; and (ii) all the conditions set forth in Sections 7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF ARS AND NEWCO.
The obligations of ARS and Newco with respect to actions to be taken by them at
or before the Closing are subject to the satisfaction on or before the date of
the Closing, or waiver by them pursuant to Section 11.05, of the following
conditions: (i) the Company shall have delivered to ARS a copy of the articles
of incorporation, as amended to the date of the Closing and certified by the
Department of State of the State of Florida as of a Current Date, of the
Company; and (ii) all the conditions set forth in Sections 7.02(a) and 7.04(a).
(d) The obligations of ARS and Newco with respect to the
actions to be taken on the IPO Closing Date are subject to the satisfaction on
that date of the following conditions: (i) the Sokolow Employment Agreement then
shall be in full force and effect; and (ii) all the conditions set forth in
Sections 7.02(b) and 7.04(b).
(e) The text of Article VII of the Uniform Provisions hereby
is incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01. OF EACH PARTY OTHER THAN THE COMPANY. From and
after the Effective Time, subject to the waiver provisions of Section 11.05,
each party hereto (other than the Company) will comply with each covenant for
which provision is made in Article VIII of the Uniform Provisions (the text of
which Article hereby is incorporated herein by this reference) to be performed
or observed by that party.
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ARTICLE IX
INDEMNIFICATION
Section 9.01. INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text
of Article IX of the Uniform Provisions hereby is incorporated herein by this
reference.
ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.01. PROHIBITED ACTIVITIES. The Stockholder agrees
that he will not, during the period beginning on the date hereof and ending on
the third anniversary of the date hereof, directly or indirectly, for any
reason, for his own account or on behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether
as an employee, independent contractor, consultant or advisor, or as a
sales representative or distributor of any kind, in any business
selling any products or providing any services in competition with the
Company, any Company Subsidiary or ARS or any Subsidiary of ARS (ARS
and its Subsidiaries collectively being "ARS" for purposes of this
Article X) within a radius of 100 miles of each location in which any
of the Company or the Company Subsidiaries was engaged in business on
the date hereof or immediately prior to the Effective Time (those
locations collectively being the "Territory");
(b) call on any natural person who is at that time employed by
the Company, any Company Subsidiary or ARS in any managerial capacity
with the purpose or intent of attracting that person from the employ of
the Company, any Company Subsidiary or ARS, provided that the
Stockholder may call on and hire any of his Immediate Family Members;
(c) call on any Person that at that time is, or at any time
within one year prior to that time was, a customer of the Company, any
Company Subsidiary or ARS within the Territory, (i) for the purpose of
soliciting or selling any product or service in competition with the
Company, any Company Subsidiary or ARS within the Territory and (ii)
with the knowledge of that customer relationship; or
(d) call on any ARS Acquisition Candidate, with the knowledge
of that Person's status as an ARS Acquisition Candidate, for the
purpose of acquiring that Person or arranging the acquisition of that
Person by any Person other than ARS.
Notwithstanding the foregoing, the Stockholder may own and hold as a passive
investment up to 1% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock is listed on the
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New York Stock Exchange or included in the Nasdaq National Market. For purposes
hereof and the respective tax reporting positions of the parties hereto, each
party hereto agrees that the percentage of the cash portion of the Merger
Consideration to be received by the Stockholder pursuant to Section 2.04 which
equals 1% of the Stockholder's Pro Rata Share of the Transaction Value will
represent, and be received as, consideration for the Stockholder's agreement to
observe the covenants in this Section 10.01.
Section 10.02. DAMAGES. Because of the difficulty of measuring
economic losses to ARS as a result of any breach by the Stockholder of his
covenants in Section 10.01, and because of the immediate and irreparable damage
that could be caused to ARS for which it would have no other adequate remedy,
the Stockholder agrees that ARS may enforce the provisions of Section 10.01 by
injunctions and restraining orders against the Stockholder if he breaches any of
those provisions.
Section 10.03. REASONABLE RESTRAINT. The parties hereto each
agree that Sections 10.01 and 10.02 impose a reasonable restraint on the
Stockholder in light of the activities and business of ARS on the date hereof,
the current business plans of ARS and the investment by the Stockholder in ARS
pursuant to one of the Other Agreements.
Section 10.04. SEVERABILITY; REFORMATION. The covenants in
this Article X are severable and separate, and the unenforceability of any
specific covenant in this Article X is not intended by any party hereto to, and
shall not, affect the provisions of any other covenant in this Article X. If any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth in Section 10.01 are unreasonable as applied
to the Stockholder, the parties hereto, including the Stockholder, acknowledge
their mutual intention and agreement that those restrictions be enforced to the
fullest extent the court deems reasonable, and thereby shall be reformed to that
extent as applied to the Stockholder.
Section 10.05. INDEPENDENT COVENANT. All the covenants in this
Article X are intended by each party hereto to, and shall, be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of the Stockholder against ARS,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by ARS of any covenant in this Article X. It is
specifically agreed that the period specified in Section 10.01 shall be computed
by excluding from that computation any time during which the Stockholder is in
violation of any provision of Section 10.01. The covenants contained in this
Article X shall not be affected by any breach of any other provision hereof by
any party hereto.
Section 10.06. MATERIALITY. The Company and the Stockholder
hereby agree that this Article X is a material and substantial part of the
transactions contemplated hereby.
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ARTICLE XI
GENERAL PROVISIONS
Section 11.01. TREATMENT OF CONFIDENTIAL INFORMATION. Each
party hereto will comply with each covenant for which provision is made in
Section 11.01 of the Uniform Provisions (the text of which Section hereby is
incorporated herein by this reference) to be performed or observed by that
party.
Section 11.02. [Intentionally Omitted]
Section 11.03. BROKERS AND AGENTS. The Stockholder represents
and warrants to ARS that the Company has not directly or indirectly employed or
become obligated to pay any broker or similar agent in connection with the
transactions contemplated hereby and agrees, without regard to the Threshold
Amount limitations set forth in Article IX, to indemnify ARS against all Damage
Claims arising out of claims for any and all fees and commissions of brokers or
similar agents employed or promised payment by the Company.
Section 11.04. ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of ARS, and the heirs and legal representatives
of the Stockholder. Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies hereunder or thereunder,
except as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise
provided expressly herein or therein.
Section 11.05. ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This
Agreement and the documents delivered pursuant hereto constitute the entire
agreement and understanding among the Stockholders, the Company, Newco and ARS
and supersede all prior agreements and understandings, both written and oral,
relating to the subject matter of this Agreement. This Agreement may be amended,
modified or supplemented, and any right hereunder may be waived, if, but only
if, that amendment, modification, supplement or waiver is in writing and signed
by the Stockholder, the Company and ARS. The waiver of any of the terms and
conditions hereof shall not be construed or interpreted as, or deemed to be, a
waiver of any other term or condition hereof.
Section 11.06. COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
Section 11.07. EXPENSES. Whether or not the transactions
contemplated hereby are consummated, (a) ARS will pay the fees, expenses and
disbursements of ARS and Newco and their Representatives which are incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance of and compliance
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with all conditions to be performed by ARS and Newco under this Agreement,
including the costs of preparing the Registration Statement, (b) the Stockholder
will pay from personal funds, and not from funds of the Company or any Company
Subsidiary, all sales, use, transfer and other similar taxes and fees
(collectively, "Transfer Taxes") incurred in connection with the transactions
contemplated hereby and (c) the Company will pay the fees, expenses and
disbursements of Counsel for the Company and the Stockholder incurred in
connection with the subject matter of this Agreement and the Registration
Statement on or before the IPO Closing Date (which fees, expenses and
disbursements, together with the fees, expenses and disbursements of counsel for
the other Combined Companies and their stockholders, will, to the extent accrued
through the IPO Closing Date but then unpaid, be recorded as a liability of the
Company for the purpose of determining the Closing Date Working Capital and
resulting Positive Working Capital Adjustment or Negative Working Capital
Adjustment, as the case may be); provided, however, if the Company or the
Stockholder terminates this Agreement otherwise than as permitted by Article
XII, the Company will, no later than 10 Houston, Texas business days after ARS
makes a written request therefor, reimburse ARS in the amount equal to the
aggregate fees, costs and other expenses invoiced to ARS by Arthur Andersen LLP
in connection with its audit of the financial statements of the Combined
Companies at December 31, 1995 and for the 12-month period then ended. The
Stockholder will file all necessary documentation and Returns with respect to
all Transfer Taxes. In addition, the Stockholder acknowledges that he, and not
the Company or ARS or the Surviving Corporation, will pay all Taxes due upon
receipt of the consideration payable to the Stockholder pursuant to Article II.
Section 11.08. NOTICES. All notices required or permitted
hereunder shall be in writing, and shall be deemed to be delivered and received
(a) if personally delivered or if delivered by telex, telegram, facsimile or
courier service, when actually received by the party to whom notice is sent or
(b) if delivered by mail (whether actually received or not), at the close of
business on the third Houston, Texas business day next following the day when
placed in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
(i) if to ARS or Newco, addressed to it at:
American Residential Services, Inc.
5850 San Felipe
Suite 500
Houston, Texas 77057
Attn.: C. Clifford Wright, Jr.
Chief Executive Officer
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with copies (which shall not constitute notice for purposes of this
Agreement) to:
Baker & Botts, L.L.P.
One Shell Plaza
Houston, Texas 77002-4995
Attn: James L. Leader, Esq.;
(ii) if to the Stockholder, addressed to him at his address
set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
FLORIDA HEATING AND AIR CONDITIONING, INC.
1700 Banks Road
Margate, Florida 33063
Attn: Elliot Sokolow
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Weinstein, Rosenthal & Tobin, P.C.
1776 Resurgens Plaza
945 East Paces Ferry Road, N.E.
Atlanta, Georgia 30326
Attn: Melvin E. Weinstein, Esq.
SECTION 11.09. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF; PROVIDED, HOWEVER,
THAT ARTICLE X AND THE RIGHTS AND OBLIGATIONS THEREUNDER OF THE PARTIES THERETO
WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE
STATE OF FLORIDA WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10. EXERCISE OF RIGHTS AND REMEDIES. Except as
otherwise provided herein, no delay or omission in the exercise of any right,
power or remedy accruing to any party hereto as a result of any breach or
default hereunder by any other party hereto shall impair any such right, power
or remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11. TIME. Time is of the essence in the performance
of this Agreement in all respects.
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Section 11.12. REFORMATION AND SEVERABILITY. If any provision
of this Agreement is invalid, illegal or unenforceable, that provision shall, to
the extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13. REMEDIES CUMULATIVE. No right, remedy or
election given by any term of this Agreement shall be deemed exclusive, but each
shall be cumulative with all other rights, remedies and elections available at
law or in equity.
Section 11.14. RESPECTING THE IPO. Each of the Company and the
Stockholder acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither ARS or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholder or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that ARS will use its reasonable best efforts to
cause the Registration Statement to become effective prior to December 31, 1996)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of the Stockholder to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to ARS or the
IPO. The Underwriter shall have no obligation to either the Company or the
Stockholder with respect to any disclosure contained in the Registration
Statement.
ARTICLE XII
TERMINATION
Section 12.01. TERMINATION OF THIS AGREEMENT. (a) This
Agreement may be terminated at any time prior to the Effective Time solely:
(i) by the mutual written consent of ARS and the Company;
(ii) by the Stockholder or the Company, on the one hand, or by
ARS, on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated
by December 31, 1996, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the
case of the Stockholder and the Company, either of them) seeking to
terminate this Agreement to perform or adhere to any agreement required
hereby to be performed or adhered to by it prior to or at the Closing
or thereafter on the IPO Closing Date;
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(iii) by the Stockholder or the Company, on the one hand, or
by ARS, on the other hand, if a material breach or default shall be
made by the other party (or in the case of the Stockholder and the
Company, either of them) in the observance or in the due and timely
performance of any of the covenants, agreements or conditions contained
herein; or
(iv) by ARS if it is entitled to do so as provided in Section
6.08.
(b) This Agreement may be terminated after the Closing solely:
(i) by ARS or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City business
days after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section
12.01, the Merger will be deemed for all purposes to have been abandoned and of
no force or effect. If this Agreement is terminated pursuant to this Section
12.01 after the Certificate of Merger has been filed with the Department of
State of the State of Florida, but before the IPO has been consummated, ARS will
take all actions that Counsel for the Company and the Stockholder advises ARS
are required by the applicable laws of the State of Florida in order to rescind
the Merger.
Section 12.02. LIABILITIES IN EVENT OF TERMINATION. If this
Agreement is terminated pursuant to Section 12.01, there shall be no liability
or obligation on the part of any party hereto except (a) as provided in Section
11.07 and (b) to the extent that such liability is based on the breach by that
party of any of its representations, warranties or covenants set forth in this
Agreement.
-18-
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
AMERICAN RESIDENTIAL SERVICES, INC.
By:__________________________________________
C. Clifford Wright, Jr.
Chief Executive Officer and President
ARS FHAC INC.
By:__________________________________________
C. Clifford Wright, Jr.
Chief Executive Officer and President
FLORIDA HEATING AND AIR CONDITIONING, INC.
By:__________________________________________
Elliot Sokolow
President
STOCKHOLDER:
__________________________________________
Elliot Sokolow
-19-
ADDENDUM 1
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.
ARS FHAC Inc.,
FLORIDA HEATING AND AIR CONDITIONING, INC.
and
the Stockholder named therein
A. Words and terms used in this Addendum which are defined in the
captioned Agreement to which this is an Addendum are used herein as therein
defined.
B. The Founding Companies are:
Atlas Services, Inc.
Bullseye Air Conditioning, Inc.
Climatic Corporation of Vero Beach
DIAL ONE Meridian and Hoosier, Inc.
Enterprises Holding Company
Florida Heating and Air Conditioning, Inc.
Florida Heating and Air Conditioning Service, Inc.
Florida Heating and Air Duct, Inc.
General Heating Engineering Company, Inc.
<PAGE>
SCHEDULE 2.03
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS FHAC Inc.,
FLORIDA HEATING AND AIR CONDITIONING, INC.
and
the Stockholder named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.03 are used
herein as defined therein.
B. The directors of the Surviving Corporation immediately after the
Effective Time are as follows: Howard S. Hoover, Jr., William P. McCaughey and
C. Clifford Wright, Jr.
C. The officers of the Surviving Corporation immediately following the
Effective Time are as follows:
President....................................... Elliot Sokolow
Vice President and Assistant Secretary........... William P. McCaughey
Vice President and Secretary..................... John D. Held
<PAGE>
SCHEDULE 2.04
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS FHAC Inc.,
FLORIDA HEATING AND AIR CONDITIONING, INC.
and
the Stockholder named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.04 are used
herein as defined therein.
B. The name and address of the Stockholder is as follows:
ADDRESS
Elliot Sokolow.................. 2751 Northeast 47th Street
Lighthouse Point, Florida 33064
C. Subject to increase or reduction by the application of the Positive
Working Capital Adjustment or the Negative Working Capital Adjustment, as the
case may be, the aggregate Merger Consideration will be comprised of $4,999,999
in cash, and the Stockholder, who owns all 800 outstanding shares of Company
Common Stock, will be entitled to receive the entire Merger Consideration
pursuant to Section 2.04 subject to the provisions of Section 2.05.
<PAGE>
SCHEDULE 3.02
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS FHAC Inc.,
FLORIDA HEATING AND AIR CONDITIONING, INC.
and
the Stockholder named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.2 are used
herein as defined therein.
B. Elliot Sokolow owns all the 800 outstanding shares of Company Common
Stock.
C. Exception is taken for such Lien as is attributable to the Common
Stock Option dated December 21, 1987 and granted by the Stockholder in favor of
Charles Meyer, which option the Stockholder will purchase from Mr. Meyer on the
IPO Closing Date.
<PAGE>
SCHEDULE 3.07
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS FHAC Inc.,
FLORIDA HEATING AND AIR CONDITIONING, INC.
and
the Stockholder named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.07 are used
herein as defined therein.
B. The Stockholder is, alone or with one or more other Persons, the
controlling Affiliate of the following Entities, businesses or trades (other
than the Company and the Company Subsidiaries, if the Stockholder is an
Affiliate of the Company) that (a) are engaged in any line of business which is
the same as or similar to any line of business in which the Company or any
Company Subsidiary is engaged or (b) are, or have within the three-year period
ending on the date of this Agreement, engaged in any transaction with the
Company or any Company Subsidiary, except for transactions in the ordinary
course of business of the Company or that Company Subsidiary:
1. Florida Heating and Air Conditioning, Inc., Florida Heating
and Air Conditioning Service, Inc., Bullseye Air Conditioning, Inc., and
Florida Heating and Air Duct, Inc., all have common ownership or somewhat common
ownership. The common ownership is disclosed more fully in Schedule 3.02 for
each of those companies.
2. The Company leases space from FHAC Building Limited, which
is owned or controlled by Elliot P. Sokolow and Robert J. Rogoff.
<PAGE>
SCHEDULE 4.11
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS FHAC Inc.,
FLORIDA HEATING AND AIR CONDITIONING, INC..
and
the Stockholder named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 4.11 are used
herein as defined therein.
B. The following Related Party Agreement will be permitted to continue
in effect past the date of the Closing in accordance with its terms:
Office/Warehouse Lease Agreement dated as of November 1, 1989
between E.M.E.S., Ltd. d/b/a FHAC Commerce Center, as lessor, and the
Company, as lessee, relating to the Company's main office and warehouse
facility in Margate, Florida and the related Addendum and the
Assumption and Indemnity Agreement between E.M.E.S., Ltd. and FHAC
Building, Ltd. The building was sold on 1/27/90 to FHAC Building, Ltd.
The lease term in such Lease Agreement will be extended through May 31,
2005. The owners of FHAC Building, Ltd. are Elliot P. Sokolow (79%
interest), Robert J. Rogoff (20% interest) and a corporate general
partner (1%) owned and controlled by Sokolow, the name of which
corporate general partner is FHAC Building, Inc.
<PAGE>
SCHEDULE 6.04
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS FHAC Inc.,
FLORIDA HEATING AND AIR CONDITIONING, INC.
and
the Stockholder named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.04 are used
herein as defined therein.
B. The Company and the Company Subsidiaries may make the following
Restricted Payments prior to the Effective Time:
None
<PAGE>
SCHEDULE 6.12
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS FHAC Inc.,
FLORIDA HEATING AND AIR CONDITIONING, INC.
and
the Stockholder named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.12 are used
herein as defined therein.
B. The Company will make all arrangements and take all such actions as
are necessary and satisfactory to ARS to dispose, prior to the Effective Time,
of the following assets:
None
<PAGE>
SCHEDULE 8.05
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS FHAC Inc.,
FLORIDA HEATING AND AIR CONDITIONING, INC.
and
the Stockholder named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 8.05 are used
herein as defined therein.
B. At or within 60 days following the Effective Time, ARS will cause
the following Stockholder Guaranties to be terminated:
FORD MOTOR CREDIT
3111 N. University Drive #800
Coral Springs, FL 33075
PJA953EP5K Truck Loan
PJA953EROX "
PJA953EROR "
PJA953EROT "
PJA953EP5N "
PJA953EP5M "
PJA953EN6G "
PJA953EROW "
PJA953EW1Y "
PJA953EW1X "
TFA210599J "
BARNETT BANK
P.O. Box 2759
Jacksonville, FL 32256
060-960-3697257-9001 Car Loan
REPUBLIC SECURITY BANK
7601 N. Federal Highway
Boca Raton, FL 33487
8000679001 Truck Loan
RHEEM MANUFACTURING
P.O. Box 249-F
St. Louis, MO 63150 Florida Heating & Air
Purchases Conditioning Inc.
CARRIER CORPORATION 2100 NW 88 Ct.
Miami, FL 33172 Florida Heating & Air
Purchases Conditioning Inc.
AMWEST SURETY INSURANCE CO.
P.O. Box 4500
Woodlands Hills, CA 91365-4500 Bonds
EXHIBIT 2.3
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF JUNE 13, 1996
BY AND AMONG
AMERICAN RESIDENTIAL SERVICES, INC.,
ARS ATLAS INC.,
ATLAS SERVICES, INC.
AND
THE STOCKHOLDERS AND OTHER STOCKHOLDERS NAMED HEREIN
-1-
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS..............................................1
ARTICLE II THE MERGER AND RELATED MATTERS...........................5
Section 2.01. Certificate of Merger..................................5
Section 2.02. The Effective Time.....................................5
Section 2.03. Certain Effects of the Merger..........................5
Section 2.04. Effect of the Merger on Capital Stock..................6
Section 2.05. Delivery, Exchange and Payment.........................7
Section 2.06. Fractional Shares......................................8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
AND OTHER STOCKHOLDERS...................................9
Section 3.01. By Each Stockholder....................................9
ARTICLE IV REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE STOCKHOLDERS.....................10
Section 4.01. By the Company and Each Stockholder...................10
ARTICLE V REPRESENTATIONS AND WARRANTIES OF ARS AND NEWCO.........11
Section 5.01. By ARS and Newco......................................11
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME...............11
Section 6.01. Of Each Party.........................................11
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION............................................11
Section 7.01. The Closing and Certain Conditions....................11
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME..................13
Section 8.01. Of Each Party Other Than the Company..................13
ARTICLE IX INDEMNIFICATION.........................................13
Section 9.01. Indemnification Rights and Obligations................13
ARTICLE X LIMITATIONS ON COMPETITION..............................13
Section 10.01. Prohibited Activities................................13
Section 10.02. Damages..............................................14
Section 10.03. Reasonable Restraint.................................14
Section 10.04. Severability; Reformation............................14
Section 10.05. Independent Covenant.................................14
-i-
Section 10.06. Materiality..........................................15
ARTICLE XI GENERAL PROVISIONS......................................15
Section 11.01. Treatment of Confidential Information................15
Section 11.02. Restrictions on Transfer of ARS Common Stock.........15
Section 11.03. Brokers and Agents...................................16
Section 11.04. Assignment; No Third Party Beneficiaries.............16
Section 11.05. Entire Agreement; Amendment; Waivers.................17
Section 11.06. Counterparts.........................................17
Section 11.07. Expenses.............................................17
Section 11.08. Notices..............................................18
Section 11.09. Governing Law........................................19
Section 11.10. Exercise of Rights and Remedies......................19
Section 11.11. Time.................................................19
Section 11.12. Reformation and Severability.........................19
Section 11.13. Remedies Cumulative..................................19
Section 11.14. Respecting the IPO...................................19
ARTICLE XII TERMINATION.............................................20
Section 12.01. Termination of This Agreement........................20
Section 12.02. Liabilities in Event of Termination..................21
-ii-
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement")
is made as of June 13, 1996, by and among American Residential Services, Inc., a
Delaware corporation ("ARS"), ARS Atlas Inc., a South Carolina corporation and a
wholly owned subsidiary of ARS ("Newco"), Atlas Services, Inc., a South Carolina
corporation (the "Company"), and the persons listed on the signature pages
hereof under the caption "Stockholders" (collectively, the "Stockholders," and
each of those persons, individually, a "Stockholder") or the caption "Other
Stockholders."
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their
best long-term interests to effect a business combination pursuant to which:
(a) Newco will merge into the Company on the terms and subject
to the conditions set forth herein (that merger being the "Merger");
(b) ARS will acquire the stock of all or some of the entities
listed in the accompanying Addendum 1 (each an "Other Founding Company"
and, collectively with the Company, the "Founding Companies") pursuant
to agreements that are (i) similar to this Agreement and (ii) entered
into among those entities and their equity owners, ARS and subsidiaries
of ARS (collectively, the "Other Agreements"); and
(c) ARS shall effect a public offering of shares of its common
stock and issue and sell those shares.
The respective boards of directors of ARS, Newco and the
Company have approved and adopted this Agreement to effect a transaction subject
to Section 351 of the Code.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements, representations and undertakings contained herein, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. CERTAIN DEFINED TERMS. As used in this
Agreement, the following terms have the meanings assigned to them below in this
Section 1.01. Capitalized terms used in this Agreement and not defined below in
this Section 1.01 have the meanings assigned to them in the Preliminary
Statement or Article I of the Uniform Provisions (the text of which Article
hereby is incorporated herein by this reference), as the case may be.
-1-
"ADJUSTMENT DETERMINATION DATE" means the date that is 30 days
following delivery by ARS of the Post-closing Statement to the
Stockholders, unless the Closing Date Working Capital and the Positive
Working Capital Adjustment or the Negative Working Capital Adjustment,
as the case may be, are determined pursuant to Section 2.05 by Arthur
Andersen LLP, in which event the Adjustment Determination Date is the
date Arthur Andersen LLP delivers those determinations in writing to
ARS.
"AGREED RATE" means 8.0% per annum.
"AGREEMENT" means this Agreement, including the Disclosure
Statement relating to this Agreement and all attached Schedules,
Annexes and Exhibits, as each of the same may be amended, modified or
supplemented from time to time pursuant to the provisions hereof or
thereof.
"ARS" means American Residential Services, Inc., a Delaware
corporation.
"ARS ACQUISITION CANDIDATE" means any Entity engaged in any of
the businesses of providing repair, maintenance, replacement or
warranty and annual contract maintenance services for Plumbing,
heating/air conditioning and electrical systems to owners or occupants
of single-family homes, duplexes, condominiums and small commercial
facilities, designing and installing of any of those systems in new
construction, selling and servicing home appliances and other similar
residential and building services (i) which was called on by any of the
Company, ARS or the Subsidiaries of the Company or ARS in connection
with the possible acquisition by any of them of that Entity or (ii) of
which any of them has made an acquisition analysis.
"CLOSING DATE BALANCE SHEET" of the Company means a
consolidated balance sheet of the Company and the Company Subsidiaries
as at the IPO Closing Date which is prepared in accordance with GAAP on
a basis consistent with the basis on which the Current Balance Sheet
was prepared.
"CLOSING DATE WORKING CAPITAL" of the Company means the
Company's Working Capital as determined from the Closing Date Balance
Sheet, provided, that if that determination is made pursuant to Section
2.05 by Arthur Andersen LLP, the amount equal to 50% of the fees and
expenses of Arthur Andersen LLP which are attributable to its audit of
the Closing Date Balance Sheet and its making of that determination
will be deemed a liability of the Company for the purpose of
determining its Closing Date Working Capital and resulting Positive
Working Capital Adjustment or Negative Working Capital Adjustment, as
the case may be.
"CLOSING MEMORANDUM" means the form of closing memorandum to
be prepared by ARS for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided
in Article VII.
-2-
"COMPANY" means Atlas Services, Inc., a South Carolina
corporation.
"COMPANY COMMON STOCK" means the common stock, par value $1.00
per share, of the Company.
"COUNSEL FOR ARS AND NEWCO" means Baker & Botts, L.L.P.
"COUNSEL FOR THE COMPANY AND THE STOCKHOLDERS" means Evans,
Carter, Kunes & Bennett, P.A.
"CURRENT BALANCE SHEET" means the unaudited consolidated
balance sheet of the Company and the Company Subsidiaries as at March
31, 1996.
"CURRENT BALANCE SHEET DATE" means March 31, 1996.
"DISCLOSURE STATEMENT" means the written statement executed by
the Company and each of the Stockholders and delivered to ARS prior to
the execution and delivery of this Agreement by ARS and Newco in which
either (a) exceptions are taken to each of certain of the
representations and warranties made by the Company and the Stockholders
herein or (b) it is confirmed that no exception is taken to that
representation and warranty.
"DISSENTING SHARES" has the meaning specified in Section 2.04.
"INITIAL FINANCIAL STATEMENTS" means (a) the audited
consolidated balance sheets of the Company as at June 30, 1994 and 1995
and December 31, 1995 and the related audited consolidated statements
of income (operations), cash flows and stockholders' equity for each of
the Company's three fiscal years in the three-year period ended June
30, 1995 and the year ended December 31, 1995, together with the
related audit report of Arthur Andersen LLP, and (b) the Current
Balance Sheet and the related unaudited consolidated statements of
income (operations), cash flows and stockholders' equity for the three-
and 10-month periods ended on the Current Balance Sheet Date.
"INTERIM DATE BALANCE SHEET" of the Company means the balance
sheet as at the end of the Company's fiscal quarter next preceding the
date of the Closing which is included in the Financial Statements.
"INTERIM DATE WORKING CAPITAL" of the Company means the
Company's Working Capital as determined from the Interim Date Balance
Sheet by ARS on a basis consistent with the determination of the
Company's Working Capital from the Current Balance Sheet.
"INTERIM NEGATIVE WORKING CAPITAL ADJUSTMENT" means the
amount, if any, by which the Company's Interim Date Working Capital is
more negative than ($1,702,237).
-3-
"INTERIM POSITIVE WORKING CAPITAL ADJUSTMENT" means the
amount, if any, by which the Company's Interim Date Working Capital is
greater (or less negative) than ($1,702,237).
"MERGER CONSIDERATION" has the meaning specified in Section
2.04.
"NEGATIVE WORKING CAPITAL ADJUSTMENT" means the amount, if
any, by which the Company's Closing Date Working Capital is more
negative than ($1,702,237).
"NEWCO" means ARS Atlas Inc., a Delaware corporation.
"OTHER STOCKHOLDER" means each owner, of record and/or
beneficially, of Company Common Stock other than the Stockholders.
"POSITIVE WORKING CAPITAL ADJUSTMENT" means the amount, if
any, by which the Company's Closing Date Working Capital is greater (or
less negative) than ($1,702,237).
"POST-CLOSING STATEMENT" has the meaning specified in Section
2.05.
"PRO RATA SHARE" means for each Stockholder and each Other
Stockholder the fraction expressed as a percentage and set forth in
Schedule 2.04, (a) the numerator of which is the number of shares of
outstanding Company Common Stock owned by that Person, as set forth in
Schedule 2.04, and (b) the denominator of which is the total number of
shares of outstanding Company Common Stock owned by all Stockholders
and Other Stockholders, as set forth in Schedule 2.04.
"PURCHASER REPRESENTATIVE" means a "purchaser representative"
as defined in Securities Act Rule 501(h).
"REQUIRED STOCKHOLDERS" means, at the time of any
determination, Stockholders who, at the Effective Time, will be or were
entitled, subject to the provisions of Section 2.05, to receive Merger
Consideration representing not less than 80% of the total Merger
Consideration to be received by all Stockholders pursuant to Section
2.04.
"RESPONSIBLE OFFICER" means Gorden H. Timmons.
"SCHEDULED AGREEMENTS" means the agreements described in
Schedule 4.11.
"SCBCA" means the South Carolina Business Corporation Act of
1988.
"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement
entered into as of June 13, 1996 among ARS, the Stockholders, the Other
Stockholders and the other Persons parties thereto.
-4-
"SURVIVING CORPORATION" means the Company, the Person to be
designated in the Certificate of Merger as the surviving corporation of
the Merger.
"TERRITORY" has the meaning specified in Section 10.01.
"TIMMONS EMPLOYMENT AGREEMENT" means the Employment Agreement
entered into as of June 13, 1996 between ARS and Gorden H. Timmons.
"THRESHOLD AMOUNT" means 2% of the Transaction Value.
"TRANSACTION VALUE" means (a) at any time prior to the
Adjustment Determination Date, $21,000,000, and (b) on and after the
Adjustment Determination Date, $21,000,000 plus the Positive Working
Capital Adjustment, if any, or minus the Negative Working Capital
Adjustment, if any.
"TRANSFER TAXES" has the meaning specified in Section 11.07.
"UNIFORM PROVISIONS" means the Uniform Provisions of ARS for
the Acquisition of Founding Companies attached hereto as Annex 1.
"WORKING CAPITAL" of the Company means, as at any date and as
determined by reference to a consolidated balance sheet of the Company
and the Company Subsidiaries as at that date which is prepared in
accordance with GAAP, the amount by which (a) the sum, without
duplication of amounts, of all amounts that are included and classified
as current assets on that balance sheet exceeds, or is exceeded by, (b)
the sum, without duplication of amounts, of all amounts that are
included and classified as liabilities or as mandatorily redeemable
Capital Stock on that balance sheet; if at any time those current
assets are exceeded by those liabilities, Working Capital will be
expressed as a negative amount.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. CERTIFICATE OF MERGER. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the date of the Closing to the
Secretary of State of the State of South Carolina.
Section 2.02. THE EFFECTIVE TIME. The effective time of the
Merger (the "Effective Time") will be the time on the IPO Closing Date which the
Certificate of Merger specifies or, if the Certificate of Merger does not
specify another time, 8:00 a.m., eastern daylight standard time, on the IPO
Closing Date.
Section 2.03. CERTAIN EFFECTS OF THE MERGER. At and as of the
Effective Time, (a) Newco will be merged with and into the Company in accordance
with the provisions of the SCBCA,
-5-
(b) Newco will cease to exist as a separate legal entity, (c) the articles of
incorporation of the Company will be amended to change the Company's authorized
shares of capital stock to 1,000 shares, par value $1.00 per share, of Common
Stock, (c) the Company will be the Surviving Corporation and, as such, will, all
with the effect provided by the SCBCA, (i) possess all the properties and
rights, and be subject to all the restrictions and duties, of the Company and
Newco and (ii) be governed by the laws of the State of South Carolina, (d) the
Charter Documents of the Company then in effect (after giving effect to the
amendment of the Company's articles of incorporation specified in clause (c) of
this sentence) will become and thereafter remain (until changed in accordance
with (i) the applicable law (in the case of the articles of incorporation) or
(ii) its terms (in the case of the bylaws)) the Charter Documents of the
Surviving Corporation, (f) the initial board of directors of the Surviving
Corporation will be the persons named in Schedule 2.03, and those persons will
hold the office of director of the Surviving Corporation subject to the
provisions of the applicable laws of the State of South Carolina and the Charter
Documents of the Surviving Corporation, and (g) the initial officers of the
Surviving Corporation will be as set forth in Schedule 2.03, and each of those
persons will serve in each office specified for that person in Schedule 2.03,
subject to the provisions of the Charter Documents of the Surviving Corporation,
until that person's successor is duly elected to, and, if necessary, qualified
for, that office.
Section 2.04. EFFECT OF THE MERGER ON CAPITAL STOCK. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the
right to receive, subject to the provisions of Section 2.05, without
interest, on surrender of the certificate evidencing those shares, (A)
the amount of cash and the number of whole shares of ARS Common Stock
set forth or determined as provided in Schedule 2.04 (the "Merger
Consideration") and (B) the amount of cash for and in lieu of
fractional shares of ARS Common Stock as will be determined pursuant to
Section 2.06, (ii) cease to be outstanding and to exist and (iii) be
canceled and retired;
(b) each share of Company Common Stock held in the treasury of
the Company or any Company Subsidiary will (i) cease to be outstanding
and to exist and (ii) be canceled and retired; and
(c) each share of Newco Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into one
share of Common Stock, par value $1.00 per share, of the Surviving
Corporation, and the shares of Common Stock of the Surviving
Corporation issued on that conversion will constitute all the issued
and outstanding shares of Capital Stock of the Surviving Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, subject to the provisions of Section 2.05, without interest,
the Merger Consideration and the additional cash, if any, owing with respect to
those shares
-6-
as provided in Section 2.06. Notwithstanding the foregoing, the right to receive
the Merger Consideration will not apply to any shares of Company Common Stock
which shall have statutory appraisal rights perfected with respect thereto
("Dissenting Shares"), if those rights are available, pursuant to the provisions
of Chapter 13 of the SCBCA, it being intended and agreed that any holder of
those shares shall have in consideration for the cancellation thereof only the
rights, if any, afforded to that holder under Chapter 13 of the SCBCA.
Section 2.05. DELIVERY, EXCHANGE AND PAYMENT. (a) At or after
the Effective Time: (i) each Stockholder and Other Stockholder, as the holder of
certificates representing shares of Company Common Stock, will, on surrender of
those certificates to ARS (or any agent that may be appointed by ARS for
purposes of this Section 2.05), receive, subject to the provisions of this
Section 2.05 and Section 2.06, the Merger Consideration; and (ii) until any
certificate representing Company Common Stock has been surrendered and replaced
pursuant to this Section 2.05, that certificate will, for all purposes, be
deemed to evidence ownership of the number of whole shares of ARS Common Stock
included in the Merger Consideration payable in respect of that certificate
pursuant to Section 2.04. All shares of ARS Common Stock issuable in the Merger
will be deemed for all purposes to have been issued by ARS at the Effective
Time.
(b) Each Stockholder and Other Stockholder will deliver to ARS
(or any agent that may be appointed by ARS for purposes of this Section 2.05) on
or before the IPO Closing Date the certificates representing Company Common
Stock owned by the Stockholder, duly endorsed in blank by that Person, or
accompanied by duly executed stock powers in blank, and with all necessary
transfer tax and other revenue stamps, acquired at that Person's expense,
affixed and canceled. Each Stockholder and Other Stockholder shall cure any
deficiencies in the endorsement of the certificates or other documents of
conveyance respecting, or in the stock powers accompanying, the certificates
representing Company Common Stock delivered by that Person.
(c) No dividends (or interest) or other distributions declared
or earned after the Effective Time with respect to ARS Common Stock and payable
to the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of ARS Common Stock have been issued in the Merger until
those certificates are surrendered as provided herein, but (i) on that surrender
ARS will cause to be paid, to the Person in whose name the certificates
representing such shares of ARS Common Stock shall then be issued, the amount of
dividends or other distributions previously paid with respect to such whole
shares of ARS Common Stock with a record date, or which have accrued, subsequent
to the Effective Time, but prior to surrender, and the amount of any cash
payable to such Person for and in lieu of fractional shares pursuant to Section
2.06 and (ii) at the appropriate payment date or as soon as practicable
thereafter, ARS will cause to be paid to that Person the amount of dividends or
other distributions with a record date, or which have been accrued, subsequent
to the Effective Time, but which are not payable until a date subsequent to
surrender, which are payable with respect to such whole shares of ARS Common
Stock, subject in all cases to any applicable escheat laws. No interest will be
payable with respect to the payment of such dividends or other distributions or
cash for and in lieu of fractional shares on surrender of outstanding
certificates.
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(d) Prior to the date of the Closing, ARS will cause to be
prepared and delivered to the Stockholders a statement setting forth the Interim
Positive Working Capital Adjustment, if any, or the Interim Negative Working
Capital Adjustment, if any. If an Interim Positive Working Capital Adjustment
has been determined, ARS will, promptly after the Effective Time, but subject to
the certificate surrender requirements of Section 2.05(a), pay to the
Stockholders and the Other Stockholders, without interest, their respective Pro
Rata Shares of the amount of the Interim Positive Working Capital Adjustment.
(e) As soon as practicable, and in any event within 60 days,
following the Effective Time, ARS will cause to be prepared and delivered to the
Stockholders and the Other Stockholders (i) the Closing Date Balance Sheet and
(ii) a statement (the "Post-closing Statement") of the Closing Date Working
Capital and the Positive Working Capital Adjustment, if any, or the Negative
Working Capital Adjustment, if any. The Post-closing Statement will be final and
binding on ARS, the Stockholders and the Other Stockholders unless, within 30
days following the delivery of the Post-closing Statement, a Stockholder
notifies ARS in writing that the Stockholder does not accept as correct the
amount of the Closing Date Working Capital or the amount of the Positive Working
Capital Adjustment or the Negative Working Capital Adjustment, as set forth in
the Postclosing Statement. If any Stockholder timely delivers to ARS that notice
respecting the Post-closing Statement, the Closing Date Balance Sheet will be
audited, and the Closing Date Working Capital and the Positive Working Capital
Adjustment or the Negative Working Capital Adjustment will be determined within
30 days after the delivery to ARS of that notice, by Arthur Andersen LLP, and
these determinations will be final and binding on ARS and all the Stockholders
and the Other Stockholders.
(f) If a Positive Working Capital Adjustment is determined
with finality pursuant to Section 2.05(e), ARS will, promptly after the
Adjustment Determination Date, but subject to the certificate surrender
requirements of Section 2.05(a), pay to the Stockholders and the Other
Stockholders their respective Pro Rata Shares of the amount, together with
interest thereon from (and including) the IPO Closing Date to (but excluding)
the Adjustment Determination Date at the Agreed Rate, by which (i) the amount of
the Positive Working Capital Adjustment exceeds (ii) the amount of the Interim
Positive Working Capital Adjustment, if any. If a Negative Working Capital
Adjustment is determined with finality pursuant to Section 2.05(e), the
Stockholders and Other Stockholders will, no later than 10 Houston, Texas
business days after ARS makes a written request therefor, pay in cash their
respective Pro Rata Shares of the sum of (A) the amount of the Negative Working
Capital Adjustment and (B) the Interim Positive Working Capital Adjustment, if
any, together with interest on that sum at the Agreed Rate from (and including)
the IPO Closing Date to (but excluding) the Adjustment Determination Date.
Section 2.06. FRACTIONAL SHARES. Notwithstanding any other
provision herein, no fractional shares of ARS Common Stock will be issued, and
any Stockholder or Other Stockholder entitled hereunder to receive a fractional
share of ARS Common Stock but for this Section 2.06 will be entitled hereunder
to receive a cash payment for and in lieu thereof in the amount (rounded to the
nearest whole cent) equal to that Person's fractional interest in a share of ARS
Common Stock multiplied by the IPO Price.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
AND OTHER STOCKHOLDERS
Section 3.01. BY EACH STOCKHOLDER. Each of the Stockholders
and the Other Stockholders represents and warrants to ARS that, as applied
solely to himself, all the following representations and warranties in this
Article III are as of the date of this Agreement, and will be, as amended or
supplemented pursuant to Section 6.08, on the date of the Closing and the IPO
Closing Date, true and correct:
(a) (i) he will be acquiring the shares of ARS Common Stock to
be issued pursuant to Section 2.04 to him solely for his account, for
investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in
connection with any distribution; (ii) he is not a party to any
agreement or other arrangement for the disposition of any shares of ARS
Common Stock other than this Agreement and the Registration Rights
Agreement; (iii) Schedule 3.01(b) correctly states (A) whether he is,
or is not, an "accredited investor" as defined in Securities Act Rule
501(a) and, if he is not such an investor, (B) the name and address of
his Purchaser Representative; (iv) he (A) is able to bear the economic
risk of an investment in the ARS Common Stock acquired pursuant to this
Agreement, (B) can afford to sustain a total loss of that investment,
(C) has such knowledge and experience in financial and business matters
that he is capable of evaluating the merits and risks of the proposed
investment in the ARS Common Stock, (D) or his Purchaser
Representative, if any, has had an adequate opportunity to ask
questions and receive answers from the officers of ARS concerning any
and all matters relating to the transactions contemplated hereby,
including the background and experience of the current and proposed
officers and directors of ARS, the plans for the operations of the
business of ARS, the business, operations and financial condition of
the Other Founding Companies and any plans of ARS for additional
acquisitions, and (E) or his Purchaser Representative, if any, has
asked all questions of the nature described in preceding clause (D),
and all those questions have been answered to his satisfaction and the
satisfaction of his Purchaser Representative, if any; and
(b) the representations and warranties contained in Article
III of the Uniform Provisions (the text of which Article (in which the
term "Stockholder" means a Stockholder or an Other Stockholder for
purposes hereof) hereby is incorporated herein by this reference) are
true and correct as applied solely to himself, and his agreements set
forth in that Article hereby are agreed to.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF
THE COMPANY AND THE STOCKHOLDERS
Section 4.01. BY THE COMPANY AND EACH STOCKHOLDER. The Company
and each Stockholder jointly and severally represent and warrant to, and agree
with, ARS that all the following representations and warranties in this Article
IV are as of the date of this Agreement, and will be, as amended or supplemented
pursuant to Section 6.08, on the date of the Closing and the IPO Closing Date,
true and correct:
(a) the Organization State of each of the Company and the
Company Subsidiaries is the State of South Carolina, and each of the
Company and the Company Subsidiaries (i) is a corporation duly
organized, validly existing and in good standing under the laws of that
State, (ii) has all requisite corporate power and authority under those
laws and its Charter Documents to own or lease and to operate its
properties and to carry on its business as now conducted and (iii) is
duly qualified and in good standing as a foreign corporation in all
jurisdictions (other than the State of South Carolina) in which it owns
or leases property or in which the carrying on of its business as now
conducted so requires except where the failure to be so qualified,
singly or in the aggregate, would not have a Material Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is
comprised of 100,000 shares of Company Common Stock, of which 24,303
shares have been issued and are now outstanding and no shares are held
by the Company as treasury shares, and (ii) no outstanding Derivative
Securities of the Company exist;
(c) (i) the terms and conditions of each of the Scheduled
Agreements are no less favorable to the Company than the Company
reasonably could have expected to obtain in an arm's-length transaction
with a Person other than an Affiliate of the Company, (ii) the rentals
provided for in the Scheduled Agreements constituting leases do not and
will not exceed fair market rentals of the properties being rented or
leased under those Scheduled Agreements and (iii) the payments provided
to be made in the other Scheduled Agreement do not exceed the fair
market value of the services performed;
(d) prior to the date hereof: (i) (A) the articles of
incorporation of the Company shall have been duly amended by all
necessary corporate action on the part of the Company and the
Stockholders to (1) authorize the Company to engage in any business in
which the SCBCA permits a corporation incorporated thereunder lawfully
to engage and (2) abolish the preemptive rights of holders of Company
Common Stock and (B) the articles reflecting these amendments shall
have been duly filed with and accepted by the Secretary of State of the
State of South Carolina; and (ii) each Stockholder and each Other
Stockholder shall have executed and delivered to the Company, in form
and substance satisfactory to ARS, a written
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instrument that: (A) acknowledges the Company is and has, and releases
the Company for having and continuing to be, engaged in businesses
beyond the purposes presently set forth in the Company's articles of
incorporation; and (B) (1) acknowledges the Company may have issued and
sold Company Common Stock to one or more of the other Stockholders or
Other Stockholders in violation of the preemptive rights the SCBCA
affords the acknowledging Stockholder or Other Stockholder and (2)
releases all claims of every kind the acknowledging Stockholder or
Other Stockholder has or might have against the Company and each other
Stockholder and Other Stockholder as a result of those sales; and
(e) the representations and warranties contained in Article IV
of the Uniform Provisions (the text of which Article hereby is
incorporated herein by this reference) are true and correct, and the
agreements set forth in that Article hereby are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ARS AND NEWCO
Section 5.01. BY ARS AND NEWCO. ARS and Newco jointly and
severally represent and warrant to the Company and each Stockholder that all the
following representations and warranties in this Article V are as of the date of
this Agreement, and will be on the date of the Closing and the IPO Closing Date,
true and correct: (a) Newco is a corporation duly organized, validly existing
and in good standing under the laws of the State of South Carolina, (b) no
Derivative Securities of Newco are outstanding, (c) Newco has been organized for
the sole purpose of participating in the Merger and has not, and will not,
engage in any activities other than those necessary to effectuate the Merger and
(d) the representations and warranties contained in Article V of the Uniform
Provisions (the text of which Article hereby is incorporated herein by this
reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01. OF EACH PARTY. Until the Effective Time, subject
to the waiver provisions of Section 11.05, each party hereto will comply with
each covenant for which provision is made in Article VI of the Uniform
Provisions (the text of which Article hereby is incorporated herein by this
reference) to be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01. THE CLOSING AND CERTAIN CONDITIONS. (a) THE
CLOSING. On or before the IPO Pricing Date, the parties hereto will take all
actions necessary to (i) effect the Merger (including, as permitted by the
SCBCA, (A) the execution of a Certificate of Merger (1) meeting
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the requirements of the SCBCA and (2) providing that the Merger will become
effective on the IPO Closing Date and (B) the filing of that Certificate with
the Secretary of State of the State of South Carolina), (ii) verify the
existence and ownership of the certificates evidencing the Company Common Stock
to be exchanged for the Merger Consideration pursuant to Section 2.05 and (iii)
satisfy the document delivery requirements to which the obligations of the
parties to effect the Merger and the other transactions contemplated hereby are
conditioned by the provisions of this Article VII (all those actions
collectively being the "Closing"). The Closing will take place at the offices of
Baker & Botts, L.L.P., 38th Floor, 910 Louisiana, Houston, Texas at 10:00 a.m.,
Houston time, or at such later time on the IPO Pricing Date as ARS shall specify
by written notice to Gorden H. Timmons. The actions taken at the Closing will
not include the completion of either the Merger or the delivery of the Company
Common Stock or the Merger Consideration pursuant to Section 2.05. Instead, on
the IPO Closing Date, the Certificates of Merger will become effective pursuant
to Section 2.02, and all transactions contemplated by this Agreement to be
closed or completed on or before the IPO Closing Date, including the surrender
of the Company Common Stock in exchange for the Merger Consideration (including
a certified check or checks in an amount equal to the cash portion of the Merger
Consideration) will be closed or completed, as the case may be. During the
period from the Closing to the IPO Closing Date, this Agreement may be
terminated by the parties only pursuant to Section 12.01(b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY, THE
STOCKHOLDERS AND THE OTHER STOCKHOLDERS. The obligations of the Company, the
Stockholders and the Other Stockholders with respect to the actions to be taken
by them at or before the Closing are subject to the satisfaction on or before
the date of the Closing, or waiver by them pursuant to Section 11.05, of all the
conditions set forth in Sections 7.02(a) and 7.03. The obligations of the
Stockholders with respect to the actions to be taken on the IPO Closing Date are
subject to the satisfaction on that date of the following conditions: (i) each
of the Stockholders' Agreement and the Timmons Employment Agreement then shall
be in full force and effect; and (ii) all the conditions set forth in Section
7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF ARS AND NEWCO.
The obligations of ARS and Newco with respect to actions to be taken by them at
or before the Closing are subject to the satisfaction on or before the date of
the Closing, or waiver by them pursuant to Section 11.05, of the following
conditions: (i) the Company shall have delivered to ARS copies of the articles
of incorporation, each as amended to the date of the Closing and certified by
the Secretary of State of the State of South Carolina as of a Current Date, of
the Company and each Company Subsidiary; and (ii) all the conditions set forth
in Sections 7.02(a) and 7.04(a).
(d) The obligations of ARS and Newco with respect to the
actions to be taken on the IPO Closing Date are subject to the satisfaction on
that date of the following conditions: (i) the Timmons Employment Agreement then
shall be in full force and effect; and (ii) all the conditions set forth in
Sections 7.02(b) and 7.04(b).
(e) The text of Article VII of the Uniform Provisions hereby
is incorporated herein by this reference.
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ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01. OF EACH PARTY OTHER THAN THE COMPANY. From and
after the Effective Time, subject to the waiver provisions of Section 11.05,
each party hereto (other than the Company) will comply with each covenant for
which provision is made in Article VIII of the Uniform Provisions (the text of
which Article hereby is incorporated herein by this reference) to be performed
or observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01. INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text
of Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. For purposes of Section 9.07(a), the Pro Rata Shares of the
Transaction Value are 60% and 40%, respectively, for Gorden H. Timmons and
Gorden H. Timmons, as Trustee under Gorden H. Timmons Retained Annuity Trust.
For purposes of Section 9.07(b), the Transaction Value is 82.2943% of the amount
determined as the Transaction Value for other purposes hereof.
ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.01. PROHIBITED ACTIVITIES. Each Stockholder agrees,
severally and not jointly with any other Person, that he will not, during the
period beginning on the date hereof and ending on the third anniversary of the
date hereof, directly or indirectly, for any reason, for his own account or on
behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether
as an employee, independent contractor, consultant or advisor, or as a
sales representative or distributor of any kind, in any business
selling any products or providing any services in competition with the
Company, any Company Subsidiary or ARS or any Subsidiary of ARS (ARS
and its Subsidiaries collectively being "ARS" for purposes of this
Article X) within a radius of 100 miles of each location in which any
of the Company or the Company Subsidiaries was engaged in business on
the date hereof or immediately prior to the Effective Time (those
locations collectively being the "Territory");
(b) call on any natural person who is at that time employed by
the Company, any Company Subsidiary or ARS in any managerial capacity
with the purpose or intent of attracting that person from the employ of
the Company, any Company Subsidiary or ARS, provided that the
Stockholder may call on and hire any of his Immediate Family Members;
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(c) call on any Person that at that time is, or at any time
within one year prior to that time was, a customer of the Company, any
Company Subsidiary or ARS within the Territory, (i) for the purpose of
soliciting or selling any product or service in competition with the
Company, any Company Subsidiary or ARS within the Territory and (ii)
with the knowledge of that customer relationship; or
(d) call on any ARS Acquisition Candidate, with the knowledge
of that Person's status as an ARS Acquisition Candidate, for the
purpose of acquiring that Person or arranging the acquisition of that
Person by any Person other than ARS.
Notwithstanding the foregoing, any Stockholder may own and hold as a passive
investment up to 1% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock is listed on the New York Stock Exchange or included
in the Nasdaq National Market. For purposes hereof and the respective tax
reporting positions of the parties hereto, each party hereto agrees that the
percentage of the cash portion of the Merger Consideration to be received by
each Stockholder pursuant to Section 2.04 which equals 1% of that Stockholder's
Pro Rata Share of the Transaction Value will represent, and be received as,
consideration for that Stockholder's agreement to observe the covenants in this
Section 10.01.
Section 10.02. DAMAGES. Because of the difficulty of measuring
economic losses to ARS as a result of any breach by a Stockholder of his
covenants in Section 10.01, and because of the immediate and irreparable damage
that could be caused to ARS for which it would have no other adequate remedy,
each Stockholder agrees that ARS may enforce the provisions of Section 10.01 by
injunctions and restraining orders against that Stockholder if he breaches any
of those provisions.
Section 10.03. REASONABLE RESTRAINT. The parties hereto each
agree that Sections 10.01 and 10.02 impose a reasonable restraint on the
Stockholders in light of the activities and business of ARS on the date hereof,
the current business plans of ARS and the investment by each Stockholder in ARS
as a result of the Merger.
Section 10.04. SEVERABILITY; REFORMATION. The covenants in
this Article X are severable and separate, and the unenforceability of any
specific covenant in this Article X is not intended by any party hereto to, and
shall not, affect the provisions of any other covenant in this Article X. If any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth in Section 10.01 are unreasonable as applied
to any Stockholder, the parties hereto, including that Stockholder, acknowledge
their mutual intention and agreement that those restrictions be enforced to the
fullest extent the court deems reasonable, and thereby shall be reformed to that
extent as applied to that Stockholder and any other Stockholder similarly
situated.
Section 10.05. INDEPENDENT COVENANT. All the covenants in this
Article X are intended by each party hereto to, and shall, be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of any Stockholder against ARS,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to
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the enforcement by ARS of any covenant in this Article X. It is specifically
agreed that the period specified in Section 10.01 shall be computed in the case
of each Stockholder by excluding from that computation any time during which
that Stockholder is in violation of any provision of Section 10.01. The
covenants contained in this Article X shall not be affected by any breach of any
other provision hereof by any party hereto.
Section 10.06. MATERIALITY. The Company and each Stockholder,
severally and not jointly with any other Person, hereby agree that this Article
X is a material and substantial part of the transactions contemplated hereby.
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. TREATMENT OF CONFIDENTIAL INFORMATION. Each
party hereto will comply with each covenant for which provision is made in
Section 11.01 of the Uniform Provisions (the text of which Section hereby is
incorporated herein by this reference) to be performed or observed by that
party.
Section 11.02. RESTRICTIONS ON TRANSFER OF ARS COMMON STOCK.
(a) During the two-year period ending on the second anniversary of the IPO
Closing Date (the "Restricted Period") (or if the two-year "holding" period for
restricted securities under Rule 144 under the Securities Act is reduced by the
SEC, the Restricted Period will be correspondingly reduced), no Stockholder
voluntarily will, except pursuant to and in accordance with the applicable
provisions of the Registration Rights Agreement: (i) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint or otherwise dispose of (A) any
shares of ARS Common Stock received by any Stockholder in the Merger or (B) any
interest in (including any option to buy or sell) any of those shares of ARS
Common Stock, in whole or in part, and ARS will have no obligation to, and shall
not, treat any such attempted transfer as effective for any purpose; or (ii)
engage in any transaction, whether or not with respect to any shares of ARS
Common Stock or any interest therein, the intent or effect of which is to reduce
the risk of owning the shares of ARS Common Stock acquired pursuant to Section
2.04 (including, for example engaging in put, call, short-sale, straddle or
similar market transactions); provided, however, that this Section 11.02 shall
not restrict any transfer of ARS Common Stock acquired by a Stockholder pursuant
to Section 2.04 to any of that Stockholder's Related Persons who agree in
writing to be bound by the provisions of Section 11.01 and this Section 11.02.
The certificates evidencing the ARS Common Stock delivered to each Stockholder
and Other Stockholder pursuant to Section 2.05 will bear a legend substantially
in the form set forth below and containing such other information as ARS may
deem necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE
OTHER PARTIES THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY
NOT BE VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED,
PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE
ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY
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ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE,
PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF ANY OF THOSE
SHARES, DURING THE TWO-YEAR PERIOD ENDING ON __________ [DATE THAT IS
THE SECOND ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED
PERIOD") (OR IF THE TWO YEAR "HOLDING" PERIOD FOR RESTRICTED SECURITIES
UNDER RULE 144 UNDER THE SECURITIES ACT OF 1933 IS REDUCED BY THE
SECURITIES AND EXCHANGE COMMISSION, THE RESTRICTED PERIOD WILL BE
CORRESPONDINGLY REDUCED). ON THE WRITTEN REQUEST OF THE HOLDER OF THIS
CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND
ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED
ABOVE.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of ARS Common Stock to be delivered to
that Stockholder pursuant to Section 2.04 have not been and, except pursuant to
the Registration Rights Agreement, if applicable, will not be registered under
the Securities Act and therefore may not be resold by that Stockholder without
compliance with the Securities Act and (ii) covenants that none of the shares of
ARS Common Stock issued to that Stockholder pursuant to Section 2.04 will be
offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable provisions of
the Securities Act and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of ARS
Common Stock issued pursuant to Section 2.04 will bear the following legend in
addition to the legend prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF
THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE
SECURITIES LAWS.
In addition, certificates evidencing shares of ARS Common Stock issued pursuant
to Section 2.04 to each Stockholder and Other Stockholder will bear any legend
required by the securities or blue sky laws of the state in which that
Stockholder resides.
Section 11.03. BROKERS AND AGENTS. The Stockholders jointly
and severally represent and warrant to ARS that the Company has not directly or
indirectly employed or become obligated to pay any broker or similar agent in
connection with the transactions contemplated hereby and agree, without regard
to the Threshold Amount limitations set forth in Article IX, to indemnify ARS
against all Damage Claims arising out of claims for any and all fees and
commissions of brokers or similar agents employed or promised payment by the
Company.
Section 11.04. ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of ARS, and the heirs and legal representatives
of the Stockholders (and, in the case of any trust, the successor trustees of
that trust). Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies
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hereunder or thereunder, except as provided in Section 6.05(b) or 11.14, in
Article IX or as otherwise provided expressly herein or therein.
Section 11.05. ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This
Agreement and the documents delivered pursuant hereto constitute the entire
agreement and understanding among the Stockholders, the Company, Newco and ARS
and supersede all prior agreements and understandings, both written and oral,
relating to the subject matter of this Agreement. This Agreement may be amended,
modified or supplemented, and any right hereunder may be waived, if, but only
if, that amendment, modification, supplement or waiver is in writing and signed
by the Required Stockholders, the Company and ARS; provided, however, that no
such amendment, modification, supplement or waiver will be effective unless it
is signed by each Stockholder affected thereby to the extent that it (a) changes
the several nature of that Stockholder's representations and warranties (to the
extent they are not already joint and several as provided in Sections 4.01 and
11.03), (b) reduces the amount, or changes the components, of the Merger
Consideration that Stockholder is entitled to receive pursuant to Section 2.04,
as adjusted pursuant to Section 2.05(f), (c) waives the consummation of the IPO
as a condition to consummation of the Merger or (d) amends or waives this
sentence. The waiver of any of the terms and conditions hereof shall not be
construed or interpreted as, or deemed to be, a waiver of any other term or
condition hereof.
Section 11.06. COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
Section 11.07. EXPENSES. Whether or not the transactions
contemplated hereby are consummated, (a) ARS will pay the fees, expenses and
disbursements of ARS and Newco and their Representatives which are incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance of and compliance
with all conditions to be performed by ARS and Newco under this Agreement,
including the costs of preparing the Registration Statement, (b) the
Stockholders and Other Stockholders will pay from personal funds, and not from
funds of the Company or any Company Subsidiary, all sales, use, transfer and
other similar taxes and fees (collectively, "Transfer Taxes") incurred in
connection with the transactions contemplated hereby and (c) the Company will
pay the fees, expenses and disbursements of Counsel for the Company and the
Stockholders incurred in connection with the subject matter of this Agreement
and the Registration Statement on or before the IPO Closing Date (which fees,
expenses and disbursements will, to the extent accrued through the IPO Closing
Date but then unpaid, be recorded as a liability of the Company for the purpose
of determining its Closing Date Working Capital and resulting Positive Working
Capital Adjustment or Negative Working Capital Adjustment, as the case may be);
provided, however, if the Company or the Required Stockholders terminate this
Agreement otherwise than as permitted by Article XII, the Company will, no later
than 10 Houston, Texas business days after ARS makes a written request therefor,
reimburse ARS in the amount equal to the aggregate fees, costs and other
expenses invoiced to ARS by Arthur Andersen LLP in connection with its audit of
the Company's financial statements at December 31, 1995 and for the 12-month
period then ended. The Stockholders will, and will cause the Other Stockholders
to, file all necessary documentation and Returns with respect to all Transfer
-17-
Taxes. In addition, each Stockholder acknowledges that he, and not the Company
or ARS or the Surviving Corporation, will pay all Taxes due upon receipt of the
consideration payable to that Stockholder pursuant to Article II.
Section 11.08. NOTICES. All notices required or permitted
hereunder shall be in writing, and shall be deemed to be delivered and received
(a) if personally delivered or if delivered by telex, telegram, facsimile or
courier service, when actually received by the party to whom notice is sent or
(b) if delivered by mail (whether actually received or not), at the close of
business on the third Houston, Texas business day next following the day when
placed in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
(i) if to ARS or Newco, addressed to it at:
American Residential Services, Inc.
5850 San Felipe
Suite 500
Houston, Texas 77057
Attn.: C. Clifford Wright, Jr.
Chief Executive Officer
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Baker & Botts, L.L.P.
One Shell Plaza
Houston, Texas 77002-4995
Attn: James L. Leader, Esq.;
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
Atlas Services, Inc.
3548 Oscar Johnson Drive
Charleston, South Carolina 29405
Attn: Gorden H. Timmons
and marked "Personal and Confidential"
-18-
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Evans, Carter, Kunes & Bennett, P.A.
151 Meeting Street, Suite 415
Charleston, South Carolina 29402-0369
Attn: George C. Evans, Esq.
SECTION 11.09. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF; PROVIDED, HOWEVER,
THAT ARTICLE X AND THE RIGHTS AND OBLIGATIONS THEREUNDER OF THE PARTIES THERETO
WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE
STATE OF SOUTH CAROLINA WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS
THEREOF.
Section 11.10. EXERCISE OF RIGHTS AND REMEDIES. Except as
otherwise provided herein, no delay or omission in the exercise of any right,
power or remedy accruing to any party hereto as a result of any breach or
default hereunder by any other party hereto shall impair any such right, power
or remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11. TIME. Time is of the essence in the performance
of this Agreement in all respects.
Section 11.12. REFORMATION AND SEVERABILITY. If any provision
of this Agreement is invalid, illegal or unenforceable, that provision shall, to
the extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13. REMEDIES CUMULATIVE. No right, remedy or
election given by any term of this Agreement shall be deemed exclusive, but each
shall be cumulative with all other rights, remedies and elections available at
law or in equity.
Section 11.14. RESPECTING THE IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither ARS or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that ARS will use its reasonable best efforts to
cause the Registration
-19-
Statement to become effective prior to December 31, 1996) or (ii) the IPO to
occur at a particular price or within a particular range of prices or to occur
at all; and (c) the decision of Stockholders to enter into this Agreement, or to
vote in favor of or consent to the Merger, has been or will be made independent
of, and without reliance on, any statements, opinions or other communications
of, or due diligence investigations that have been or will be made or performed
by, any prospective underwriter relative to ARS or the IPO. The Underwriter
shall have no obligation to any of the Company and the Stockholders or the Other
Stockholders with respect to any disclosure contained in the Registration
Statement.
ARTICLE XII
TERMINATION
Section 12.01. TERMINATION OF THIS AGREEMENT. (a) This
Agreement may be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of ARS and the Company;
(ii) by the Stockholders or the Company, on the one hand, or
by ARS, on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated
by December 31, 1996, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the
case of the Stockholders and the Company, any of them) seeking to
terminate this Agreement to perform or adhere to any agreement required
hereby to be performed or adhered to by it prior to or at the Closing
or thereafter on the IPO Closing Date;
(iii) by the Stockholders or the Company, on the one hand, or
by ARS, on the other hand, if a material breach or default shall be
made by the other party (or in the case of the Stockholders and the
Company, any of them) in the observance or in the due and timely
performance of any of the covenants, agreements or conditions contained
herein; or
(iv) by ARS if it is entitled to do so as provided in Section
6.08;
(b) This Agreement may be terminated after the Closing solely:
(i) by ARS or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City business
days after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section
12.01, the Merger will be deemed for all purposes to have been abandoned and of
no force or effect. If this Agreement is terminated pursuant to this Section
12.01 after the Certificate of Merger has been filed with the
-20-
Secretary of State of the State of South Carolina, but before the IPO has been
consummated, ARS will take all actions that Counsel for the Company and the
Stockholders advises ARS are required by the applicable laws of the State of
South Carolina in order to rescind the Merger.
Section 12.02. LIABILITIES IN EVENT OF TERMINATION. If this
Agreement is terminated pursuant to Section 12.01, there shall be no liability
or obligation on the part of any party hereto except (a) as provided in Section
11.07 and (b) to the extent that such liability is based on the breach by that
party of any of its representations, warranties or covenants set forth in this
Agreement.
-21-
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
AMERICAN RESIDENTIAL SERVICES, INC.
By:
C. Clifford Wright, Jr.
Chief Executive Officer and President
ARS ATLAS INC.
By:
C. Clifford Wright, Jr.
Chief Executive Officer and President
ATLAS SERVICES, INC.
By:
Gorden H. Timmons
President
STOCKHOLDERS:
Gorden H. Timmons
Gorden H. Timmons as Trustee
under Gorden H. Timmons
Retained Annuity Trust
OTHER STOCKHOLDERS:
*
William Quick
-22-
*
Mark Strong
*
George Walker
*
John Lee
*
David Bowey
*
Jeff Long
*
Wyatt Hammack
*
Amanda Fogarty
*
Amy Timmons Mahoney
*
Melanie Berg
*
Marc Fogarty
*
Robert Childers
-23-
*
Elton Starling
*
Scott Stepp
*
Timothy Jay Browder
*
Victor Musmanno
*
William Strickland
*
Al Lewis
*
Ron Washington
*By:
Gorden H. Timmons
Attorney-in-Fact
-24-
ADDENDUM 1
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Atlas Inc.,
Atlas Services, Inc.
and
the Stockholders and Other Stockholders named therein
A. Words and terms used in this Addendum which are defined in
the captioned Agreement to which this is an Addendum are used herein as therein
defined.
B. The Founding Companies are:
Atlas Services, Inc.
Bullseye Air Conditioning, Inc.
Climatic Corporation of Vero Beach
DIAL ONE Meridian and Hoosier, Inc.
Enterprises Holding Company
Florida Heating and Air Conditioning, Inc.
Florida Heating and Air Conditioning Service, Inc.
Florida Heating and Air Duct, Inc.
General Heating Engineering Company, Inc.
-25-
SCHEDULE 2.03
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Atlas Inc.,
Atlas Services, Inc.
and
the Stockholders and Other Stockholders named therein
A. Words and terms used in this Schedule which are defined in
the captioned agreement to which this Schedule is attached as Schedule 2.03 are
used herein as defined therein.
B. The directors of the Surviving Corporation immediately
after the Effective Time are as follows: Howard S. Hoover, Jr., William P.
McCaughey and C. Clifford Wright, Jr.
C. The officers of the Surviving Corporation immediately
following the Effective Time are as follows:
President ...............................................Gorden H. Timmons
Vice President and Assistant Secretary...................William P. McCaughey
Vice President and Secretary ............................John D. Held
-26-
SCHEDULE 2.04
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Atlas Inc.,
Atlas Services, Inc.
and
the Stockholders and Other Stockholders named therein
A. Words and terms used in this Schedule which are defined in
the captioned Agreement to which this Schedule is attached as Schedule 2.04 are
used herein as defined therein.
B. The name and address of each Stockholder and Other
Stockholder are as follows:
STOCKHOLDERS ADDRESS
C/O ATLAS SERVICES, INC.
3548 OSCAR JOHNSON DRIVE
GORDEN H. TIMMONS............................ CHARLESTON, SC 29405
GORDEN H. TIMMONS AS TRUSTEE C/O ATLAS SERVICES, INC.
UNDER GORDEN H. TIMMONS RETAINED 3548 OSCAR JOHNSON DRIVE
ANNUITY TRUST ..................... CHARLESTON, SC 29405
OTHER STOCKHOLDERS:
C/O ATLAS SERVICES, INC.
3548 OSCAR JOHNSON DRIVE
WILLIAM R. QUICK............................. CHARLESTON, SC 29405
C/O ATLAS SERVICES, INC.
3548 OSCAR JOHNSON DRIVE
GEORGE M. WALKER............................. CHARLESTON, SC 29405
C/O ATLAS SERVICES, INC.
3548 OSCAR JOHNSON DRIVE
WYATT HAMMACK................................ CHARLESTON, SC 29405
-27-
STOCKHOLDERS ADDRESS
C/O ATLAS SERVICES, INC.
3548 OSCAR JOHNSON DRIVE
MARK W. STRONG............................... CHARLESTON, SC 29405
C/O ATLAS SERVICES, INC.
3548 OSCAR JOHNSON DRIVE
AMY TIMMONS MAHONEY.......................... CHARLESTON, SC 29405
C/O ATLAS SERVICES, INC.
3548 OSCAR JOHNSON DRIVE
MELANIE BERG DEHAVER......................... CHARLESTON, SC 29405
C/O ATLAS SERVICES, INC.
3548 OSCAR JOHNSON DRIVE
MARC. T. FOGARTY............................. CHARLESTON, SC 29405
C/O ATLAS SERVICES, INC.
3548 OSCAR JOHNSON DRIVE
JEFFREY LONG................................. CHARLESTON, SC 29405
C/O ATLAS SERVICES, INC.
3548 OSCAR JOHNSON DRIVE
ELTON A. STARLING............................ CHARLESTON, SC 29405
C/O ATLAS SERVICES, INC.
3548 OSCAR JOHNSON DRIVE
SCOTT STEPP.................................. CHARLESTON, SC 29405
C/O ATLAS SERVICES, INC.
3548 OSCAR JOHNSON DRIVE
VICTOR MUSMANNO.............................. CHARLESTON, SC 29405
C/O ATLAS SERVICES, INC.
3548 OSCAR JOHNSON DRIVE
WILLIAM STRICKLAND........................... CHARLESTON, SC 29405
-28-
STOCKHOLDERS ADDRESS
C/O ATLAS SERVICES, INC.
3548 OSCAR JOHNSON DRIVE
JOHN LEE..................................... CHARLESTON, SC 29405
C/O ATLAS SERVICES, INC.
3548 OSCAR JOHNSON DRIVE
DAVID BOWEY ................................. CHARLESTON, SC 29405
C/O ATLAS SERVICES, INC.
3548 OSCAR JOHNSON DRIVE
AMANDA FOGARTY .............................. CHARLESTON, SC 29405
C/O ATLAS SERVICES, INC.
3548 OSCAR JOHNSON DRIVE
ROBERT CHILDERS ............................. CHARLESTON, SC 29405
C/O ATLAS SERVICES, INC.
3548 OSCAR JOHNSON DRIVE
TIMOTHY JAY BROWDER ......................... CHARLESTON, SC 29405
C/O ATLAS SERVICES, INC.
3548 OSCAR JOHNSON DRIVE
AL LEWIS .................................... CHARLESTON, SC 29405
C/O ATLAS SERVICES, INC.
3548 OSCAR JOHNSON DRIVE
RON WASHINGTON .............................. CHARLESTON, SC 29405
C. SUBJECT TO INCREASE OR REDUCTION BY THE APPLICATION OF THE
POSITIVE WORKING CAPITAL ADJUSTMENT OR THE NEGATIVE WORKING CAPITAL ADJUSTMENT,
AS THE CASE MAY BE, THE AGGREGATE MERGER CONSIDERATION WILL BE COMPRISED OF (1)
$5,000,000 IN CASH AND (2) SUCH NUMBER OF WHOLE AND FRACTIONAL SHARES OF ARS
COMMON STOCK AS SHALL EQUAL THE QUOTIENT OF (A) $21,000,000 DIVIDED BY (B) THE
IPO PRICE, AND THE STOCKHOLDERS AND THE OTHER STOCKHOLDERS WILL BE ENTITLED TO
RECEIVE THE MERGER CONSIDERATION PURSUANT TO SECTION 2.04 AS FOLLOWS:
-29-
SHARES OF
PRE-MERGER SHARE OF
COMPANY MERGER CONSIDERATION
COMMON PRO RATA -------------------
STOCK OWNED SHARE CASH STOCK
------ -------- --------- --------
STOCKHOLDERS:
GORDEN H. TIMMONS ................ 12,000 49.376 80.0000% 39.8068%
------ -------- --------- --------
GORDEN H. TIMMONS AS
TRUSTEE UNDER GORDEN H ........
TIMMONS RETAINED
ANNUITY TRUST ................. 8,000 32.917 19.6276 37.0709
------ -------- --------- --------
OTHER STOCKHOLDERS:
William R. Quick .............. 702 2.8885 -- 3.7911
------ -------- --------- --------
George M. Walker .............. 838 3.4481 -- 4.5257
------ -------- --------- --------
Wyatt Hammack ................. 992 4.0818 -- 5.3574
------ -------- --------- --------
Mark W. Strong ................ 202 0.8311 -- 1.0972
------ -------- --------- --------
Amy Timmons Mahoney ........... 243 0.9998 -- 1.3123
------ -------- --------- --------
Melanie Berg DeHaven .......... 30 0.1234 -- 0.1620
------ -------- --------- --------
Marc T. Fogarty ............... 18 0.0741 -- 0.0972
------ -------- --------- --------
Jeffrey Long .................. 441 1.8145 -- 2.3817
------ -------- --------- --------
Elton A. Starling ............. 54 0.2221 -- 0.2916
------ -------- --------- --------
Scott Stepp ................... 23 0.0946 -- 0.1242
------ -------- --------- --------
Victor Musmanno ............... 19 0.0781 -- 0.1026
------ -------- --------- --------
William Strickland ............ 14 0.0576 -- 0.0756
------ -------- --------- --------
John Lee ...................... 198 0.814 0.3421 0.9624
------ -------- --------- --------
David Bowey ................... 30 0.1234 -- 0.1620
------ -------- --------- --------
Amanda Fogarty ................ 344 1.4155 -- 1.8578
------ -------- --------- --------
Robert Childers ............... 59 0.2428 -- 0.3186
------ -------- --------- --------
Timothy Jay Browder ........... 6 0.2477 -- 0.0324
------ -------- --------- --------
Al Lewis ...................... 83 0.3415 -- 0.4482
------ -------- --------- --------
Ron Washington ................ 7 0.028 0.0302 0.0283
------ -------- --------- --------
24,303 100.00% 100.00% 100.00%
------ -------- --------- --------
-30-
SCHEDULE 3.01
TO THE
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF JUNE 13, 1996
BY AND AMONG
AMERICAN RESIDENTIAL SERVICES, INC.,
ARS ATLAS INC.,
ATLAS SERVICES, INC.
AND
THE STOCKHOLDERS AND OTHER STOCKHOLDERS NAMED THEREIN
A. WORDS AND TERMS USED IN THIS SCHEDULE WHICH ARE DEFINED IN
THE CAPTIONED AGREEMENT TO WHICH THIS SCHEDULE IS ATTACHED AS SCHEDULE 3.01 ARE
USED HEREIN AS THEREIN DEFINED.
B. EACH STOCKHOLDER IS AN "ACCREDITED INVESTOR" AS DEFINED IN
SECURITIES ACT RULE 501(A).
C. NONE OF THE OTHER INVESTORS IS AN "ACCREDITED INVESTOR" AS
DEFINED IN SECURITIES ACT RULE 501(A), BUT IS REPRESENTED BY GLENN D. GIBBONS,
CPA, 1417 REMOUNT ROAD, NORTH CHARLESTON, SOUTH CAROLINA 29406-3306, WHO IS
ACTING AS HIS OR HER PURCHASER REPRESENTATIVE.
-31-
SCHEDULE 3.02
TO THE
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF JUNE 13, 1996
BY AND AMONG
AMERICAN RESIDENTIAL SERVICES, INC.,
ARS ATLAS INC.,
ATLAS SERVICES, INC.
AND
THE STOCKHOLDER NAMED THEREIN
A. WORDS AND TERMS USED IN THIS SCHEDULE WHICH ARE DEFINED IN
THE CAPTIONED AGREEMENT TO WHICH THIS SCHEDULE IS ATTACHED AS SCHEDULE 3.02 ARE
USED HEREIN AS DEFINED THEREIN.
B. THE RECORD AND BENEFICIAL OWNERS OF THE COMPANY CAPITAL
STOCK AND ALL LIENS ON SUCH STOCK ARE AS FOLLOWS:
OWNER SHARES LIENS
----- ------ -----
SEE PARAGRAPH (C) OF SCHEDULE 2.04 NONE
- ---------------------------------- ----
-32-
SCHEDULE 3.07
TO THE
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF JUNE 13, 1996
BY AND AMONG
AMERICAN RESIDENTIAL SERVICES, INC.,
ARS ATLAS INC.,
ATLAS SERVICES, INC.
AND
THE STOCKHOLDER NAMED THEREIN
A. WORDS AND TERMS USED IN THIS SCHEDULE WHICH ARE DEFINED IN
THE CAPTIONED AGREEMENT TO WHICH THIS SCHEDULE IS ATTACHED AS SCHEDULE 3.07 ARE
USED HEREIN AS DEFINED THEREIN.
B. THE STOCKHOLDER IS, ALONE OR WITH ONE OR MORE OTHER
PERSONS, THE CONTROLLING AFFILIATE OF THE FOLLOWING ENTITIES, BUSINESSES OR
TRADES (OTHER THAN THE COMPANY AND THE COMPANY SUBSIDIARIES, IF THE STOCKHOLDER
IS AN AFFILIATE OF THE COMPANY) THAT (A) ARE ENGAGED IN ANY LINE OF BUSINESS
WHICH IS THE SAME AS OR SIMILAR TO ANY LINE OF BUSINESS IN WHICH THE COMPANY OR
ANY COMPANY SUBSIDIARY IS ENGAGED OR (B) ARE, OR HAVE WITHIN THE THREE-YEAR
PERIOD ENDING ON THE DATE OF THIS AGREEMENT, ENGAGED IN ANY TRANSACTION WITH THE
COMPANY OR ANY COMPANY SUBSIDIARY, EXCEPT FOR TRANSACTIONS IN THE ORDINARY
COURSE OF BUSINESS OF THE COMPANY OR THAT COMPANY SUBSIDIARY:
NONE
-33-
SCHEDULE 4.11
TO THE
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF JUNE 13, 1996
BY AND AMONG
AMERICAN RESIDENTIAL SERVICES, INC.,
ARS ATLAS INC.,
ATLAS SERVICES, INC.
AND
THE STOCKHOLDERS AND OTHER STOCKHOLDERS NAMED THEREIN
A. WORDS AND TERMS USED IN THIS SCHEDULE WHICH ARE DEFINED IN
THE CAPTIONED AGREEMENT TO WHICH THIS SCHEDULE IS ATTACHED AS SCHEDULE 4.11 ARE
USED HEREIN AS DEFINED THEREIN.
B. THE FOLLOWING RELATED PARTY AGREEMENTS WILL BE PERMITTED TO
CONTINUE IN EFFECT PAST THE DATE OF THE CLOSING IN ACCORDANCE WITH THEIR
RESPECTIVE TERMS, PROVIDED THAT (I) EACH OF THOSE AGREEMENTS SHALL CONTAIN, OR
SHALL BE AMENDED TO CONTAIN, A PROVISION TO THE EFFECT THAT THE RENTALS PAYABLE
BY OR TO THE COMPANY THEREUNDER ALWAYS SHALL BE NO HIGHER, AND MAY BE LOWER,
THAN FAIR MARKET RENTALS AS DETERMINED FROM TIME TO TIME BY AN INDEPENDENT
APPRAISER SELECTED BY ARS:
(1) LEASE DATED AS OF MAY 11, 1995 BETWEEN BLUEBERRY HILL
LIMITED LIABILITY COMPANY ("BLUEBERRY") AND THE COMPANY.
(2) LEASE DATED AS OF DECEMBER 15, 1995 BETWEEN BLUEBERRY AND
THE COMPANY.
(3) LEASE DATED AS OF NOVEMBER 9, 1995 BETWEEN GTM PARTNERSHIP
AND GOLDEN TRIANGLE MECHANICAL, INC., A WHOLLY OWNED SUBSIDIARY OF THE
COMPANY.
(4) LEASING AGENT AGREEMENT BETWEEN COASTLINE REALTY, INC. AND
THE COMPANY.
-34-
SCHEDULE 6.04
TO THE
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF JUNE 13, 1996
BY AND AMONG
AMERICAN RESIDENTIAL SERVICES, INC.,
ARS ATLAS INC.,
ATLAS SERVICES, INC.
AND
THE STOCKHOLDER NAMED THEREIN
A. WORDS AND TERMS USED IN THIS SCHEDULE WHICH ARE DEFINED IN
THE CAPTIONED AGREEMENT TO WHICH THIS SCHEDULE IS ATTACHED AS SCHEDULE 6.04 ARE
USED HEREIN AS DEFINED THEREIN.
B. THE COMPANY AND THE COMPANY SUBSIDIARIES MAY MAKE THE
FOLLOWING RESTRICTED PAYMENTS PRIOR TO THE EFFECTIVE TIME:
NONE
-35-
SCHEDULE 6.12
TO THE
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF JUNE 13, 1996
BY AND AMONG
AMERICAN RESIDENTIAL SERVICES, INC.,
ARS ATLAS INC.,
ATLAS SERVICES, INC.
AND
THE STOCKHOLDER NAMED THEREIN
A. WORDS AND TERMS USED IN THIS SCHEDULE WHICH ARE DEFINED IN
THE CAPTIONED AGREEMENT TO WHICH THIS SCHEDULE IS ATTACHED AS SCHEDULE 6.12 ARE
USED HEREIN AS DEFINED THEREIN.
B. THE COMPANY WILL MAKE ALL ARRANGEMENTS AND TAKE ALL SUCH
ACTIONS AS ARE NECESSARY AND SATISFACTORY TO ARS TO DISPOSE, PRIOR TO THE
EFFECTIVE TIME, OF THE FOLLOWING ASSETS:
1. FORD WINDSTAR
2. CADILLAC STS
3. CHEVROLET TAHOE
4. CESSNA 421 AIRPLANE
-36-
SCHEDULE 8.05
TO THE
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF JUNE 13, 1996
BY AND AMONG
AMERICAN RESIDENTIAL SERVICES, INC.,
ARS ATLAS INC.,
ATLAS SERVICES, INC.
AND
THE STOCKHOLDER NAMED THEREIN
A. WORDS AND TERMS USED IN THIS SCHEDULE WHICH ARE DEFINED IN
THE CAPTIONED AGREEMENT TO WHICH THIS SCHEDULE IS ATTACHED AS SCHEDULE 8.05 ARE
USED HEREIN AS DEFINED THEREIN.
B. AT OR WITHIN 60 DAYS FOLLOWING THE EFFECTIVE TIME, ARS WILL
CAUSE THE FOLLOWING STOCKHOLDER GUARANTIES TO BE TERMINATED:
1. ALL GUARANTEES RELATING TO VEHICLE LOANS.
2. ALL GUARANTEES RELATING TO LINE OF CREDIT WITH NBSC.
3. ALL GUARANTEES RELATING TO MORTGAGES ON ATLAS REAL PROPERTY
BBET.
4. GUARANTY FOR CDC FLOOR PLAN FINANCING.
5. GUARANTEES FOR OTHER ATLAS SUPPLIERS.
-37-
EXHIBIT 2.4
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF JUNE 13, 1996
BY AND AMONG
AMERICAN RESIDENTIAL SERVICES, INC.,
ARS DIAL INC.,
DIAL ONE MERIDIAN AND HOOSIER, INC.
AND
THE STOCKHOLDER NAMED HEREIN
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS..............................................1
ARTICLE II THE MERGER AND RELATED MATTERS...........................5
Section 2.01. Certificate of Merger..................................5
Section 2.02. The Effective Time.....................................5
Section 2.03. Certain Effects of the Merger..........................5
Section 2.04. Effect of the Merger on Capital Stock..................6
Section 2.05. Delivery, Exchange and Payment.........................6
Section 2.06. Fractional Shares......................................8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER........9
Section 3.01. By the Stockholder.....................................9
ARTICLE IV REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE STOCKHOLDER......................10
Section 4.01. By the Company and the Stockholder....................10
ARTICLE V REPRESENTATIONS AND WARRANTIES OF ARS AND NEWCO.........11
Section 5.01. By ARS and Newco......................................11
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME...............11
Section 6.01. Of Each Party.........................................11
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION............................................11
Section 7.01. The Closing and Certain Conditions....................11
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME..................12
Section 8.01. Of Each Party Other Than the Company..................12
ARTICLE IX INDEMNIFICATION.........................................13
Section 9.01. Indemnification Rights and Obligations................13
ARTICLE X LIMITATIONS ON COMPETITION..............................13
Section 10.01. Prohibited Activities................................13
Section 10.02. Damages..............................................14
Section 10.03. Reasonable Restraint.................................14
Section 10.04. Severability; Reformation............................14
Section 10.05. Independent Covenant.................................14
Section 10.06. Materiality..........................................14
-i-
ARTICLE XI GENERAL PROVISIONS......................................15
Section 11.01. Treatment of Confidential Information................15
Section 11.02. Restrictions on Transfer of ARS Common Stock.........15
Section 11.03. Brokers and Agents...................................16
Section 11.04. Assignment; No Third Party Beneficiaries.............16
Section 11.05. Entire Agreement; Amendment; Waivers.................16
Section 11.06. Counterparts.........................................17
Section 11.07. Expenses.............................................17
Section 11.08. Notices..............................................17
Section 11.09. Governing Law........................................18
Section 11.10. Exercise of Rights and Remedies......................18
Section 11.11. Time.................................................19
Section 11.12. Reformation and Severability.........................19
Section 11.13. Remedies Cumulative..................................19
Section 11.14. Respecting the IPO...................................19
ARTICLE XII TERMINATION.............................................19
Section 12.01. Termination of This Agreement........................19
Section 12.02. Liabilities in Event of Termination..................20
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement")
is made as of June 13, 1996, by and among American Residential Services, Inc., a
Delaware corporation ("ARS"), ARS Dial Inc., an Indiana corporation and a wholly
owned subsidiary of ARS ("Newco"), DIAL ONE Meridian and Hoosier, Inc., an
Indiana corporation (the "Company"), and the person listed on the signature
pages hereof under the caption "Stockholder" (the "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their
best long-term interests to effect a business combination pursuant to which:
(a) Newco will merge into the Company on the terms and subject
to the conditions set forth herein (that merger being the "Merger");
(b) ARS will acquire the stock of all or some of the entities
listed in the accompanying Addendum 1 (each an "Other Founding Company"
and, collectively with the Company, the "Founding Companies") pursuant
to agreements that are (i) similar to this Agreement and (ii) entered
into among those entities and their equity owners, ARS and subsidiaries
of ARS (collectively, the "Other Agreements"); and
(c) ARS shall effect a public offering of shares of its common
stock and issue and sell those shares.
The respective boards of directors of ARS, Newco and the
Company have approved and adopted this Agreement to effect a transaction subject
to Section 351 of the Code.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements, representations and undertakings contained herein, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. CERTAIN DEFINED TERMS. As used in this
Agreement, the following terms have the meanings assigned to them below in this
Section 1.01. Capitalized terms used in this Agreement and not defined below in
this Section 1.01 have the meanings assigned to them in the Preliminary
Statement or Article I of the Uniform Provisions (the text of which Article
hereby is incorporated herein by this reference), as the case may be.
"ADJUSTMENT DETERMINATION DATE" means the date that is 30 days
following delivery by ARS of the Post-closing Statement to the
Stockholder, unless the Closing Date Working
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Capital and the Positive Working Capital Adjustment or the Negative
Working Capital Adjustment, as the case may be, are determined pursuant
to Section 2.05 by Arthur Andersen LLP, in which event the Adjustment
Determination Date is the date Arthur Andersen LLP delivers those
determinations in writing to ARS.
"AGREED RATE" means 8.0% per annum.
"AGREEMENT" means this Agreement, including the Disclosure
Statement relating to this Agreement and all attached Schedules,
Annexes and Exhibits, as each of the same may be amended, modified or
supplemented from time to time pursuant to the provisions hereof or
thereof.
"ARS" means American Residential Services, Inc., a Delaware
corporation.
"ARS ACQUISITION CANDIDATE" means any Entity engaged in any of
the businesses of providing repair, maintenance, replacement or
warranty and annual contract maintenance services for Plumbing,
heating/air conditioning and electrical systems to owners or occupants
of single-family homes, duplexes, condominiums and small commercial
facilities, designing and installing of any of those systems in new
construction, selling and servicing home appliances and other similar
residential and building services (a) which was called on by any of the
Company, ARS or the Subsidiaries of the Company or ARS in connection
with the possible acquisition by any of them of that Entity or (b) of
which any of them has made an acquisition analysis.
"CLOSING DATE BALANCE SHEET" of the Company means a
consolidated balance sheet of the Company as at the IPO Closing Date
which is prepared in accordance with GAAP on a basis consistent with
the basis on which the Current Balance Sheet was prepared.
"CLOSING DATE WORKING CAPITAL" of the Company means the
Company's Working Capital as determined from the Closing Date Balance
Sheet, provided, that if that determination is made pursuant to Section
2.05 by Arthur Andersen LLP, the amount equal to 50% of the fees and
expenses of Arthur Andersen LLP which are attributable to its audit of
the Closing Date Balance Sheet and its making of that determination
will be deemed a liability of the Company for the purpose of
determining its Closing Date Working Capital and resulting Positive
Working Capital Adjustment or Negative Working Capital Adjustment, as
the case may be.
"CLOSING MEMORANDUM" means the form of closing memorandum to
be prepared by ARS for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided
in Article VII.
"COMPANY" means DIAL ONE Meridian and Hoosier, Inc., an
Indiana corporation.
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"COMPANY COMMON STOCK" means the common stock, no par value
per share, of the Company.
"CONSENT AND AGREEMENT" means the Consent and Agreement of
even date herewith among DOCI, the Stockholder, the Company and ARS.
"COUNSEL FOR ARS AND NEWCO" means Baker & Botts, L.L.P.
"COUNSEL FOR THE COMPANY AND THE STOCKHOLDER" means Rubin &
Levin, P.C.
"CURRENT BALANCE SHEET" means the audited consolidated balance
sheet of the Company as at December 31, 1995 which is included in the
Initial Financial Statements.
"CURRENT BALANCE SHEET DATE" means December 31, 1995.
"DAYMON EMPLOYMENT AGREEMENT" means the Employment Agreement
entered into as of June 13, 1996 between ARS and Gary M. Daymon.
"DOCI" means DIAL ONE of Central Indiana, Inc., an Indiana
corporation.
"DISCLOSURE STATEMENT" means the written statement executed by
the Company and the Stockholder and delivered to ARS prior to the
execution and delivery of this Agreement by ARS and Newco in which
either (a) exceptions are taken to each of certain of the
representations and warranties made by the Company and the Stockholder
herein or (b) it is confirmed that no exception is taken to that
representation and warranty.
"IBCL" means the Indiana Business Corporation Law.
"INITIAL FINANCIAL STATEMENTS" means (a) the audited
consolidated balance sheets of the Company as at December 31, 1994 and
1995 and the related audited consolidated statements of income
(operations), cash flows and stockholder's equity for each of the
Company's three fiscal years in the three-year period ended December
31, 1995, together with the related audit report of Arthur Andersen
LLP.
"INTERIM DATE BALANCE SHEET" of the Company means the balance
sheet as at the end of the Company's fiscal quarter next preceding the
date of the Closing which is included in the Financial Statements.
"INTERIM DATE WORKING CAPITAL" of the Company means the
Company's Working Capital as determined from the Interim Date Balance
Sheet by ARS on a basis consistent with the determination of the
Company's Working Capital from the Current Balance Sheet.
"INTERIM NEGATIVE WORKING CAPITAL ADJUSTMENT" means the
amount, if any, by which $332,344 exceeds the Company's Interim Date
Working Capital.
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"INTERIM POSITIVE WORKING CAPITAL ADJUSTMENT" means (a) the
amount, if any, by which the Company's Interim Date Working Capital
exceeds $332,344, or if that Closing Date Working Capital equals
$332,344, (b) zero.
"LINC" means The Linc Corporation, a Pennsylvania corporation.
"LINC AGREEMENT" means the Linc Franchise Agreement between
Linc and the Company which has, according to Section 43 thereof,
December 1, 1990 as its effective date.
"LINC CONSENT AND AGREEMENT" means a consent and agreement of
Linc which amends the Linc Agreement and is in the form certified by
ARS prior to July 1, 1996 as the execution copy of that consent and
agreement.
"MERGER CONSIDERATION" has the meaning specified in Section
2.04.
"NEGATIVE WORKING CAPITAL ADJUSTMENT" means the amount, if
any, by which $332,344 exceeds the Company's Closing Date Working
Capital.
"NEWCO" means ARS Dial Inc., an Indiana corporation.
"POSITIVE WORKING CAPITAL ADJUSTMENT" means (a) the amount, if
any, by which the Company's Closing Date Working Capital exceeds
$332,344, or if that Closing Date Working Capital equals $332,344, (b)
zero.
"POST-CLOSING STATEMENT" has the meaning specified in Section
2.05.
"PRO RATA SHARE" for the Stockholder means 100%.
"RESPONSIBLE OFFICER" means Gary Daymon.
"RETAINED AMOUNT" has the meaning specified in Section 2.05.
"SCHEDULED AGREEMENTS" means the agreements described in
Schedule 4.11.
"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement
entered into as of June 13, 1996 among ARS, the Stockholders and other
Persons parties thereto.
"SURVIVING CORPORATION" means the Company, the Person to be
designated in the Certificate of Merger as the surviving corporation of
the Merger.
"TERRITORY" has the meaning specified in Section 10.01.
"THRESHOLD AMOUNT" means 2% of the Transaction Value.
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"TRANSACTION VALUE" means (a) at any time prior to the
Adjustment Determination Date, $7,000,000, and (b) on and after the
Adjustment Determination Date, $7,000,000 plus the Positive Working
Capital Adjustment, if any, or minus the Negative Working Capital
Adjustment, if any.
"TRANSFER TAXES" has the meaning specified in Section 11.07.
"UNIFORM PROVISIONS" means the Uniform Provisions of ARS for
the Acquisition of Founding Companies attached hereto as Annex 1.
"WORKING CAPITAL" of the Company means, as at the Interim
Balance Sheet Date or the IPO Closing Date and as determined by
reference to a balance sheet of the Company as at that date which is
prepared in accordance with GAAP, the amount by which (a) (i) $353,551
plus (ii) the sum, without duplication of amounts, of all amounts that
are included and classified as current assets on that balance sheet
exceeds, or is exceeded by, (b) the sum, without duplication of
amounts, of all amounts that are included and classified as liabilities
or as mandatorily redeemable Capital Stock on that balance sheet; if at
any time those current assets are exceeded by those liabilities,
Working Capital will be expressed as a negative amount; provided,
however, that notwithstanding GAAP, the determination of Interim Date
Working Capital and Closing Date Working Capital shall not include the
effect of any transaction relating to the purchase or operations of
Sagamore Heating & Cooling, Inc., subject to the Company's verification
that expenses rightly attributable to the Company have been expensed to
that Company Subsidiary.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. CERTIFICATE OF MERGER. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the date of the Closing to the
Secretary of State of the State of Indiana.
Section 2.02. THE EFFECTIVE TIME. The effective time of the
Merger (the "Effective Time") will be the time on the IPO Closing Date which the
Certificate of Merger specifies or, if the Certificate of Merger does not
specify another time, 8:00 a.m., eastern daylight standard time, on the IPO
Closing Date.
Section 2.03. CERTAIN EFFECTS OF THE MERGER. At and as of the
Effective Time, (a) Newco will be merged with and into the Company in accordance
with the provisions of the IBCL, (b) Newco will cease to exist as a separate
legal entity, (c) the articles of incorporation of the Company will be amended
to change (i) its name to "Meridian & Hoosier Heating and Air Conditioning
Company" and (ii) its authorized capital stock to 1,000 shares, par value $1.00
per share, of Common Stock, (d) the Company will be the Surviving Corporation
and, as such, will, all with the effect provided by the IBCL, (i) possess all
the properties and rights, and be subject to all
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the restrictions and duties, of the Company and Newco and (ii) be governed by
the laws of the State of Indiana, (e) the Charter Documents of the Company then
in effect (after giving effect to the amendment of the Company's articles of
incorporation specified in clause (c) of this sentence) will become and
thereafter remain (until changed in accordance with (i) applicable law (in the
case of the articles of incorporation) or (ii) their terms (in the case of the
bylaws)) the Charter Documents of the Surviving Corporation, (f) the initial
board of directors of the Surviving Corporation will be the persons named in
Schedule 2.03, and those persons will hold the office of director of the
Surviving Corporation subject to the provisions of the applicable laws of the
State of Indiana and the Charter Documents of the Surviving Corporation, and (g)
the initial officers of the Surviving Corporation will be as set forth in
Schedule 2.03, and each of those persons will serve in each office specified for
that person in Schedule 2.03, subject to the provisions of the Charter Documents
of the Surviving Corporation, until that person's successor is duly elected to,
and, if necessary, qualified for, that office.
Section 2.04. EFFECT OF THE MERGER ON CAPITAL STOCK. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the
right to receive, subject to the provisions of Section 2.05, without
interest, on surrender of the certificate evidencing those shares, (A)
the amount of cash and the number of whole and fractional shares of ARS
Common Stock set forth or determined as provided in Schedule 2.04 (the
"Merger Consideration"), (ii) cease to be outstanding and to exist and
(iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of
the Company or any Company Subsidiary will (i) cease to be outstanding
and to exist and (ii) be canceled and retired; and
(c) each share of Newco Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into one
share of Common Stock, par value $1.00 per share, of the Surviving
Corporation, and the shares of Common Stock of the Surviving
Corporation issued on that conversion will constitute all the issued
and outstanding shares of Capital Stock of the Surviving Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, subject to the provisions of Section 2.05, without interest,
the Merger Consideration and the additional cash, if any, owing with respect to
those shares as provided in Section 2.06.
Section 2.05. DELIVERY, EXCHANGE AND PAYMENT. (a) At or after
the Effective Time: (i) the Stockholder, as the holder of certificates
representing shares of Company Common Stock, will, on surrender of those
certificates to ARS (or any agent that may be appointed by ARS for purposes of
this Section 2.05), receive, subject to the provisions of this Section 2.05 and
-6-
Section 2.06, the Merger Consideration; and (ii) until any certificate
representing Company Common Stock has been surrendered and replaced pursuant to
this Section 2.05, that certificate will, for all purposes, be deemed to
evidence ownership of the number of whole shares of ARS Common Stock included in
the Merger Consideration payable in respect of that certificate pursuant to
Section 2.04. All shares of ARS Common Stock issuable in the Merger will be
deemed for all purposes to have been issued by ARS at the Effective Time.
(b) The Stockholder will deliver to ARS (or any agent that may
be appointed by ARS for purposes of this Section 2.05) on or before the IPO
Closing Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Person, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Person's expense, affixed and canceled. The
Stockholder shall cure any deficiencies in the endorsement of the certificates
or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Person.
(c) No dividends (or interest) or other distributions declared
or earned after the Effective Time with respect to ARS Common Stock and payable
to the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of ARS Common Stock have been issued in the Merger until
those certificates are surrendered as provided herein, but (i) on that surrender
ARS will cause to be paid, to the Person in whose name the certificates
representing such shares of ARS Common Stock shall then be issued, the amount of
dividends or other distributions previously paid with respect to such whole
shares of ARS Common Stock with a record date, or which have accrued, subsequent
to the Effective Time, but prior to surrender, and the amount of any cash
payable to such Person for and in lieu of fractional shares pursuant to Section
2.06 and (ii) at the appropriate payment date or as soon as practicable
thereafter, ARS will cause to be paid to that Person the amount of dividends or
other distributions with a record date, or which have been accrued, subsequent
to the Effective Time, but which are not payable until a date subsequent to
surrender, which are payable with respect to such whole shares of ARS Common
Stock, subject in all cases to any applicable escheat laws. No interest will be
payable with respect to the payment of such dividends or other distributions or
cash for and in lieu of fractional shares on surrender of outstanding
certificates.
(d) Prior to the date of the Closing, ARS will cause to be
prepared and delivered to the Stockholders a statement setting forth the Interim
Positive Working Capital Adjustment, if any, or the Interim Negative Working
Capital Adjustment, if any. If an Interim Positive Working Capital Adjustment
has been determined, ARS will, promptly after the Effective Time, but subject to
the certificate surrender requirements of Section 2.05(a), pay to the
Stockholder, without interest, the amount of the Interim Positive Working
Capital Adjustment. If an Interim Negative Working Capital Adjustment has been
determined, ARS will, notwithstanding the provisions of Section 2.04, hold back
from the Stockholder the amount of the Interim Negative Working Capital
Adjustment (the "Retained Amount") for disposition pursuant to Section 2.05(f).
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(e) As soon as practicable, and in any event within 60 days,
following the Effective Time, ARS will cause to be prepared and delivered to the
Stockholder (i) the Closing Date Balance Sheet and (ii) a statement (the
"Post-closing Statement") of the Closing Date Working Capital and the Positive
Working Capital Adjustment, if any, or the Negative Working Capital Adjustment,
if any. The Post-closing Statement will be final and binding on ARS and the
Stockholder unless, within 30 days following the delivery of the Post-closing
Statement, the Stockholder notifies ARS in writing that the Stockholder does not
accept as correct the amount of the Closing Date Working Capital or the amount
of the Positive Working Capital Adjustment or the Negative Working Capital
Adjustment, as the case may be, as set forth in the Post-closing Statement. If
the Stockholder timely delivers to ARS that notice respecting the Post-closing
Statement, the Closing Date Balance Sheet will be audited, and the Closing Date
Working Capital and the Positive Working Capital Adjustment or the Negative
Working Capital Adjustment, as the case may be, will be determined within 30
days after the delivery to ARS of that notice, by Arthur Andersen LLP, and these
determinations will be final and binding on ARS and the Stockholder.
(f) If a Positive Working Capital Adjustment is determined
with finality pursuant to Section 2.05(e), ARS will, promptly after the
Adjustment Determination Date, but subject to the certificate surrender
requirements of Section 2.05(a), pay to the Stockholder the sum, together with
interest thereon from (and including) the IPO Closing Date to (but excluding)
the Adjustment Determination Date at the Agreed Rate, of (i) the entire Retained
Amount, if any, and (ii) the amount by which (A) the amount of the Positive
Working Capital Adjustment exceeds (B) the amount of the Interim Positive
Working Capital Adjustment, if any. If a Negative Working Capital Adjustment is
determined with finality pursuant to Section 2.05(e) then, subject to the
certificate surrender requirements of Section 2.05(a):
(i) ARS will (A) be entitled to retain for itself out of the
Retained Amount an amount equal to the lesser of (1) the amount of the
Negative Working Capital Adjustment, together with interest thereon at
the Agreed Rate from (and including) the IPO Closing Date to (but
excluding) the Adjustment Determination Date, and (2) the Retained
Amount, and if there is any remaining portion of the Retained Amount
that ARS is not entitled to retain for itself pursuant to the foregoing
provisions of this clause (i), (B) promptly pay all that remainder to
the Stockholder, together with interest thereon at the Agreed Rate from
(and including) the IPO Closing Date to (but excluding) the Adjustment
Determination Date; and
(ii) if the sum of the Negative Working Capital Adjustment and
the interest thereon at the Agreed Rate which has accrued during the
period referred to in clause (i)(A)(1) of this sentence exceeds the
Retained Amount, if any, the Stockholder will, no later than 10
Houston, Texas business days after ARS makes a written request
therefor, pay in cash the sum of (A) the amount of that excess and (B)
the Interim Positive Working Capital Adjustment, if any, together with
interest on that sum at the Agreed Rate from (and including) the IPO
Closing Date to (but excluding) the Adjustment Determination Date.
Section 2.06. FRACTIONAL SHARES. Notwithstanding any other
provision herein, no fractional shares of ARS Common Stock will be issued, and
if the Stockholder would be entitled
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hereunder to receive a fractional share of ARS Common Stock but for this Section
2.06, the Stockholder will be entitled hereunder to receive a cash payment for
and in lieu thereof in the amount (rounded to the nearest whole cent) equal to
the Stockholder's fractional interest in a share of ARS Common Stock multiplied
by the IPO Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
Section 3.01. BY THE STOCKHOLDER. The Stockholder represents
and warrants to ARS that all the following representations and warranties in
this Article III are as of the date of this Agreement, and will be, as amended
or supplemented pursuant to Section 6.08, on the date of the Closing and the IPO
Closing Date, true and correct:
(a) (i) the Stockholder will be acquiring the shares of ARS
Common Stock to be issued pursuant to Section 2.04 to the Stockholder
solely for the Stockholder's account, for investment purposes only and
with no current intention or plan to distribute, sell or otherwise
dispose of any of those shares in connection with any distribution;
(ii) the Stockholder is not a party to any agreement or other
arrangement for the disposition of any shares of ARS Common Stock other
than this Agreement and the Registration Rights Agreement; (iii) the
Stockholder is an "accredited investor" as defined in Securities Act
Rule 501(a); (iv) the Stockholder (A) is able to bear the economic risk
of an investment in the ARS Common Stock acquired pursuant to this
Agreement, (B) can afford to sustain a total loss of that investment,
(C) has such knowledge and experience in financial and business matters
that he is capable of evaluating the merits and risks of the proposed
investment in the ARS Common Stock, (D) has had an adequate opportunity
to ask questions and receive answers from the officers of ARS
concerning any and all matters relating to the transactions
contemplated hereby, including the background and experience of the
current and proposed officers and directors of ARS, the plans for the
operations of the business of ARS, the business, operations and
financial condition of the Other Founding Companies and any plans of
ARS for additional acquisitions, and (E) has asked all questions of the
nature described in preceding clause (D), and all those questions have
been answered to his satisfaction;
(b) the representations and warranties contained in Article
III of the Uniform Provisions (the text of which Article hereby is
incorporated herein by this reference) are true and correct, and the
agreements set forth in that Article hereby are agreed to;
(c) the representations and warranties of DOCI and the
Stockholder in the Consent and Agreement are true and correct;
(d) to the knowledge of the Stockholder, at no time, in
connection with the discussions and negotiations leading to the
execution and delivery of this Agreement (including the letter of
intent between the Company and ARS) or otherwise, has the Company,
directly or indirectly through the Stockholder, divulged, published or
disclosed
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to ARS or any Representative of ARS any information in contravention of
the Linc Agreement; and
(e) the terms and conditions of each of the Scheduled
Agreements are no less favorable to the Company than the Company
reasonably could have been expected to obtain in an arm's-length
transaction with a Person other than an Affiliate of the Company, and
the rentals provided for in the Scheduled Agreements do not exceed fair
market rentals of the properties being rented or leased under the
Scheduled Agreements.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF
THE COMPANY AND THE STOCKHOLDER
Section 4.01. BY THE COMPANY AND THE STOCKHOLDER. The Company
and the Stockholder jointly and severally represent and warrant to, and agree
with, ARS that all the following representations and warranties in this Article
IV are as of the date of this Agreement, and will be, as amended or supplemented
pursuant to Section 6.08, on the date of the Closing and the IPO Closing Date,
true and correct:
(a) the Organization State of the Company and each Company
Subsidiary is the State of Indiana, and each of the Company and the
Company Subsidiaries (i) is a corporation duly organized, validly
existing and in good standing under the laws of that State, (ii) has
all requisite corporate power and authority under those laws and its
Charter Documents to own or lease and to operate its properties and to
carry on its business as now conducted and (iii) is duly qualified and
in good standing as a foreign corporation in all jurisdictions (other
than the State of Indiana) in which it owns or leases property or in
which the carrying on of its business as now conducted so requires
except where the failure to be so qualified, singly or in the
aggregate, would not have a Material Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is
comprised of 1,000 shares of Company Common Stock, of which 588 shares
have been issued and are now outstanding and no shares are held by the
Company as treasury shares, and (ii) no outstanding Derivative
Securities of the Company exist; and
(c) the representations and warranties contained in Article IV
of the Uniform Provisions (the text of which Article hereby is
incorporated herein by this reference) are true and correct, and the
agreements set forth in that Article hereby are agreed to.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ARS AND NEWCO
Section 5.01. BY ARS AND NEWCO. ARS and Newco jointly and
severally represent and warrant to the Company and each Stockholder that all the
following representations and warranties in this Article V are as of the date of
this Agreement, and will be on the date of the Closing and the IPO Closing Date,
true and correct: (a) Newco is a corporation duly organized, validly existing
and in good standing under the laws of the State of Indiana, (b) no Derivative
Securities of Newco are outstanding, (c) Newco has been organized for the sole
purpose of participating in the Merger and has not, and will not, engage in any
activities other than those necessary to effectuate the Merger and (d) the
representations and warranties contained in Article V of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) are
true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01. OF EACH PARTY. Until the Effective Time, subject
to the waiver provisions of Section 11.05, each party hereto will comply with
each covenant for which provision is made in Article VI of the Uniform
Provisions (the text of which Article hereby is incorporated herein by this
reference) to be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01. THE CLOSING AND CERTAIN CONDITIONS. (a) THE
CLOSING. On or before the IPO Pricing Date, the parties hereto will take all
actions necessary to (i) effect the Merger (including, as permitted by the IBCL,
(A) the execution of a Certificate of Merger (1) meeting the requirements of the
IBCL and (2) providing that the Merger will become effective on the IPO Closing
Date and (B) the filing of that Certificate with the Secretary of State of the
State of Indiana), (ii) verify the existence and ownership of the certificates
evidencing the Company Common Stock in exchange for the Merger Consideration
pursuant to Section 2.05 and (iii) satisfy the document delivery requirements to
which the obligations of the parties to effect the Merger and the other
transactions contemplated hereby are conditioned by the provisions of this
Article VII (all those actions collectively being the "Closing"). The Closing
will take place at the offices of Baker & Botts, L.L.P., 38th Floor, 910
Louisiana, Houston, Texas at 10:00 a.m., Houston time, or at such later time on
the IPO Pricing Date as ARS shall specify by written notice to Gary Daymon. The
actions taken at the Closing will not include the completion of either the
Merger or the delivery of the Company Common Stock or the Merger Consideration
pursuant to Section 2.05. Instead, on the IPO Closing Date, the Certificate of
Merger will become effective pursuant to Section 2.01, and all transactions
contemplated by this Agreement to be closed or completed on or before the IPO
Closing
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Date, including the surrender of the Company Common Stock in exchange for the
Merger Consideration (including a certified check or checks in an amount equal
to the cash portion of the Merger Consideration (less the Retained Amount, if
any)) will be closed or completed, as the case may be. During the period from
the Closing to the IPO Closing Date, this Agreement may be terminated by the
parties only pursuant to Section 12.01(b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND
THE STOCKHOLDER. The obligations of the Company and the Stockholders with
respect to the actions to be taken by them at or before the Closing are subject
to the satisfaction on or before the date of the Closing, or waiver by them
pursuant to Section 11.05, of all the conditions set forth in Sections 7.02(a)
and 7.03. The obligations of the Stockholder with respect to the actions to be
taken on the IPO Closing Date are subject to the satisfaction on that date to
the following conditions: (i) each of the Stockholders' Agreement and the Daymon
Employment Agreement then shall be in full force and effect; and (ii) all the
conditions set forth in Sections 7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF ARS AND NEWCO.
The obligations of ARS and Newco with respect to actions to be taken by them at
or before the Closing are subject to the satisfaction on or before the date of
the Closing, or waiver by them pursuant to Section 11.05, of the following
conditions: (i) on the date of the Closing each of the Consent and Agreement and
the Linc Consent and Agreement then shall be in full force and effect; (ii) the
Company shall have delivered to ARS copies of the articles of incorporation,
each as amended to the date of the Closing and certified by the Secretary of
State of the State of Indiana as of a Current Date, of the Company and each
Company Subsidiary; (iv) the Linc Consent and Agreement then shall be in full
force and effect; and (v) all the conditions set forth in Sections 7.02(a) and
7.04(a).
(d) The obligations of ARS and Newco with respect to the
actions to be taken on the IPO Closing Date are subject to the satisfaction on
that date of the following conditions: (i) each of the Daymon Employment
Agreement, the Consent and Agreement and the Linc Consent and Agreement then
shall be in full force and effect; and (ii) all the conditions set forth in
Sections 7.02(b) and 7.04(b).
(e) The text of Article VII of the Uniform Provisions hereby
is incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01. OF EACH PARTY OTHER THAN THE COMPANY. From and
after the Effective Time, subject to the waiver provisions of Section 11.05,
each party hereto (other than the Company) will comply with each covenant for
which provision is made in Article VIII of the Uniform Provisions (the text of
which Article hereby is incorporated herein by this reference) to be performed
or observed by that party.
-12-
ARTICLE IX
INDEMNIFICATION
Section 9.01. INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text
of Article IX of the Uniform Provisions hereby is incorporated herein by this
reference.
ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.01. PROHIBITED ACTIVITIES. The Stockholder agrees
that he will not, during the period beginning on the date hereof and ending on
the third anniversary of the date hereof, directly or indirectly, for any
reason, for his own account or on behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether
as an employee, independent contractor, consultant or advisor, or as a
sales representative or distributor of any kind, in any business
selling any products or providing any services in competition with the
Company, any Company Subsidiary or ARS or any Subsidiary of ARS (ARS
and its Subsidiaries collectively being "ARS" for purposes of this
Article X) within a radius of 100 miles of each location in which any
of the Company or the Company Subsidiaries was engaged in business on
the date hereof or immediately prior to the Effective Time (those
locations collectively being the "Territory");
(b) call on any natural person who is at that time employed by
the Company, any Company Subsidiary or ARS in any managerial capacity
with the purpose or intent of attracting that person from the employ of
the Company, any Company Subsidiary or ARS, provided that the
Stockholder may call on and hire any of his Immediate Family Members;
(c) call on any Person that at that time is, or at any time
within one year prior to that time was, a customer of the Company, any
Company Subsidiary or ARS within the Territory, (i) for the purpose of
soliciting or selling any product or service in competition with the
Company, any Company Subsidiary or ARS within the Territory and (ii)
with the knowledge of that customer relationship; or
(d) call on any ARS Acquisition Candidate, with the knowledge
of that Person's status as an ARS Acquisition Candidate, for the
purpose of acquiring that Person or arranging the acquisition of that
Person by any Person other than ARS.
Notwithstanding the foregoing, (a) the Stockholder may own and hold as a passive
investment up to 1% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock is listed on the New York Stock Exchange or included
in the Nasdaq National Market and (b) the
-13-
Stockholder may continue to own and operate DOCI until June 13, 1997. For
purposes hereof and the respective tax reporting positions of the parties
hereto, each party hereto agrees that the percentage of the cash portion of the
Merger Consideration to be received by the Stockholder pursuant to Section 2.04
which equals 1% of the Transaction Value will represent, and be received as,
consideration for the Stockholder's agreement to observe the covenants in this
Section 10.01.
Section 10.02. DAMAGES. Because of the difficulty of measuring
economic losses to ARS as a result of any breach by the Stockholder of his
covenants in Section 10.01, and because of the immediate and irreparable damage
that could be caused to ARS for which it would have no other adequate remedy,
the Stockholder agrees that ARS may enforce the provisions of Section 10.01 by
injunctions and restraining orders against the Stockholder if he breaches any of
those provisions.
Section 10.03. REASONABLE RESTRAINT. The parties hereto each
agree that Sections 10.01 and 10.02 impose a reasonable restraint on the
Stockholder in light of the activities and business of ARS on the date hereof,
the current business plans of ARS and the investment by the Stockholder in ARS
as a result of the Merger.
Section 10.04. SEVERABILITY; REFORMATION. The covenants in
this Article X are severable and separate, and the unenforceability of any
specific covenant in this Article X is not intended by any party hereto to, and
shall not, affect the provisions of any other covenant in this Article X. If any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth in Section 10.01 are unreasonable as applied
to the Stockholder, the parties hereto, including the Stockholder, acknowledge
their mutual intention and agreement that those restrictions be enforced to the
fullest extent the court deems reasonable, and thereby shall be reformed to that
extent as applied to the Stockholder.
Section 10.05. INDEPENDENT COVENANT. All the covenants in this
Article X are intended by each party hereto to, and shall, be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of the Stockholder against ARS,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by ARS of any covenant in this Article X. It is
specifically agreed that the period specified in Section 10.01 shall be computed
by excluding from that computation any time during which the Stockholder is in
violation of any provision of Section 10.01. The covenants contained in this
Article X shall not be affected by any breach of any other provision hereof by
any party hereto.
Section 10.06. MATERIALITY. The Company and the Stockholder
hereby agree that this Article X is a material and substantial part of the
transactions contemplated hereby.
-14-
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. TREATMENT OF CONFIDENTIAL INFORMATION. Each
party hereto will comply with each covenant for which provision is made in
Section 11.01 of the Uniform Provisions (the text of which Section hereby is
incorporated herein by this reference) to be performed or observed by that
party.
Section 11.02. RESTRICTIONS ON TRANSFER OF ARS COMMON STOCK.
(a) During the two-year period ending on the second anniversary of the IPO
Closing Date (the "Restricted Period") (or if the two-year "holding" period for
restricted securities under Rule 144 under the Securities Act is reduced by the
SEC, the Restricted Period will be correspondingly reduced), the Stockholder
will not voluntarily, except pursuant to and in accordance with the applicable
provisions of the Registration Rights Agreement: (i) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint or otherwise dispose of (A) any
shares of ARS Common Stock received by the Stockholder in the Merger or (B) any
interest in (including any option to buy or sell) any of those shares of ARS
Common Stock, in whole or in part, and ARS will have no obligation to, and shall
not, treat any such attempted transfer as effective for any purpose; or (ii)
engage in any transaction, whether or not with respect to any shares of ARS
Common Stock or any interest therein, the intent or effect of which is to reduce
the risk of owning the shares of ARS Common Stock acquired pursuant to Section
2.04 (including, for example, engaging in put, call, short-sale, straddle or
similar market transactions); provided, however, that this Section 11.02 shall
not restrict any transfer of ARS Common Stock acquired by the Stockholder
pursuant to Section 2.04 to any of the Stockholder's Related Persons who agree
in writing to be bound by the provisions of Section 11.01 and this Section
11.02. The certificates evidencing the ARS Common Stock delivered to the
Stockholder pursuant to Section 2.05 will bear a legend substantially in the
form set forth below and containing such other information as ARS may deem
necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE
OTHER PARTIES THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY
NOT BE VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED,
PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE
ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY
SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF ANY OF THOSE SHARES,
DURING THE TWO-YEAR PERIOD ENDING ON __________ [DATE THAT IS THE
SECOND ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED PERIOD")
(OR IF THE TWO-YEAR "HOLDING" PERIOD FOR RESTRICTED SECURITIES UNDER
RULE 144 UNDER THE SECURITIES ACT OF 1933 IS REDUCED BY THE SECURITIES
AND EXCHANGE COMMISSION, THE RESTRICTED PERIOD WILL BE CORRESPONDINGLY
REDUCED). ON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE
ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER
PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
-15-
(b) The Stockholder (i) acknowledges that the shares of ARS
Common Stock to be delivered to the Stockholder pursuant to Section 2.04 have
not been and, except pursuant to the Registration Rights Agreement, if
applicable, will not be registered under the Securities Act and therefore may
not be resold by the Stockholder without compliance with the Securities Act and
(ii) covenants that none of the shares of ARS Common Stock issued to the
Stockholder pursuant to Section 2.04 will be offered, sold, assigned, pledged,
hypothecated, transferred or otherwise disposed of except after full compliance
with all the applicable provisions of the Securities Act and the rules and
regulations of the SEC and applicable state securities laws and regulations. All
certificates evidencing shares of ARS Common Stock issued pursuant to Section
2.04 will bear the following legend in addition to the legend prescribed by
Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF
THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE
SECURITIES LAWS.
In addition, certificates evidencing shares of ARS Common Stock issued pursuant
to Section 2.04 to the Stockholder will bear any legend required by the
securities or blue sky laws of the state in which the Stockholder resides.
Section 11.03. BROKERS AND AGENTS. The Stockholder represents
and warrants to ARS that the Company has not directly or indirectly employed or
become obligated to pay any broker or similar agent in connection with the
transactions contemplated hereby and agrees, without regard to the Threshold
Amount limitations set forth in Article IX, to indemnify ARS against all Damage
Claims arising out of claims for any and all fees and commissions of brokers or
similar agents employed or promised payment by the Company.
Section 11.04. ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of ARS, and the heirs and legal representatives
of the Stockholder. Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies hereunder or thereunder,
except as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise
provided expressly herein or therein.
Section 11.05. ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This
Agreement and the documents delivered pursuant hereto constitute the entire
agreement and understanding among the Stockholder, the Company, Newco and ARS
and supersede all prior agreements and understandings, both written and oral,
relating to the subject matter of this Agreement. This Agreement may be amended,
modified or supplemented, and any right hereunder may be waived, if, but only
if, that amendment, modification, supplement or waiver is in writing and signed
by the Stockholder, the Company and ARS. The waiver of any of the terms and
conditions hereof shall not be construed or interpreted as, or deemed to be, a
waiver of any other term or condition hereof.
-16-
Section 11.06. COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
Section 11.07. EXPENSES. Whether or not the transactions
contemplated hereby are consummated, (a) ARS will pay the fees, expenses and
disbursements of ARS and Newco and their Representatives which are incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance of and compliance
with all conditions to be performed by ARS and Newco under this Agreement,
including the costs of preparing the Registration Statement, (b) the Stockholder
will pay from personal funds, and not from funds of the Company or any Company
Subsidiary, all sales, use, transfer and other similar taxes and fees
(collectively, "Transfer Taxes") incurred in connection with the transactions
contemplated hereby and (c) the Company will pay the fees, expenses and
disbursements of Counsel for the Company and the Stockholders incurred in
connection with the subject matter of this Agreement and the Registration
Statement on or before the IPO Closing Date (which fees, expenses and
disbursements will, to the extent accrued through the IPO Closing Date but then
unpaid, be recorded as a liability of the Company for the purpose of determining
its Closing Date Working Capital and resulting Positive Working Capital
Adjustment or Negative Working Capital Adjustment, as the case may be);
provided, however, if the Company or the Stockholder terminates this Agreement
otherwise than as permitted by Article XII, the Company will, no later than 10
Houston, Texas business days after ARS makes a written request therefor,
reimburse ARS in the amount equal to the lesser of $10,000 or the aggregate
fees, costs and other expenses invoiced to ARS by Arthur Andersen LLP in
connection with its audit of the Company's financial statements at December 31,
1995 and for the 12-month period then ended. The Stockholder will file all
necessary documentation and Returns with respect to all Transfer Taxes. In
addition, the Stockholder acknowledges that he, and not the Company or ARS or
the Surviving Corporation, will pay all Taxes due upon receipt of the
consideration payable to the Stockholder pursuant to Article II.
Section 11.08. NOTICES. All notices required or permitted
hereunder shall be in writing, and shall be deemed to be delivered and received
(a) if personally delivered or if delivered by telex, telegram, facsimile or
courier service, when actually received by the party to whom notice is sent or
(b) if delivered by mail (whether actually received or not), at the close of
business on the third Houston, Texas business day next following the day when
placed in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
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(i) if to ARS or Newco, addressed to it at:
American Residential Services, Inc.
5850 San Felipe
Suite 500
Houston, Texas 77057
Attn.: C. Clifford Wright, Jr.
Chief Executive Officer
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Baker & Botts, L.L.P.
One Shell Plaza
Houston, Texas 77002-4995
Attn: James L. Leader, Esq.;
(ii) if to the Stockholder, addressed to him at his address
set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
DIAL ONE Meridian and Hoosier, Inc.
1915 West 18th Street
Indianapolis, Indiana 46202
Attn: President
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Rubin & Levin, P.C.
342 Massachusetts Avenue, Suite 500
Indianapolis Indiana 46204-2161
Attn: Elliott D. Levin, Esq.
SECTION 11.09. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF; PROVIDED, HOWEVER,
THAT ARTICLE X AND THE RIGHTS AND OBLIGATIONS THEREUNDER OF THE PARTIES THERETO
WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE
STATE OF INDIANA WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10. EXERCISE OF RIGHTS AND REMEDIES. Except as
otherwise provided herein, no delay or omission in the exercise of any right,
power or remedy accruing to any party hereto as a result of any breach or
default hereunder by any other party hereto shall impair any such right, power
or remedy, nor shall it be construed, deemed or interpreted as a waiver of or
-18-
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11. TIME. Time is of the essence in the performance
of this Agreement in all respects.
Section 11.12. REFORMATION AND SEVERABILITY. If any provision
of this Agreement is invalid, illegal or unenforceable, that provision shall, to
the extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13. REMEDIES CUMULATIVE. No right, remedy or
election given by any term of this Agreement shall be deemed exclusive, but each
shall be cumulative with all other rights, remedies and elections available at
law or in equity.
Section 11.14. RESPECTING THE IPO. Each of the Company and the
Stockholder acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither ARS or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholder or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that ARS will use its reasonable best efforts to
cause the Registration Statement to become effective prior to December 31, 1996)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of the Stockholder to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to ARS or the
IPO. The Underwriter shall have no obligation to either the Company or the
Stockholder with respect to any disclosure contained in the Registration
Statement.
ARTICLE XII
TERMINATION
Section 12.01. TERMINATION OF THIS AGREEMENT. (a) This
Agreement may be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of ARS and the Company;
-19-
(ii) by the Stockholder or the Company, on the one hand, or by
ARS, on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated
by December 31, 1996, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the
case of the Stockholder and the Company, either of them) seeking to
terminate this Agreement to perform or adhere to any agreement required
hereby to be performed or adhered to by it prior to or at the Closing
or thereafter on the IPO Closing Date;
(iii) by the Stockholder or the Company, on the one hand, or
by ARS, on the other hand, if a material breach or default shall be
made by the other party (or in the case of the Stockholder and the
Company, either of them) in the observance or in the due and timely
performance of any of the covenants, agreements or conditions contained
herein; or
(iv) by ARS if it is entitled to do so as provided in Section
6.08;
(b) This Agreement may be terminated after the Closing solely:
(i) by ARS or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City business
days after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section
12.01, the Merger will be deemed for all purposes to have been abandoned and of
no force or effect. If this Agreement is terminated pursuant to this Section
12.01 after the Certificate of Merger has been filed with the Secretary of State
of the State of Indiana, but before the IPO has been consummated, ARS will take
all actions that Counsel for the Company and the Stockholder advise ARS are
required by the applicable laws of the State of Indiana in order to rescind the
Merger.
Section 12.02. LIABILITIES IN EVENT OF TERMINATION. If this
Agreement is terminated pursuant to Section 12.01, there shall be no liability
or obligation on the part of any party hereto except (a) as provided in Section
11.07 and (b) to the extent that such liability is based on the breach by that
party of any of its representations, warranties or covenants set forth in this
Agreement.
-20-
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
AMERICAN RESIDENTIAL SERVICES, INC.
By: ___________________________
C. Clifford Wright, Jr.
Chief Executive Officer and President
ARS DIAL INC.
By: ___________________________
C. Clifford Wright, Jr.
Chief Executive Officer and President
DIAL ONE MERIDIAN AND HOOSIER, INC.
By: ___________________________
Gary Daymon
President
STOCKHOLDER:
___________________________
Gary Daymon
-21-
ADDENDUM 1
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.
ARS Dial Inc.,
DIAL ONE Meridian and Hoosier, Inc.
and
the Stockholder named therein
A. Words and terms used in this Addendum which are defined in the
captioned Agreement to which this is an Addendum are used herein as therein
defined.
B. The Founding Companies are:
Atlas Services, Inc.
Bullseye Air Conditioning, Inc.
Climatic Corporation of Vero Beach
DIAL ONE Meridian and Hoosier, Inc.
Enterprises Holding Company
Florida Heating and Air Conditioning, Inc.
Florida Heating and Air Conditioning Service, Inc.
Florida Heating and Air Duct, Inc.
General Heating Engineering Company, Inc.
<PAGE>
SCHEDULE 2.03
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Dial Inc.,
DIAL ONE Meridian and Hoosier, Inc.
and
the Stockholder named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.03 are used
herein as defined therein.
B. The directors of the Surviving Corporation immediately after the
Effective Time are as follows: Howard S. Hoover, Jr., William P. McCaughey and
C. Clifford Wright, Jr.
C. The officers of the Surviving Corporation immediately following the
Effective Time are as follows:
President ...................................Gary M. Daymon
Vice President and Secretary ................John D. Held
Vice President...............................David Craggs
Chief Financial Officer/Treasurer............Thomas Wells
Assistant Treasurer..........................A. Jefferson Walker III
<PAGE>
SCHEDULE 2.04
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Dial Inc.,
DIAL ONE Meridian and Hoosier, Inc.
and
the Stockholder named therein
A. Words and terms used in this Schedule which are defined in
the captioned Agreement to which this Schedule is attached as Schedule 2.04 are
used herein as defined therein.
B. The name and address of the Stockholder are as follows:
ADDRESS
Gary Daymon ............... 10927 White Sail Court
Indianapolis, Indiana 46236
C. Subject to increase or reduction by the application of the
Positive Working Capital Adjustment or the Negative Working Capital Adjustment,
as the case may be, the aggregate Merger Consideration will be comprised of (1)
$3,250,000 in cash and (2) such number of whole and fractional shares of ARS
Common Stock as shall equal the quotient of (A) $3,750,000 divided by (B) the
IPO Price, and the Stockholder, who owns all 588 outstanding shares of Company
Common Stock, will be entitled to receive the entire Merger Consideration
pursuant to Section 2.04, subject to the provisions of Sections 2.05 and 2.06.
<PAGE>
SCHEDULE 3.01
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Dial Inc.,
DIAL ONE Meridian and Hoosier, Inc.
and
the Stockholder named therein
A. Words and terms used in this Schedule which are defined in
the captioned Agreement to which this Schedule is attached as Schedule 3.01 are
used herein as therein defined.
B. The Stockholder is an "accredited investor" as defined in
Securities Act Rule 501(a).
<PAGE>
SCHEDULE 3.02
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Dial Inc.,
and
the Stockholder named therein
A. Words and terms used in this Schedule which are defined in
the captioned Agreement to which this Schedule is attached as Schedule 3.02 are
used herein as defined therein.
B. Gary Daymon owns all the 588 outstanding shares of Company
Common Stock.
C. No exception is taken to the representations and warranties
in Section 3.02 of the captioned Agreement.
<PAGE>
SCHEDULE 3.07
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Dial Inc.,
DIAL ONE Meridian and Hoosier, Inc.
and
the Stockholder named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.07 are used
herein as defined therein.
B. The Stockholder is, alone or with one or more other Persons, the
controlling Affiliate of the following Entities, businesses or trades (other
than the Company and the Company Subsidiaries, if the Stockholder is an
Affiliate of the Company) that (a) are engaged in any line of business which is
the same as or similar to any line of business in which the Company or any
Company Subsidiary is engaged or (b) are, or have within the three-year period
ending on the date of this Agreement, engaged in any transaction with the
Company or any Company Subsidiary, except for transactions in the ordinary
course of business of the Company or that Company Subsidiary:
Gary Damon is the sole shareholder of Dial One of Central
Indiana, Inc., a corporation engaged in a business related to that of the
Company and the Company's Subsidiary Sagamore. There are ongoing contractual
relationships between Dial One of Central Indiana, Inc.
and the Company and Sagamore.
There was a Management Agreement between the Company and
Schilling Chilling Air Conditioning Company, Inc. d/b/a Schilling Air and a
Management Agreement and Contract for Purchase and Sale of Assets with Elkins
Heating & Cooling, Inc. within the three-year period ending on the date of this
Agreement that were not in the ordinary course of the Company's business.
<PAGE>
SCHEDULE 4.11
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Dial Inc.,
DIAL ONE Meridian and Hoosier, Inc.
and
the Stockholder named therein
A. Words and terms used in this Schedule which are defined in
the captioned Agreement to which this Schedule is attached as Schedule 4.11 are
used herein as defined therein.
B. Subject to the provisions of the Consent and Agreement, the
following Related Party Agreements will be permitted to continue in effect past
the date of the Closing in accordance with their respective terms:
(1) the lease by the Company to DOCI of approximately 3,333
square feet in the Hanner Building located at 1845 West 18th Street,
Indianapolis, Indiana, for an initial term ending June 30, 1996 during
which the base rental per month will be $2,000, which lease (a) affords
(i) DOCI the option to renew it for any one or more additional terms or
one year each and (ii) the Company with the option to terminate the
lease if the Franchise Agreement (as defined in the Consent and
Agreement) is terminated and (b) provides that, at the beginning of
each renewal turn, the base rental per month will be increased by $100.
(2) the lease by Mr. and Mrs. Gary Daymon to the Company of
15,000 square feet in the Daymon Building located at 1915 West 18th
Street, Indianapolis, Indiana, for a term of 60 months beginning July
1, 1996 which lease (a) provides (i) for a rental per month during the
first 12 months of $7,500 and (ii) an increase in the base monthly
rental for each subsequent 12-month period beginning July 1, 1997,
effective on the first day of each such period, in the amount of $375
and (b) affords the Company (i) the option to renew it for any one or
more additional terms of one year each and (ii) the option to purchase
the Daymon Building at any time for a purchase price equal to its fair
market value at that time as determined by an independent appraiser
selected by ARS;
(3) an equipment-sharing and reimbursement agreement between
the Company and DOCI pursuant to which, for a term beginning July 1,
1996 and ending when the Franchise Agreement terminates, DOCI shall be
permitted (a) to utilize, in consideration for the payment of fair
market rates, certain computer equipment, telephone equipment and two
automobiles which are owned or leased by the Company and (b) to utilize
the services of certain Company employees on a cost-reimbursement
basis; and
(4) the Franchise Agreement.
<PAGE>
SCHEDULE 6.04
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Dial Inc.,
DIAL ONE Meridian and Hoosier, Inc.
and
the Stockholder named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.04 are used
herein as defined therein.
B. The Company and the Company Subsidiaries may make the following
Restricted Payments prior to the Effective Time:
None
<PAGE>
SCHEDULE 6.12
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Dial Inc.,
DIAL ONE Meridian and Hoosier, Inc.
and
the Stockholder named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.12 are used
herein as defined therein.
B. The Company will make all arrangements and take all such actions as
are necessary and satisfactory to ARS to dispose, prior to the Effective Time,
of the following assets:
None
<PAGE>
SCHEDULE 8.05
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Dial Inc.,
DIAL ONE Meridian and Hoosier, Inc.
and
the Stockholder named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 8.05 are used
herein as defined therein.
B. At or within 60 days following the Effective Time, ARS will cause
the following Stockholder Guaranties to be terminated:
Guaranty by Gary Damon and Judy Damon to David Risk of the
purchase price for the stock of Sagamore Heating & Cooling, Inc. purchased by
the Company.
EXHIBIT 2.5
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF JUNE 13, 1996
BY AND AMONG
AMERICAN RESIDENTIAL SERVICES, INC.,
ARS BULLSEYE INC.,
BULLSEYE AIR CONDITIONING, INC.
AND
THE STOCKHOLDERS NAMED HEREIN
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<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS...............................................1
ARTICLE II THE MERGER AND RELATED MATTERS............................4
Section 2.01. Certificate of Merger..................................4
Section 2.02. The Effective Time.....................................4
Section 2.03. Certain Effects of the Merger..........................4
Section 2.04. Effect of the Merger on Capital Stock..................5
Section 2.05. Delivery, Exchange and Payment.........................5
Section 2.06. Fractional Shares......................................6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF EACH
STOCKHOLDER...............................................6
Section 3.01. By each Stockholder....................................6
ARTICLE IV REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE STOCKHOLDERS.......................7
Section 4.01. By the Company and Each Stockholder....................7
ARTICLE V REPRESENTATIONS AND WARRANTIES OF ARS AND NEWCO...........8
Section 5.01. By ARS and Newco.......................................8
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME.................9
Section 6.01. Of Each Party..........................................9
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION..............................................9
Section 7.01. The Closing and Certain Conditions.....................9
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME...................10
Section 8.01. Of Each Party Other Than the Company..................10
ARTICLE IX INDEMNIFICATION..........................................10
Section 9.01. Indemnification Rights and Obligations................10
ARTICLE X LIMITATIONS ON COMPETITION...............................10
Section 10.01. Prohibited Activities................................10
Section 10.02. Damages..............................................11
Section 10.03. Reasonable Restraint.................................12
Section 10.04. Severability; Reformation............................12
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Section 10.05. Independent Covenant.................................12
Section 10.06. Materiality..........................................12
ARTICLE XI GENERAL PROVISIONS.......................................12
Section 11.01. Treatment of Confidential Information................12
Section 11.02. Restrictions on Transfer of ARS Common Stock.........12
Section 11.03. Brokers and Agents...................................14
Section 11.04. Assignment; No Third Party Beneficiaries.............14
Section 11.05. Entire Agreement; Amendment; Waivers.................14
Section 11.06. Counterparts.........................................14
Section 11.07. Expenses.............................................14
Section 11.08. Notices..............................................15
Section 11.09. Governing Law........................................16
Section 11.10. Exercise of Rights and Remedies......................16
Section 11.11. Time.................................................16
Section 11.12. Reformation and Severability.........................16
Section 11.13. Remedies Cumulative..................................16
Section 11.14. Respecting the IPO...................................17
ARTICLE XII TERMINATION..............................................17
Section 12.01. Termination of This Agreement........................17
Section 12.02. Liabilities in Event of Termination..................18
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement")
is made as of June 13, 1996, by and among American Residential Services, Inc., a
Delaware corporation ("ARS"), ARS Bullseye Inc., a Florida corporation and a
wholly owned subsidiary of ARS ("Newco"), BULLSEYE AIR CONDITIONING, INC., a
Florida corporation (the "Company"), and the persons listed on the signature
pages hereof under the caption "Stockholders" (collectively, the "Stockholders,"
and each of those persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their
best long-term interests to effect a business combination pursuant to which:
(a) Newco will merge into the Company on the terms and subject
to the conditions set forth herein (that merger being the "Merger");
(b) ARS will acquire the stock of all or some of the entities
listed in the accompanying Addendum 1 (each an "Other Founding Company"
and, collectively with the Company, the "Founding Companies") pursuant
to agreements that are (i) similar to this Agreement and (ii) entered
into among those entities and their equity owners, ARS and subsidiaries
of ARS (collectively, the "Other Agreements"); and
(c) ARS shall effect a public offering of shares of its common
stock and issue and sell those shares.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements, representations and undertakings contained herein, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. CERTAIN DEFINED TERMS. As used in this
Agreement, the following terms have the meanings assigned to them below in this
Section 1.01. Capitalized terms used in this Agreement and not defined below in
this Section 1.01 have the meanings assigned to them in the Preliminary
Statement or Article I of the Uniform Provisions (the text of which Article
hereby is incorporated herein by this reference), as the case may be.
"AGREEMENT" means this Agreement, including the Disclosure
Statement relating to this Agreement and all attached
Schedules, Annexes and Exhibits, as each of the
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same may be amended, modified or supplemented from time to
time pursuant to the provisions hereof or thereof.
"ARS" means American Residential Services, Inc., a Delaware
corporation.
"ARS ACQUISITION CANDIDATE" means any Entity engaged in any of
the businesses of providing repair, maintenance, replacement or
warranty and annual contract maintenance services for Plumbing,
heating/air conditioning and electrical systems to owners or occupants
of single-family homes, duplexes, condominiums and small commercial
facilities, designing and installing of any of those systems in new
construction, selling and servicing home appliances and other similar
residential and building services (a) which was called on by any of the
Company, ARS or the Subsidiaries of the Company or ARS in connection
with the possible acquisition by any of them of that Entity or (b) of
which any of them has made an acquisition analysis.
"CLOSING MEMORANDUM" means the form of closing memorandum to
be prepared by ARS for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided
in Article VII.
"COMBINED COMPANIES" means Florida Heating and Air
Conditioning, Inc., Florida Heating & Air Conditioning Service, Inc.,
Florida Heating & Air Duct, Inc. and Bullseye Air Conditioning, Inc.,
each of which is a Florida corporation.
"COMBINED FINANCIAL STATEMENTS" means (a) the audited combined
balance sheet of the Combined Companies as of December 31, 1995 and the
related audited combined statements of operations, cash flows and
shareholders' equity for the year then ended, together with the related
audit report of Arthur Andersen LLP, and, if audited by Arthur Andersen
LLP, (b) the audited combined balance sheet of the Combined Companies
as of December 31, 1994 and the related audited combined statements of
operations, cash flows and shareholders' equity for the year then
ended, together with the related audit report of Arthur Andersen LLP.
"COMPANY" means Bullseye Air Conditioning, Inc., a Florida
corporation.
"COMPANY COMMON STOCK" means the common stock, par value $1.00
per share, of the Company.
"COUNSEL FOR ARS AND NEWCO" means Baker & Botts, L.L.P.
"COUNSEL FOR THE COMPANY AND THE STOCKHOLDERS" means
Weinstein, Rosenthal & Tobin, P.C.
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"CURRENT BALANCE SHEET" means the audited combined balance
sheet of the Combined Companies at December 31, 1995.
"CURRENT BALANCE SHEET DATE" means December 31, 1995.
"DISCLOSURE STATEMENT" means the written statement executed by
the Company and each of the Stockholders and delivered to ARS prior to
the execution and delivery of this Agreement by ARS and Newco in which
either (a) exceptions are taken to each of certain of the
representations and warranties made by the Company and the Stockholders
herein or (b) it is confirmed that no exception is taken to that
representation and warranty.
"FBCA" means the Florida Business Corporation Act.
"INITIAL FINANCIAL STATEMENTS" means the Combined Financial
Statements.
"MERGER CONSIDERATION" has the meaning specified in Section
2.04.
"NEWCO" means ARS Bullseye Inc., a Florida corporation.
"PRO RATA SHARE" means for each Stockholder the fraction
expressed as a percentage and set forth in Schedule 2.04, (a) the
numerator of which is the number of shares of outstanding Company
Common Stock owned by that Person, as set forth in Schedule 2.04, and
(b) the denominator of which is the total number of shares of
outstanding Company Common Stock owned by all Stockholders, as set
forth in Schedule 2.04.
"RESPONSIBLE OFFICER" means either of the following: Robert J.
Rogoff or Elliot Sokolow.
"SCHEDULED AGREEMENTS" means the agreements described in
Schedule 4.11.
"SOKOLOW EMPLOYMENT AGREEMENT" means the Employment Agreement
entered into as of June 12, 1996 between ARS and Elliot Sokolow.
"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement
entered into as of June 13, 1996 among ARS, the Stockholders and other
Persons parties thereto.
"SURVIVING CORPORATION" means the Company, the Person to be
designated in the Certificate of Merger as the surviving corporation of
the Merger.
"TERRITORY" has the meaning specified in Section 10.01.
"THRESHOLD AMOUNT" means 2% of the Transaction Value.
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"TRANSACTION VALUE" means $2,000,000.
"TRANSFER TAXES" has the meaning specified in Section 11.07.
"UNIFORM PROVISIONS" means the Uniform Provisions of ARS for
the Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. CERTIFICATE OF MERGER. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the date of the Closing, to be filed
with the Department of State of the State of Florida.
Section 2.02. THE EFFECTIVE TIME. The effective time of the
Merger (the "Effective Time") will be the time on the IPO Closing Date which the
Certificate of Merger specifies or, if the Certificate of Merger does not
specify another time, 8:00 a.m., eastern daylight standard time, on the IPO
Closing Date.
Section 2.03. CERTAIN EFFECTS OF THE MERGER. At and as of the
Effective Time, (a) Newco will be merged with and into the Company in accordance
with the provisions of the FBCA, (b) Newco will cease to exist as a separate
legal entity, (c) the articles of incorporation of the Company will be amended
to change its authorized capital stock to 1,000 shares, par value $1.00 per
share, of Common Stock, (d) the Company will be the Surviving Corporation and,
as such, will, all with the effect provided by the FBCA, (i) possess all the
properties and rights, and be subject to all the restrictions and duties, of the
Company and Newco and (ii) be governed by the laws of the State of Florida, (e)
the Charter Documents of the Company then in effect (after giving effect to the
amendment of the Company's articles of incorporation specified in clause (c) of
this sentence) will become and thereafter remain (until changed in accordance
with (i) applicable law (in the case of the articles of incorporation) or (ii)
their terms (in the case of the bylaws)) the Charter Documents of the Surviving
Corporation, (f) the initial board of directors of the Surviving Corporation
will be the persons named in Schedule 2.03, and those persons will hold the
office of director of the Surviving Corporation subject to the provisions of the
applicable laws of the State of Florida and the Charter Documents of the
Surviving Corporation, and (g) the initial officers of the Surviving Corporation
will be as set forth in Schedule 2.03, and each of those persons will serve in
each office specified for that person in Schedule 2.03, subject to the
provisions of the Charter Documents of the Surviving Corporation, until that
person's successor is duly elected to, and, if necessary, qualified for, that
office.
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Section 2.04. EFFECT OF THE MERGER ON CAPITAL STOCK. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the
right to receive, subject to the provisions of Section 2.05, without
interest, on surrender of the certificates evidencing those shares, (A)
the number of whole and fractional shares of ARS Common Stock
determined as provided in Schedule 2.04 (the "Merger Consideration")
and (B) the amount of cash for and in lieu of fractional shares of ARS
Common Stock as will be determined pursuant to Section 2.06, (ii) cease
to be outstanding and to exist and (iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of
the Company or any Company Subsidiary will (i) cease to be outstanding
and to exist and (ii) be canceled and retired; and
(c) each share of Newco Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into one
share of Common Stock, par value $1.00 per share, of the Surviving
Corporation, and the shares of Common Stock of the Surviving
Corporation issued on that conversion will constitute all the issued
and outstanding shares of Capital Stock of the Surviving Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, subject to the provisions of Section 2.05, without interest,
the Merger Consideration and the additional cash, if any, owing with respect to
those shares as provided in Section 2.06.
Section 2.05. DELIVERY, EXCHANGE AND PAYMENT. (a) At or after
the Effective Time: (i) each Stockholder, as the holder of certificates
representing shares of Company Common Stock, will, on surrender of those
certificates to ARS (or any agent that may be appointed by ARS for purposes of
this Section 2.05), receive, subject to the provisions of this Section 2.05 and
Section 2.06, the Merger Consideration; and (ii) until any certificate
representing Company Common Stock has been surrendered and replaced pursuant to
this Section 2.05, that certificate will, for all purposes, be deemed to
evidence ownership of the number of whole shares of ARS Common Stock included in
the Merger Consideration payable in respect of that certificate pursuant to
Section 2.04. All shares of ARS Common Stock issuable in the Merger will be
deemed for all purposes to have been issued by ARS at the Effective Time.
(b) Each Stockholder will deliver to ARS (or any agent that
may be appointed by ARS for purposes of this Section 2.05) on or before the IPO
Closing Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Person, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Person's expense, affixed and canceled. Each
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Stockholder shall cure any deficiencies in the endorsement of the certificates
or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Person.
(c) No dividends (or interest) or other distributions declared
or earned after the Effective Time with respect to ARS Common Stock and payable
to the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of ARS Common Stock have been issued in the Merger until
those certificates are surrendered as provided herein, but (i) on that surrender
ARS will cause to be paid, to the Person in whose name the certificates
representing such shares of ARS Common Stock shall then be issued, the amount of
dividends or other distributions previously paid with respect to such whole
shares of ARS Common Stock with a record date, or which have accrued, subsequent
to the Effective Time, but prior to surrender, and the amount of any cash
payable to such Person for and in lieu of fractional shares pursuant to Section
2.06 and (ii) at the appropriate payment date or as soon as practicable
thereafter, ARS will cause to be paid to that Person the amount of dividends or
other distributions with a record date, or which have been accrued, subsequent
to the Effective Time, but which are not payable until a date subsequent to
surrender, which are payable with respect to such whole shares of ARS Common
Stock, subject in all cases to any applicable escheat laws. No interest will be
payable with respect to the payment of such dividends or other distributions or
cash for and in lieu of fractional shares on surrender of outstanding
certificates.
Section 2.06. FRACTIONAL SHARES. Notwithstanding any other
provision herein, no fractional shares of ARS Common Stock will be issued, and
any Stockholder entitled hereunder to receive a fractional share of ARS Common
Stock but for this Section 2.06 will be entitled hereunder to receive a cash
payment for and in lieu thereof in the amount (rounded to the nearest whole
cent) equal to that Person's fractional interest in a share of ARS Common Stock
multiplied by the IPO Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01. BY EACH STOCKHOLDER. Each Stockholder represents
and warrants to ARS that, as applied solely to himself, all the following
representations and warranties in this Article III are as of the date of this
Agreement, and will be, as amended or supplemented pursuant to Section 6.08, on
the date of the Closing and the IPO Closing Date, true and correct:
(a) (i) he will be acquiring the shares of ARS Common Stock to
be issued pursuant to Section 2.04 to him solely for his account, for
investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in
connection with any distribution; (ii) he is not a party to any
agreement or other arrangement for the disposition of any shares of ARS
Common Stock other than this Agreement and the
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Registration Rights Agreement; (iii) he is an "accredited investor" as
defined in Securities Act Rule 501(a); (iv) he (A) is able to bear the
economic risk of an investment in the ARS Common Stock acquired
pursuant to this Agreement, (B) can afford to sustain a total loss of
that investment, (C) has such knowledge and experience in financial and
business matters that he is capable of evaluating the merits and risks
of the proposed investment in the ARS Common Stock, (D) has had an
adequate opportunity to ask questions and receive answers from the
officers of ARS concerning any and all matters relating to the
transactions contemplated hereby, including the background and
experience of the current and proposed officers and directors of ARS,
the plans for the operations of the business of ARS, the business,
operations and financial condition of the Other Founding Companies and
any plans of ARS for additional acquisitions, and (E) has asked all
questions of the nature described in preceding clause (D), and all
those questions have been answered to his satisfaction; and
(b) the representations and warranties contained in Article
III of the Uniform Provisions (the text of which Article hereby is
incorporated herein by this reference) are true and correct as applied
solely to himself, and his agreements set forth in that Article hereby
are agreed to.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF
THE COMPANY AND THE STOCKHOLDERS
Section 4.01. BY THE COMPANY AND EACH STOCKHOLDER. The Company
and each Stockholder jointly and severally represent and warrant to, and agree
with, ARS that all the following representations and warranties in this Article
IV are as of the date of this Agreement, and will be, as amended or supplemented
pursuant to Section 6.08, on the date of the Closing and the IPO Closing Date,
true and correct:
(a) the Organization State of the Company is the State of
Florida, and the Company (i) is a corporation duly organized, validly
existing and in good standing under the laws of that State, (ii) has
all requisite corporate power and authority under those laws and its
Charter Documents to own or lease and to operate its properties and to
carry on its business as now conducted and (iii) is duly qualified and
in good standing as a foreign corporation in all jurisdictions (other
than the State of Florida) in which it owns or leases property or in
which the carrying on of its business as now conducted so requires
except where the failure to be so qualified, singly or in the
aggregate, would not have a Material Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is
comprised of 600 shares of Company Common Stock, of which 600 shares
have been issued and are now outstanding
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and no shares are held by the Company as treasury shares, and (ii) no
outstanding Derivative Securities of the Company exist;
(c) (i) the terms and conditions of the Scheduled Agreement
are no less favorable to the Company than the Company reasonably could
have expected to obtain in an arm's- length transaction with a Person
other than an Affiliate of the Company and (ii) the rentals provided
for in the Scheduled Agreement do not exceed fair market rentals of the
property being leased under the Scheduled Agreement;
(d) the Combined Financial Statements (including the related
notes) delivered to ARS present fairly, in all material respects, the
combined financial position of the Combined Companies at December 31,
1995 and the combined results of their operations and their combined
cash flows and stockholders' equity for the year ended December 31,
1995 and have been prepared in accordance with GAAP. As of the Current
Balance Sheet Date, the Combined Companies then did not have any
outstanding indebtedness to any Person or any liabilities of any kind
(including contingent obligations, tax assessments or unusual forward
or long-term commitments), or any unrealized or anticipated loss, which
in the aggregate then were Material to the Combined Companies and
required to be reflected in the Combined Financial Statements or in the
notes related thereto in accordance with GAAP which were not so
reflected; and
(e) the representations and warranties contained in Article IV
of the Uniform Provisions (the text of which Article hereby is
incorporated herein by this reference) are true and correct, and the
agreements set forth in that Article hereby are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ARS AND NEWCO
Section 5.01. BY ARS AND NEWCO. ARS and Newco jointly and
severally represent and warrant to the Company and each Stockholder that all the
following representations and warranties in this Article V are as of the date of
this Agreement, and will be on the date of the Closing and the IPO Closing Date,
true and correct: (a) Newco is a corporation duly organized, validly existing
and in good standing under the laws of the State of Florida, (b) no Derivative
Securities of Newco are outstanding, (c) Newco has been organized for the sole
purpose of participating in the Merger and has not, and will not, engage in any
activities other than those necessary to effectuate the Merger and (d) the
representations and warranties contained in Article V of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) are
true and correct.
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ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01. OF EACH PARTY. Until the Effective Time, subject
to the waiver provisions of Section 11.05, each party hereto will comply with
each covenant for which provision is made in Article VI of the Uniform
Provisions (the text of which Article hereby is incorporated herein by this
reference) to be performed or observed by that party. For purposes of Section
6.10, the financial statements required to be delivered by the Company will
include financial statements of the Combined Companies corresponding to the
financial statements of the Company referred to therein.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01. THE CLOSING AND CERTAIN CONDITIONS. (a) THE
CLOSING. On or before the IPO Pricing Date, the parties hereto will take all
actions necessary to (i) effect the Merger (including, as permitted by the FBCA,
(A) the execution of a Certificate of Merger (1) meeting the requirements of the
FBCA and (2) providing that the Merger will become effective on the IPO Closing
Date and (B) the filing of that Certificate with the Department of State of the
State of Florida), (ii) verify the existence and ownership of the certificates
evidencing the Company Common Stock to be exchanged for the Merger Consideration
pursuant to Section 2.05 and (iii) satisfy the document delivery requirements to
which the obligations of the parties to effect the Merger and the other
transactions contemplated hereby are conditioned by the provisions of this
Article VII (all those actions collectively being the "Closing"). The Closing
will take place at the offices of Baker & Botts, L.L.P., 38th Floor, 910
Louisiana, Houston, Texas at 10:00 a.m., Houston time, or at such later time on
the IPO Pricing Date as ARS shall specify by written notice to Elliot Sokolow.
The actions taken at the Closing will not include the completion of either the
Merger or the delivery of the Company Common Stock or the Merger Consideration
pursuant to Section 2.05. Instead, on the IPO Closing Date, the Certificate of
Merger will become effective pursuant to Section 2.02, and all transactions
contemplated by this Agreement to be closed or completed on or before the IPO
Closing Date, including the surrender of the Company Common Stock in exchange
for the Merger Consideration (in the form of an ARS check in an amount equal to
the cash portion of the Merger Consideration) will be closed or completed, as
the case may be. During the period from the Closing to the IPO Closing Date,
this Agreement may be terminated by the parties only pursuant to Section
12.01(b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND
THE STOCKHOLDERS. The obligations of the Company and the Stockholders with
respect to the actions to be taken by them at or before the Closing are subject
to the satisfaction on or before the date of the Closing, or waiver by them
pursuant to Section 11.05, of all the conditions set forth in Sections 7.02(a)
and 7.03. The obligations of the Stockholders with respect to the actions to be
taken on the IPO Closing Date are
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subject to the satisfaction on that date to the following conditions: (i) each
of the Stockholders Agreement and the Sokolow Employment Agreement then shall be
in full force and effect; and (ii) all the conditions set forth in Sections
7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF ARS AND NEWCO.
The obligations of ARS and Newco with respect to actions to be taken by them at
or before the Closing are subject to the satisfaction on or before the date of
the Closing, or waiver by them pursuant to Section 11.05, of the following
conditions: (i) the Company shall have delivered to ARS a copy of the articles
of incorporation, as amended to the date of the Closing and certified by the
Department of State of the State of Florida as of a Current Date, of the
Company; and (ii) all the conditions set forth in Sections 7.02(a) and 7.04(a).
(d) The obligations of ARS and Newco with respect to the
actions to be taken on the IPO Closing Date are subject to the satisfaction on
that date of the following conditions: (i) the Sokolow Employment Agreement then
shall be in full force and effect; and (ii) all the conditions set forth in
Sections 7.02(b) and 7.04(b).
(e) The text of Article VII of the Uniform Provisions hereby
is incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01. OF EACH PARTY OTHER THAN THE COMPANY. From and
after the Effective Time, subject to the waiver provisions of Section 11.05,
each party hereto (other than the Company) will comply with each covenant for
which provision is made in Article VIII of the Uniform Provisions (the text of
which Article hereby is incorporated herein by this reference) to be performed
or observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01. INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text
of Article IX of the Uniform Provisions hereby is incorporated herein by this
reference.
ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.01. PROHIBITED ACTIVITIES. Each Stockholder agrees,
severally and not jointly with any other Person, that he will not, during the
period beginning on the date hereof and
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ending on the third anniversary of the date hereof, directly or indirectly, for
any reason, for his own account or on behalf of or together with any other
Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether
as an employee, independent contractor, consultant or advisor, or as a
sales representative or distributor of any kind, in any business
selling any products or providing any services in competition with the
Company, any Company Subsidiary or ARS or any Subsidiary of ARS (ARS
and its Subsidiaries collectively being "ARS" for purposes of this
Article X) within a radius of 100 miles of each location in which any
of the Company or the Company Subsidiaries was engaged in business on
the date hereof or immediately prior to the Effective Time (those
locations collectively being the "Territory");
(b) call on any natural person who is at that time employed by
the Company, any Company Subsidiary or ARS in any managerial capacity
with the purpose or intent of attracting that person from the employ of
the Company, any Company Subsidiary or ARS, provided that the
Stockholder may call on and hire any of his Immediate Family Members;
(c) call on any Person that at that time is, or at any time
within one year prior to that time was, a customer of the Company, any
Company Subsidiary or ARS within the Territory, (i) for the purpose of
soliciting or selling any product or service in competition with the
Company, any Company Subsidiary or ARS within the Territory and (ii)
with the knowledge of that customer relationship; or
(d) call on any ARS Acquisition Candidate, with the knowledge
of that Person's status as an ARS Acquisition Candidate, for the
purpose of acquiring that Person or arranging the acquisition of that
Person by any Person other than ARS.
Notwithstanding the foregoing, any Stockholder may own and hold as a passive
investment up to 1% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock is listed on the New York Stock Exchange or included
in the Nasdaq National Market. For purposes hereof and the respective tax
reporting positions of the parties hereto, each party hereto agrees that the
percentage of the cash portion of the Merger Consideration to be received by
each Stockholder pursuant to Section 2.04 which equals 1% of that Stockholder's
Pro Rata Share of the Transaction Value will represent, and be received as,
consideration for that Stockholder's agreement to observe the covenants in this
Section 10.01.
Section 10.02. DAMAGES. Because of the difficulty of measuring
economic losses to ARS as a result of any breach by a Stockholder of his
covenants in Section 10.01, and because of the immediate and irreparable damage
that could be caused to ARS for which it would have no other adequate remedy,
each Stockholder agrees that ARS may enforce the provisions of Section 10.01 by
injunctions and restraining orders against that Stockholder if he breaches any
of those provisions.
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Section 10.03. REASONABLE RESTRAINT. The parties hereto each
agree that Sections 10.01 and 10.02 impose a reasonable restraint on the
Stockholders in light of the activities and business of ARS on the date hereof,
the current business plans of ARS and the investment by each Stockholder in ARS
as a result of the Merger.
Section 10.04. SEVERABILITY; REFORMATION. The covenants in
this Article X are severable and separate, and the unenforceability of any
specific covenant in this Article X is not intended by any party hereto to, and
shall not, affect the provisions of any other covenant in this Article X. If any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth in Section 10.01 are unreasonable as applied
to any Stockholder, the parties hereto, including that Stockholder, acknowledge
their mutual intention and agreement that those restrictions be enforced to the
fullest extent the court deems reasonable, and thereby shall be reformed to that
extent as applied to that Stockholder and any other Stockholder similarly
situated.
Section 10.05. INDEPENDENT COVENANT. All the covenants in this
Article X are intended by each party hereto to, and shall, be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of any Stockholder against ARS,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by ARS of any covenant in this Article X. It is
specifically agreed that the period specified in Section 10.01 shall be computed
in the case of each Stockholder by excluding from that computation any time
during which that Stockholder is in violation of any provision of Section 10.01.
The covenants contained in this Article X shall not be affected by any breach of
any other provision hereof by any party hereto.
Section 10.06. MATERIALITY. The Company and each Stockholder,
severally and not jointly with any other Person, hereby agree that this Article
X is a material and substantial part of the transactions contemplated hereby.
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. TREATMENT OF CONFIDENTIAL INFORMATION. Each
party hereto will comply with each covenant for which provision is made in
Section 11.01 of the Uniform Provisions (the text of which Section hereby is
incorporated herein by this reference) to be performed or observed by that
party.
Section 11.02. RESTRICTIONS ON TRANSFER OF ARS COMMON STOCK.
(a) During the two-year period ending on the second anniversary of the IPO
Closing Date (the "Restricted Period") (or if the two-year "holding" period for
restricted securities under Rule 144 under the Securities Act is reduced by the
SEC, the Restricted Period will be correspondingly reduced), no Stockholder
voluntarily will, except pursuant to and in accordance with the applicable
provisions of the Registration Rights Agreement: (i) sell, assign, exchange,
transfer, encumber, pledge, distribute,
-12-
appoint or otherwise dispose of (A) any shares of ARS Common Stock received by
any Stockholder in the Merger or (B) any interest in (including any option to
buy or sell) any of those shares of ARS Common Stock, in whole or in part, and
ARS will have no obligation to, and shall not, treat any such attempted transfer
as effective for any purpose; or (ii) engage in any transaction, whether or not
with respect to any shares of ARS Common Stock or any interest therein, the
intent or effect of which is to reduce the risk of owning the shares of ARS
Common Stock acquired pursuant to Section 2.04 (including, for example engaging
in put, call, short-sale, straddle or similar market transactions); provided,
however, that this Section 11.02 shall not restrict any transfer of ARS Common
Stock acquired by a Stockholder pursuant to Section 2.04 to any of that
Stockholder's Related Persons who agree in writing to be bound by the provisions
of Section 11.01 and this Section 11.02. The certificates evidencing the ARS
Common Stock delivered to each Stockholder pursuant to Section 2.05 will bear a
legend substantially in the form set forth below and containing such other
information as ARS may deem necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE
OTHER PARTIES THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY
NOT BE VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED,
PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE
ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY
SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF ANY OF THOSE SHARES,
DURING THE TWO-YEAR PERIOD ENDING ON __________ [DATE THAT IS THE
SECOND ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED PERIOD")
(OR IF THE TWO-YEAR "HOLDING" PERIOD FOR RESTRICTED SECURITIES UNDER
RULE 144 UNDER THE SECURITIES ACT OF 1933 IS REDUCED BY THE SECURITIES
AND EXCHANGE COMMISSION, THE RESTRICTED PERIOD WILL BE CORRESPONDINGLY
REDUCED). ON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE
ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER
PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of ARS Common Stock to be delivered to
that Stockholder pursuant to Section 2.04 have not been and, except pursuant to
the Registration Rights Agreement, if applicable, will not be registered under
the Securities Act and therefore may not be resold by that Stockholder without
compliance with the Securities Act and (ii) covenants that none of the shares of
ARS Common Stock issued to that Stockholder pursuant to Section 2.04 will be
offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable provisions of
the Securities Act and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of ARS
Common Stock issued pursuant to Section 2.04 will bear the following legend in
addition to the legend prescribed by Section 11.02(a):
-13-
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF
THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE
SECURITIES LAWS.
In addition, certificates evidencing shares of ARS Common Stock issued pursuant
to Section 2.04 to each Stockholder will bear any legend required by the
securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03. BROKERS AND AGENTS. The Stockholders jointly
and severally represent and warrant to ARS that the Company has not directly or
indirectly employed or become obligated to pay any broker or similar agent in
connection with the transactions contemplated hereby and agree, without regard
to the Threshold Amount limitations set forth in Article IX, to indemnify ARS
against all Damage Claims arising out of claims for any and all fees and
commissions of brokers or similar agents employed or promised payment by the
Company.
Section 11.04. ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of ARS, and the heirs and legal representatives
of the Stockholders (and, in the case of any trust, the successor trustees of
that trust). Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies hereunder or thereunder,
except as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise
provided expressly herein or therein.
Section 11.05. ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This
Agreement and the documents delivered pursuant hereto constitute the entire
agreement and understanding among the Stockholders, the Company, Newco and ARS
and supersede all prior agreements and understandings, both written and oral,
relating to the subject matter of this Agreement. This Agreement may be amended,
modified or supplemented, and any right hereunder may be waived, if, but only
if, that amendment, modification, supplement or waiver is in writing and signed
by each of the Stockholders, the Company and ARS. The waiver of any of the terms
and conditions hereof shall not be construed or interpreted as, or deemed to be,
a waiver of any other term or condition hereof.
Section 11.06. COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
Section 11.07. EXPENSES. Whether or not the transactions
contemplated hereby are consummated, (a) ARS will pay the fees, expenses and
disbursements of ARS and Newco and their Representatives which are incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance of and compliance
with all conditions to be performed by ARS and Newco under this Agreement,
including the costs
-14-
of preparing the Registration Statement, (b) the Stockholders will pay from
personal funds, and not from funds of the Company or any Company Subsidiary, all
sales, use, transfer and other similar taxes and fees (collectively, "Transfer
Taxes") incurred in connection with the transactions contemplated hereby and (c)
the Company will pay the fees, expenses and disbursements of Counsel for the
Company and the Stockholders incurred in connection with the subject matter of
this Agreement and the Registration Statement on or before the IPO Closing Date;
provided, however, if the Company or the Stockholders terminates this Agreement
otherwise than as permitted by Article XII, the Company will, no later than 10
Houston, Texas business days after ARS makes a written request therefor,
reimburse ARS in the amount equal to the aggregate fees, costs and other
expenses invoiced to ARS by Arthur Andersen LLP in connection with its audit of
the financial statements of the Combined Companies at December 31, 1995 and for
the 12-month period then ended. The Stockholders will file all necessary
documentation and Returns with respect to all Transfer Taxes. In addition, each
Stockholder acknowledges that he, and not the Company or ARS or the Surviving
Corporation, will pay all Taxes due upon receipt of the consideration payable to
that Stockholder pursuant to Article II.
Section 11.08. NOTICES. All notices required or permitted
hereunder shall be in writing, and shall be deemed to be delivered and received
(a) if personally delivered or if delivered by telex, telegram, facsimile or
courier service, when actually received by the party to whom notice is sent or
(b) if delivered by mail (whether actually received or not), at the close of
business on the third Houston, Texas business day next following the day when
placed in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
(i) if to ARS or Newco, addressed to it at:
American Residential Services, Inc.
5850 San Felipe
Suite 500
Houston, Texas 77057
Attn.: C. Clifford Wright, Jr.
Chief Executive Officer
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Baker & Botts, L.L.P.
One Shell Plaza
Houston, Texas 77002-4995
Attn: James L. Leader, Esq.;
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Schedule 2.04; and
-15-
(iii) if to the Company, addressed to it at:
BULLSEYE AIR CONDITIONING, INC.
1700 Banks Road
Margate, Florida 33063
Attn: Elliot Sokolow
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Weinstein, Rosenthal & Tobin, P.C.
1776 Resurgens Plaza
945 East Paces Ferry Road, N.E.
Atlanta, Georgia 30326
Attn: Melvin E. Weinstein, Esq.
SECTION 11.09. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF; PROVIDED, HOWEVER,
THAT ARTICLE X AND THE RIGHTS AND OBLIGATIONS THEREUNDER OF THE PARTIES THERETO
WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
FLORIDA WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10. EXERCISE OF RIGHTS AND REMEDIES. Except as
otherwise provided herein, no delay or omission in the exercise of any right,
power or remedy accruing to any party hereto as a result of any breach or
default hereunder by any other party hereto shall impair any such right, power
or remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11. TIME. Time is of the essence in the performance
of this Agreement in all respects.
Section 11.12. REFORMATION AND SEVERABILITY. If any provision
of this Agreement is invalid, illegal or unenforceable, that provision shall, to
the extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13. REMEDIES CUMULATIVE. No right, remedy or
election given by any term of this Agreement shall be deemed exclusive, but each
shall be cumulative with all other rights, remedies and elections available at
law or in equity.
-16-
Section 11.14. RESPECTING THE IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither ARS or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that ARS will use its reasonable best efforts to
cause the Registration Statement to become effective prior to December 31, 1996)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to ARS or the
IPO. The Underwriter shall have no obligation to any of the Company and the
Stockholders with respect to any disclosure contained in the Registration
Statement.
ARTICLE XII
TERMINATION
Section 12.01. TERMINATION OF THIS AGREEMENT. (a) This
Agreement may be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of ARS and the Company;
(ii) by the Stockholders or the Company, on the one hand, or
by ARS, on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated
by December 31, 1996, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the
case of the Stockholders and the Company, any of them) seeking to
terminate this Agreement to perform or adhere to any agreement required
hereby to be performed or adhered to by it prior to or at the Closing
or thereafter on the IPO Closing Date;
(iii) by the Stockholders or the Company, on the one hand, or
by ARS, on the other hand, if a material breach or default shall be
made by the other party (or in the case of the Stockholders and the
Company, any of them) in the observance or in the due and timely
performance of any of the covenants, agreements or conditions contained
herein; or
(iv) by ARS if it is entitled to do so as provided in Section
6.08.
-17-
(b) This Agreement may be terminated after the Closing solely:
(i) by ARS or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City business
days after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section
12.01, the Merger will be deemed for all purposes to have been abandoned and of
no force or effect. If this Agreement is terminated pursuant to this Section
12.01 after the Certificate of Merger has been filed with the Department of
State of the State of Florida, but before the IPO has been consummated, ARS will
take all actions that Counsel for the Company and the Stockholders advises ARS
are required by the applicable laws of the State of Florida in order to rescind
the Merger.
Section 12.02. LIABILITIES IN EVENT OF TERMINATION. If this
Agreement is terminated pursuant to Section 12.01, there shall be no liability
or obligation on the part of any party hereto except (a) as provided in Section
11.07 and (b) to the extent that such liability is based on the breach by that
party of any of its representations, warranties or covenants set forth in this
Agreement.
-18-
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
AMERICAN RESIDENTIAL SERVICES, INC.
By: ___________________________
C. Clifford Wright, Jr.
Chief Executive Officer and President
ARS BULLSEYE INC.
By: ___________________________
C. Clifford Wright, Jr.
Chief Executive Officer and President
BULLSEYE AIR CONDITIONING, INC.
By: ___________________________
Robert J. Rogoff
President
STOCKHOLDERS:
___________________________
Robert J. Rogoff
___________________________
Elliot Sokolow
-19-
<PAGE>
ADDENDUM 1
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.
ARS Bullseye Inc.,
BULLSEYE AIR CONDITIONING, INC.
and
the Stockholders named therein
A. Words and terms used in this Addendum which are defined in the
captioned Agreement to which this is an Addendum are used herein as therein
defined.
B. The Founding Companies are:
Atlas Services, Inc.
Bullseye Air Conditioning, Inc.
Climatic Corporation of Vero Beach
DIAL ONE Meridian and Hoosier, Inc.
Enterprises Holding Company
Florida Heating and Air Conditioning, Inc.
Florida Heating and Air Conditioning Service, Inc.
Florida Heating and Air Duct, Inc.
General Heating Engineering Company, Inc.
<PAGE>
SCHEDULE 2.03
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Bullseye Inc.,
BULLSEYE AIR CONDITIONING, INC.
and
the Stockholders named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.03 are used
herein as defined therein.
B. The directors of the Surviving Corporation immediately after the
Effective Time are as follows: Howard S. Hoover, Jr., William P. McCaughey and
C. Clifford Wright, Jr.
C. The officers of the Surviving Corporation immediately following the
Effective Time are as follows:
President........................... Elliot Sokolow
Vice President...................... William P. McCaughey
Vice President and Secretary........ John D. Held
<PAGE>
SCHEDULE 2.04
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Bullseye Inc.,
BULLSEYE AIR CONDITIONING, INC.
and
the Stockholders named therein
A. Words and terms used in this Schedule which are defined in
the captioned Agreement to which this Schedule is attached as Schedule 2.04 are
used herein as defined therein.
B. The name and address of each Stockholder are as follows:
ADDRESS
Robert J. Rogoff........................
Elliot Sokolow.......................... 2751 Northeast 47th Street
Lighthouse Point, Florida 33064
C. Subject to increase or reduction by the application of the
Positive Working Capital Adjustment or the Negative Working Capital Adjustment,
as the case may be the aggregate Merger Consideration will be comprised of such
number of whole and fractional shares of ARS Common Stock as shall equal the
quotient of (A) $2,000,000 divided by (B) the IPO Price, and the Stockholders
will be entitled to receive the Merger Consideration pursuant to Section 2.04 as
follows:
Shares of Pre-Merger Pro Rata Share
Company Common Stock of
OWNED MERGER CONSIDERATION
--- ------
STOCKHOLDERS:
Robert J. Rogoff ................... 300 50.00%
Elliot Sokolow ..................... 300 50.00
--- ------
600 100.00%
=== ======
<PAGE>
Shares of Pre-Merger Pro Rata Share
Company Common Stock of
OWNED MERGER CONSIDERATION
<PAGE>
SCHEDULE 3.01
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Bullseye Inc.,
BULLSEYE AIR CONDITIONING, INC.
and
the Stockholders named therein
A. Words and terms used in this Schedule which are defined in
the captioned Agreement to which this Schedule is attached as Schedule 3.01 are
used herein as therein defined.
B. Each Stockholder is an "accredited investor" as defined in
Securities Act Rule 501(a).
<PAGE>
SCHEDULE 3.02
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Bullseye Inc.,
BULLSEYE AIR CONDITIONING, INC.
and
the Stockholders named therein
A. Words and terms used in this Schedule which are defined in
the Captioned Agreement to which this Schedule is attached as Schedule 3.02 are
used herein as defined therein.
B. The outstanding Company Common Stock is owned as follows:
Robert J. Rogoff ...................300 Shares
Elliot Sokolow .....................300 Shares
C. No exception is taken to the representations and warranties
in Section 3.02 of the captioned Agreement.
<PAGE>
SCHEDULE 3.07
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Bullseye Inc.,
BULLSEYE AIR CONDITIONING, INC.
and
the Stockholder named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.07 are used
herein as defined therein.
B. The Stockholder is, alone or with one or more other Persons, the
controlling Affiliate of the following Entities, businesses or trades (other
than the Company and the Company Subsidiaries, if the Stockholder is an
Affiliate of the Company) that (a) are engaged in any line of business which is
the same as or similar to any line of business in which the Company or any
Company Subsidiary is engaged or (b) are, or have within the three-year period
ending on the date of this Agreement, engaged in any transaction with the
Company or any Company Subsidiary, except for transactions in the ordinary
course of business of the Company or that Company Subsidiary:
1. Florida Heating and Air Conditioning, Inc., Florida Heating
and Air Conditioning Service, Inc., Bullseye Air Conditioning, Inc.,
and Florida Heating and Air Duct, Inc., all have common ownership or
somewhat common ownership. The common ownership is disclosed more fully
in Schedule 3.02 for each of those companies.
2. The Company leases space from FHAC Building Limited, which
is owned or controlled by Elliot P. Sokolow and Robert J. Rogoff.
<PAGE>
SCHEDULE 4.11
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Bullseye Inc.,
BULLSEYE AIR CONDITIONING, INC.
and
the Stockholders named therein
A. Words and terms used in this Schedule which are defined in
the captioned Agreement to which this Schedule is attached as Schedule 4.11 are
used herein as defined therein.
B. The following Related Party Agreement will be permitted to
continue in effect past the date of the Closing in accordance with its terms:
Office/Warehouse Lease Agreement dated as of November 1, 1989
between E.M.E.S., Ltd d/b/a FHAC Commerce Center, as lessor and Florida Heating
and Air Conditioning, Inc., as lessee, relating to the Florida Heating and Air
Conditioning, Inc.'s main office and warehouse facility in Margate, Florida. The
Building was sold on 1/27/90 to FHAC Building, Ltd. The lease term in such Lease
Agreement will be extended through May 31, 2005. The owners of FHAC Building,
Ltd. Are Elliot P. Sokolow (79% interest), Robert J. Rogoff (20% interest) and a
corporate general partner (1%) owned and controlled by Sokolow, the name of
which corporate general partner is FHAC Building, Inc. A copy of the Lease
Addendum and the Assumption and Indemnity Agreement between E.M.E.S., Ltd. and
FHAC Building, Ltd. are attached.
<PAGE>
SCHEDULE 6.04
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Bullseye Inc.,
BULLSEYE AIR CONDITIONING, INC.
and
the Stockholder named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.04 are used
herein as defined therein.
B. The Company and the Company Subsidiaries may make the following
Restricted Payments prior to the Effective Time:
None
<PAGE>
SCHEDULE 6.12
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Bullseye Inc.,
BULLSEYE AIR CONDITIONING, INC.
and
the Stockholder named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.12 are used
herein as defined therein.
B. The Company will make all arrangements and take all such actions as
are necessary and satisfactory to ARS to dispose, prior to the Effective Time,
of the following assets:
None
<PAGE>
SCHEDULE 8.05
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Bullseye Inc.,
BULLSEYE AIR CONDITIONING, INC.
and
the Stockholder named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 8.05 are used
herein as defined therein.
B. At or within 60 days following the Effective Time, ARS will cause
the following Stockholder Guaranties to be terminated:
None
EXHIBIT 2.6
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF JUNE 13, 1996
BY AND AMONG
AMERICAN RESIDENTIAL SERVICES, INC.,
ARS DUCT INC.,
FLORIDA HEATING AND AIR DUCT, INC.
AND
THE STOCKHOLDER NAMED HEREIN
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TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS..................................................1
ARTICLE II THE MERGER AND RELATED MATTERS...............................4
Section 2.01. Certificate of Merger..................................4
Section 2.02. The Effective Time.....................................4
Section 2.03. Certain Effects of the Merger..........................4
Section 2.04. Effect of the Merger on Capital Stock..................4
Section 2.05. Delivery, Exchange and Payment.........................5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER............5
Section 3.01. By the Stockholder.....................................5
ARTICLE IV REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE STOCKHOLDER...........................6
Section 4.01. By the Company and the Stockholder.....................6
ARTICLE V REPRESENTATIONS AND WARRANTIES OF ARS AND NEWCO..............7
Section 5.01. By ARS and Newco.......................................7
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME....................7
Section 6.01. Of Each Party..........................................7
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION.................................................7
Section 7.01. The Closing and Certain Conditions.....................7
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME.......................9
Section 8.01. Of Each Party Other Than the Company...................9
ARTICLE IX INDEMNIFICATION..............................................9
Section 9.01. Indemnification Rights and Obligations.................9
ARTICLE X LIMITATIONS ON COMPETITION...................................9
Section 10.01. Prohibited Activities..................................9
Section 10.02. Damages...............................................10
Section 10.03. Reasonable Restraint..................................10
Section 10.04. Severability; Reformation.............................10
Section 10.05. Independent Covenant..................................10
Section 10.06. Materiality...........................................11
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ARTICLE XI GENERAL PROVISIONS..........................................11
Section 11.01. Treatment of Confidential Information.................11
Section 11.02. [Intentionally Omitted]...............................11
Section 11.03. Brokers and Agents....................................11
Section 11.04. Assignment; No Third Party Beneficiaries..............11
Section 11.05. Entire Agreement; Amendment; Waivers..................11
Section 11.06. Counterparts..........................................11
Section 11.07. Expenses..............................................12
Section 11.08. Notices...............................................12
Section 11.09. Governing Law.........................................13
Section 11.10. Exercise of Rights and Remedies.......................13
Section 11.11. Time..................................................13
Section 11.12. Reformation and Severability..........................14
Section 11.13. Remedies Cumulative...................................14
Section 11.14. Respecting the IPO....................................14
ARTICLE XII TERMINATION.................................................14
Section 12.01. Termination of This Agreement.........................14
Section 12.02. Liabilities in Event of Termination...................15
-ii-
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement")
is made as of June 13, 1996, by and among American Residential Services, Inc., a
Delaware corporation ("ARS"), ARS Duct Inc., a Florida corporation and a wholly
owned subsidiary of ARS ("Newco"), FLORIDA HEATING AND AIR DUCT, INC., a Florida
corporation (the "Company"), and the person listed on the signature pages hereof
under the caption "Stockholder."
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their
best long-term interests to effect a business combination pursuant to which:
(a) Newco will merge into the Company on the terms and subject
to the conditions set forth herein (that merger being the "Merger");
(b) ARS will acquire the stock of all or some of the entities
listed in the accompanying Addendum 1 (each an "Other Founding Company"
and, collectively with the Company, the "Founding Companies") pursuant
to agreements that are (i) vaguely similar to this Agreement and (ii)
entered into among those entities and their equity owners, ARS and
subsidiaries of ARS (collectively, the "Other Agreements"); and
(c) ARS shall effect a public offering of shares of its common
stock and issue and sell those shares.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements, representations and undertakings contained herein, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. CERTAIN DEFINED TERMS. As used in this
Agreement, the following terms have the meanings assigned to them below in this
Section 1.01. Capitalized terms used in this Agreement and not defined below in
this Section 1.01 have the meanings assigned to them in the Preliminary
Statement or Article I of the Uniform Provisions (the text of which Article
hereby is incorporated herein by this reference), as the case may be.
"AGREEMENT" means this Agreement, including the Disclosure
Statement relating to this Agreement and all attached Schedules,
Annexes and Exhibits, as each of the same may be amended, modified or
supplemented from time to time pursuant to the provisions hereof or
thereof.
-1-
"ARS" means American Residential Services, Inc., a Delaware
corporation.
"ARS ACQUISITION CANDIDATE" means any Entity engaged in any of
the businesses of providing repair, maintenance, replacement or
warranty and annual contract maintenance services for Plumbing,
heating/air conditioning and electrical systems to owners or occupants
of single-family homes, duplexes, condominiums and small commercial
facilities, designing and installing of any of those systems in new
construction, selling and servicing home appliances and other similar
residential and building services (a) which was called on by any of the
Company, ARS or the Subsidiaries of the Company or ARS in connection
with the possible acquisition by any of them of that Entity or (b) of
which any of them has made an acquisition analysis.
"CLOSING MEMORANDUM" means the form of closing memorandum to
be prepared by ARS for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided
in Article VII.
"COMBINED COMPANIES" means Florida Heating and Air
Conditioning, Inc., Florida Heating and Air Conditioning Service, Inc.,
Florida Heating and Air Duct, Inc. and Bullseye Air Conditioning, Inc.,
each of which is a Florida corporation.
"COMBINED FINANCIAL STATEMENTS" means (a) the audited combined
balance of the Combined Companies as of December 31, 1995 and the
related audited combined statements of operations, cash flows and
shareholders' equity for the year then ended, together with the related
audit report of Arthur Andersen LLP, and, if audited by Arthur Andersen
LLP, (b) the audited combined balance sheet of the Combined Companies
as of December 31, 1994, and the related audited combined statements of
operations, cash flows and shareholders equity for the year then ended,
together with the related audit report of Arthur Andersen LLP.
"COMPANY" means Florida Heating and Air Duct, Inc., a Florida
corporation.
"COMPANY COMMON STOCK" means the common stock, par value $0.50
per share, of the Company.
"COUNSEL FOR ARS AND NEWCO" means Baker & Botts, L.L.P.
"COUNSEL FOR THE COMPANY AND THE STOCKHOLDER" means Weinstein,
Rosenthal & Tobin, P.C.
"CURRENT BALANCE SHEET" means the audited combined balance
sheet of the Combined Companies at December 31, 1995.
"CURRENT BALANCE SHEET DATE" means December 31, 1995.
-2-
"DISCLOSURE STATEMENT" means the written statement executed by
the Company and the Stockholder and delivered to ARS prior to the
execution and delivery of this Agreement by ARS and Newco in which
either (a) exceptions are taken to each of certain of the
representations and warranties made by the Company and the Stockholder
herein or (b) it is confirmed that no exception is taken to that
representation and warranty.
"FBCA" means the Florida Business Corporation Act.
"INITIAL FINANCIAL STATEMENTS" means the Combined Financial
Statements.
"MERGER CONSIDERATION" has the meaning specified in Section
2.04.
"NEWCO" means ARS Duct Inc., a Florida corporation.
"PRO RATA SHARE" of the Stockholder means 100%.
"RESPONSIBLE OFFICER" means Elliot Sokolow.
"SCHEDULED AGREEMENT" means the agreements described in
Schedule 4.11.
"SOKOLOW EMPLOYMENT AGREEMENT" means the Employment Agreement
entered into as of June 13, 1996 between ARS and Elliot Sokolow.
"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement
entered into as of June 13, 1996 among ARS and other Persons parties
thereto.
"SURVIVING CORPORATION" means the Company, the Person to be
designated in the Certificate of Merger as the surviving corporation of
the Merger.
"TERRITORY" has the meaning specified in Section 10.01.
"THRESHOLD AMOUNT" means 2% of the Transaction Value.
"TRANSACTION VALUE" means $1,000.
"TRANSFER TAXES" has the meaning specified in Section 11.07.
"UNIFORM PROVISIONS" means the Uniform Provisions of ARS for
the Acquisition of Founding Companies attached hereto as Annex 1.
-3-
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. CERTIFICATE OF MERGER. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the date of the Closing, to be filed
with the Department of State of the State of Florida.
Section 2.02. THE EFFECTIVE TIME. The effective time of the
Merger (the "Effective Time") will be the time on the IPO Closing Date which the
Certificate of Merger specifies or, if the Certificate of Merger does not
specify another time, 8:00 a.m., eastern daylight standard time, on the IPO
Closing Date.
Section 2.03. CERTAIN EFFECTS OF THE MERGER. At and as of the
Effective Time, (a) Newco will be merged with and into the Company in accordance
with the provisions of the FBCA, (b) Newco will cease to exist as a separate
legal entity, (c) the articles of incorporation of the Company will be amended
to change its authorized capital stock to 1,000 shares, par value $1.00 per
share, of Common Stock, (d) the Company will be the Surviving Corporation and,
as such, will, all with the effect provided by the FBCA, (i) possess all the
properties and rights, and be subject to all the restrictions and duties, of the
Company and Newco and (ii) be governed by the laws of the State of Florida, (e)
the Charter Documents of the Company then in effect (after giving effect to the
amendment of the Company's articles of incorporation specified in clause (c) of
this sentence) will become and thereafter remain (until changed in accordance
with (i) applicable law (in the case of the articles of incorporation) or (ii)
their terms (in the case of the bylaws)) the Charter Documents of the Surviving
Corporation, (f) the initial board of directors of the Surviving Corporation
will be the persons named in Schedule 2.03, and those persons will hold the
office of director of the Surviving Corporation subject to the provisions of the
applicable laws of the State of Florida and the Charter Documents of the
Surviving Corporation, and (g) the initial officers of the Surviving Corporation
will be as set forth in Schedule 2.03, and each of those persons will serve in
each office specified for that person in Schedule 2.03, subject to the
provisions of the Charter Documents of the Surviving Corporation, until that
person's successor is duly elected to, and, if necessary, qualified for, that
office.
Section 2.04. EFFECT OF THE MERGER ON CAPITAL STOCK. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the
right to receive, subject to the provisions of Section 2.05, without
interest, on surrender of the certificates evidencing those shares, the
amount of cash set forth or determined as provided in Schedule 2.04
(the "Merger Consideration"), (ii) cease to be outstanding and to exist
and (iii) be canceled and retired;
-4-
(b) each share of Company Common Stock held in the treasury of
the Company or any Company Subsidiary will (i) cease to be outstanding
and to exist and (ii) be canceled and retired; and
(c) each share of Newco Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into one
share of Common Stock, par value $1.00 per share, of the Surviving
Corporation, and the shares of Common Stock of the Surviving
Corporation issued on that conversion will constitute all the issued
and outstanding shares of Capital Stock of the Surviving Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, subject to the provisions of Section 2.05, without interest,
the Merger Consideration.
Section 2.05. DELIVERY, EXCHANGE AND PAYMENT. (a) At or after
the Effective Time: the Stockholder, as the holder of certificates representing
shares of Company Common Stock, will, on surrender of those certificates to ARS
(or any agent that may be appointed by ARS for purposes of this Section 2.05),
receive, subject to the provisions of this Section 2.05, the Merger
Consideration.
(b) The Stockholder will deliver to ARS (or any agent that may
be appointed by ARS for purposes of this Section 2.05) on or before the IPO
Closing Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Person, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Person's expense, affixed and canceled. The
Stockholder shall cure any deficiencies in the endorsement of the certificates
or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Person.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
Section 3.01. BY THE STOCKHOLDER. The Stockholder represents
and warrants to ARS that all the following representations and warranties in
this Article III are as of the date of this Agreement, and will be, as amended
or supplemented pursuant to Section 6.08, on the date of the Closing and the IPO
Closing Date, true and correct:
(a) the representations and warranties contained in Article
III of the Uniform Provisions (the text of which Article hereby is
incorporated herein by this reference) are true and correct, and the
agreements set forth in that Article hereby are agreed to; and
-5-
(b) (i) the terms and conditions of the Scheduled Agreement
are no less favorable to the Company than the Company reasonably could
have expected to obtain in an arm's- length transaction with a Person
other than an Affiliate of the Company and (ii) the rentals provided
for in the Scheduled Agreements do not exceed fair market rentals of
the property being rented or leased under the Scheduled Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF
THE COMPANY AND THE STOCKHOLDER
Section 4.01. BY THE COMPANY AND THE STOCKHOLDER. The Company
and the Stockholder jointly and severally represent and warrant to, and agree
with, ARS that all the following representations and warranties in this Article
IV are as of the date of this Agreement, and will be, as amended or supplemented
pursuant to Section 6.08, on the date of the Closing and the IPO Closing Date,
true and correct:
(a) the Organization State of the Company is the State of
Florida, and the Company (i) is a corporation duly organized, validly
existing and in good standing under the laws of that State, (ii) has
all requisite corporate power and authority under those laws and its
Charter Documents to own or lease and to operate its properties and to
carry on its business as now conducted and (iii) is duly qualified and
in good standing as a foreign corporation in all jurisdictions (other
than the State of Florida) in which it owns or leases property or in
which the carrying on of its business as now conducted so requires
except where the failure to be so qualified, singly or in the
aggregate, would not have a Material Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is
comprised of 600 shares of Company Common Stock, of which 600 shares
have been issued and are now outstanding and no shares are held by the
Company as treasury shares, and (ii) no outstanding Derivative
Securities of the Company exist;
(c) the Combined Financial Statements (including the related
notes) delivered to ARS present fairly, in all material respects, the
combined financial position of the Combined Companies at December 31,
1995 and the combined results of their operations and their combined
cash flows and stockholders' equity for the year ended December 31,
1995 and have been prepared in accordance with GAAP. As of the Current
Balance Sheet Date, the Combined Companies then did not have any
outstanding indebtedness to any Person or any liabilities of any kind
(including contingent obligations, tax assessments or unusual forward
or long-term commitments), or any unrealized or anticipated loss, which
in the aggregate then were Material to the Combined Companies and
required to be reflected in the Combined Financial Statements or in the
notes related thereto in accordance with GAAP which were not so
reflected; and
-6-
(d) the representations and warranties contained in Article IV
of the Uniform Provisions (the text of which Article hereby is
incorporated herein by this reference) are true and correct, and the
agreements set forth in that Article hereby are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ARS AND NEWCO
Section 5.01. BY ARS AND NEWCO. ARS and Newco jointly and
severally represent and warrant to the Company and each Stockholder that all the
following representations and warranties in this Article V are as of the date of
this Agreement, and will be on the date of the Closing and the IPO Closing Date,
true and correct: (a) Newco is a corporation duly organized, validly existing
and in good standing under the laws of the State of Florida, (b) no Derivative
Securities of Newco are outstanding, (c) Newco has been organized for the sole
purpose of participating in the Merger and has not, and will not, engage in any
activities other than those necessary to effectuate the Merger and (d) the
representations and warranties contained in Article V of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) are
true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01. OF EACH PARTY. Until the Effective Time, subject
to the waiver provisions of Section 11.05, each party hereto will comply with
each covenant for which provision is made in Article VI of the Uniform
Provisions (the text of which Article hereby is incorporated herein by this
reference) to be performed or observed by that party. For purposes of Section
6.10, the financial statements required to be delivered by the Company will
include financial statements of the Combined Companies corresponding to the
financial statements of the Company referred to therein.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01. THE CLOSING AND CERTAIN CONDITIONS. (a) THE
CLOSING. On or before the IPO Pricing Date, the parties hereto will take all
actions necessary to (i) effect the Merger (including, as permitted by the FBCA,
(A) the execution of a Certificate of Merger (1) meeting the requirements of the
FBCA and (2) providing that the Merger will become effective on the IPO Closing
Date and (B) the filing of that Certificate with the Department of State of the
State of Florida), (ii) verify the existence and ownership of the certificates
evidencing the Company Common Stock to be exchanged for the Merger Consideration
pursuant to Section 2.05 and (iii) satisfy the document delivery requirements to
which the obligations of the parties to effect the Merger and the other
transactions contemplated hereby are conditioned by the provisions of this
-7-
Article VII (all those actions collectively being the "Closing"). The Closing
will take place at the offices of Baker & Botts, L.L.P., 38th Floor, 910
Louisiana, Houston, Texas at 10:00 a.m., Houston time, or at such later time on
the IPO Pricing Date as ARS shall specify by written notice to Elliot Sokolow.
The actions taken at the Closing will not include the completion of either the
Merger or the delivery of the Company Common Stock or the Merger Consideration
pursuant to Section 2.05. Instead, on the IPO Closing Date, the Certificate of
Merger will become effective pursuant to Section 2.02, and all transactions
contemplated by this Agreement to be closed or completed on or before the IPO
Closing Date, including the surrender of the Company Common Stock in exchange
for the Merger Consideration (in the form of an ARS check in an amount equal to
the Merger Consideration) will be closed or completed, as the case may be.
During the period from the Closing to the IPO Closing Date, this Agreement may
be terminated by the parties only pursuant to Section 12.01(b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND
THE STOCKHOLDER. The obligations of the Company and the Stockholder with respect
to the actions to be taken by them at or before the Closing are subject to the
satisfaction on or before the date of the Closing, or waiver by them pursuant to
Section 11.05, of all the conditions set forth in Sections 7.02(a) and 7.03. The
obligations of the Stockholder with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date to the following
conditions: (i) each of the Stockholder Agreement and the Sokolow Employment
Agreement then shall be in full force and effect; and (ii) all the conditions
set forth in Sections 7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF ARS AND NEWCO.
The obligations of ARS and Newco with respect to actions to be taken by them at
or before the Closing are subject to the satisfaction on or before the date of
the Closing, or waiver by them pursuant to Section 11.05, of the following
conditions: (i) the Company shall have delivered to ARS a copy of the articles
of incorporation, as amended to the date of the Closing and certified by the
Department of State of the State of Florida as of a Current Date, of the
Company; and (ii) all the conditions set forth in Sections 7.02(a) and 7.04(a).
(d) The obligations of ARS and Newco with respect to the
actions to be taken on the IPO Closing Date are subject to the satisfaction on
that date of the following conditions: (i) the Sokolow Employment Agreement then
shall be in full force and effect; and (ii) all the conditions set forth in
Sections 7.02(b) and 7.04(b).
(e) The text of Article VII of the Uniform Provisions hereby
is incorporated herein by this reference.
-8-
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01. OF EACH PARTY OTHER THAN THE COMPANY. From and
after the Effective Time, subject to the waiver provisions of Section 11.05,
each party hereto (other than the Company) will comply with each covenant for
which provision is made in Article VIII of the Uniform Provisions (the text of
which Article hereby is incorporated herein by this reference) to be performed
or observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01. INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text
of Article IX of the Uniform Provisions hereby is incorporated herein by this
reference.
ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.01. PROHIBITED ACTIVITIES. The Stockholder agrees
that he will not, during the period beginning on the date hereof and ending on
the third anniversary of the date hereof, directly or indirectly, for any
reason, for his own account or on behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether
as an employee, independent contractor, consultant or advisor, or as a
sales representative or distributor of any kind, in any business
selling any products or providing any services in competition with the
Company, any Company Subsidiary or ARS or any Subsidiary of ARS (ARS
and its Subsidiaries collectively being "ARS" for purposes of this
Article X) within a radius of 100 miles of each location in which any
of the Company or the Company Subsidiaries was engaged in business on
the date hereof or immediately prior to the Effective Time (those
locations collectively being the "Territory");
(b) call on any natural person who is at that time employed by
the Company, any Company Subsidiary or ARS in any managerial capacity
with the purpose or intent of attracting that person from the employ of
the Company, any Company Subsidiary or ARS, provided that the
Stockholder may call on and hire any of his Immediate Family Members;
(c) call on any Person that at that time is, or at any time
within one year prior to that time was, a customer of the Company, any
Company Subsidiary or ARS within the Territory, (i) for the purpose of
soliciting or selling any product or service in competition
-9-
with the Company, any Company Subsidiary or ARS within the Territory
and (ii) with the knowledge of that customer relationship; or
(d) call on any ARS Acquisition Candidate, with the knowledge
of that Person's status as an ARS Acquisition Candidate, for the
purpose of acquiring that Person or arranging the acquisition of that
Person by any Person other than ARS.
Notwithstanding the foregoing, the Stockholder may own and hold as a passive
investment up to 1% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock is listed on the New York Stock Exchange or included
in the Nasdaq National Market. For purposes hereof and the respective tax
reporting positions of the parties hereto, each party hereto agrees that the
percentage of the Merger Consideration to be received by the Stockholder
pursuant to Section 2.04 which equals 1% of the Stockholder's Pro Rata Share of
the Transaction Value will represent, and be received as, consideration for that
Stockholder's agreement to observe the covenants in this Section 10.01.
Section 10.02. DAMAGES. Because of the difficulty of measuring
economic losses to ARS as a result of any breach by the Stockholder of his
covenants in Section 10.01, and because of the immediate and irreparable damage
that could be caused to ARS for which it would have no other adequate remedy,
the Stockholder agrees that ARS may enforce the provisions of Section 10.01 by
injunctions and restraining orders against the Stockholder if he breaches any of
those provisions.
Section 10.03. REASONABLE RESTRAINT. The parties hereto each
agree that Sections 10.01 and 10.02 impose a reasonable restraint on the
Stockholder in light of the activities and business of ARS on the date hereof,
the current business plans of ARS and the investment by the Stockholder in ARS
pursuant to one of the other Agreements.
Section 10.04. SEVERABILITY; REFORMATION. The covenants in
this Article X are severable and separate, and the unenforceability of any
specific covenant in this Article X is not intended by any party hereto to, and
shall not, affect the provisions of any other covenant in this Article X. If any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth in Section 10.01 are unreasonable as applied
to the Stockholder, the parties hereto, including the Stockholder, acknowledge
their mutual intention and agreement that those restrictions be enforced to the
fullest extent the court deems reasonable, and thereby shall be reformed to that
extent as applied to the Stockholder.
Section 10.05. INDEPENDENT COVENANT. All the covenants in this
Article X are intended by each party hereto to, and shall, be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of the Stockholder against ARS,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by ARS of any covenant in this Article X. It is
specifically agreed that the period specified in Section 10.01 shall be computed
by excluding from that computation any time during which the Stockholder is in
violation of any provision of Section 10.01. The covenants contained
-10-
in this Article X shall not be affected by any breach of any other provision
hereof by any party hereto.
Section 10.06. MATERIALITY. The Company and the Stockholder
hereby agree that this Article X is a material and substantial part of the
transactions contemplated hereby.
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. TREATMENT OF CONFIDENTIAL INFORMATION. Each
party hereto will comply with each covenant for which provision is made in
Section 11.01 of the Uniform Provisions (the text of which Section hereby is
incorporated herein by this reference) to be performed or observed by that
party.
Section 11.02. [INTENTIONALLY OMITTED].
Section 11.03. BROKERS AND AGENTS. The Stockholder represents
and warrants to ARS that the Company has not directly or indirectly employed or
become obligated to pay any broker or similar agent in connection with the
transactions contemplated hereby and agrees, without regard to the Threshold
Amount limitations set forth in Article IX, to indemnify ARS against all Damage
Claims arising out of claims for any and all fees and commissions of brokers or
similar agents employed or promised payment by the Company.
Section 11.04. ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of ARS, and the heirs and legal representatives
of the Stockholder. Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies hereunder or thereunder,
except as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise
provided expressly herein or therein.
Section 11.05. ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This
Agreement and the documents delivered pursuant hereto constitute the entire
agreement and understanding among the Stockholder, the Company, Newco and ARS
and supersede all prior agreements and understandings, both written and oral,
relating to the subject matter of this Agreement. This Agreement may be amended,
modified or supplemented, and any right hereunder may be waived, if, but only
if, that amendment, modification, supplement or waiver is in writing and signed
by the Stockholder, the Company and ARS. The waiver of any of the terms and
conditions hereof shall not be construed or interpreted as, or deemed to be, a
waiver of any other term or condition hereof.
Section 11.06. COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
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Section 11.07. EXPENSES. Whether or not the transactions
contemplated hereby are consummated, (a) ARS will pay the fees, expenses and
disbursements of ARS and Newco and their Representatives which are incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance of and compliance
with all conditions to be performed by ARS and Newco under this Agreement,
including the costs of preparing the Registration Statement, (b) the Stockholder
will pay from personal funds, and not from funds of the Company or any Company
Subsidiary, all sales, use, transfer and other similar taxes and fees
(collectively, "Transfer Taxes") incurred in connection with the transactions
contemplated hereby and (c) the Company will pay the fees, expenses and
disbursements of Counsel for the Company and the Stockholder incurred in
connection with the subject matter of this Agreement and the Registration
Statement on or before the IPO Closing Date; provided, however, if the Company
or the Stockholder terminates this Agreement otherwise than as permitted by
Article XII, the Company will, no later than 10 Houston, Texas business days
after ARS makes a written request therefor, reimburse ARS in the amount equal to
the aggregate fees, costs and other expenses invoiced to ARS by Arthur Andersen
LLP in connection with its audit of the financial statements of the Combined
Company at December 31, 1995 and for the 12-month period then ended. The
Stockholder will file all necessary documentation and Returns with respect to
all Transfer Taxes. In addition, the Stockholder acknowledges that he, and not
the Company or ARS or the Surviving Corporation, will pay all Taxes due upon
receipt of the consideration payable to the Stockholder pursuant to Article II.
Section 11.08. NOTICES. All notices required or permitted
hereunder shall be in writing, and shall be deemed to be delivered and received
(a) if personally delivered or if delivered by telex, telegram, facsimile or
courier service, when actually received by the party to whom notice is sent or
(b) if delivered by mail (whether actually received or not), at the close of
business on the third Houston, Texas business day next following the day when
placed in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
(i) if to ARS or Newco, addressed to it at:
American Residential Services, Inc.
5850 San Felipe
Suite 500
Houston, Texas 77057
Attn.: C. Clifford Wright, Jr.
Chief Executive Officer
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with copies (which shall not constitute notice for purposes of
this Agreement) to:
Baker & Botts, L.L.P.
One Shell Plaza
Houston, Texas 77002-4995
Attn: James L. Leader, Esq.;
(ii) if to the Stockholder, addressed to him at his address
set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
FLORIDA HEATING AND AIR DUCT, INC.
1700 Banks Road
Margate, Florida 33063
Attn: Elliot Sokolow
with copies (which shall not constitute notice for purposes of
this Agreement) to:
Weinstein, Rosenthal & Tobin, P.C.
1776 Resurgens Plaza
945 East Paces Ferry Road, N.E.
Atlanta, Georgia 30326
Attn: Melvin E. Weinstein, Esq.
SECTION 11.09. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF; PROVIDED, HOWEVER,
THAT ARTICLE X AND THE RIGHTS AND OBLIGATIONS THEREUNDER OF THE PARTIES THERETO
WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
FLORIDA WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10. EXERCISE OF RIGHTS AND REMEDIES. Except as
otherwise provided herein, no delay or omission in the exercise of any right,
power or remedy accruing to any party hereto as a result of any breach or
default hereunder by any other party hereto shall impair any such right, power
or remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11. TIME. Time is of the essence in the performance
of this Agreement in all respects.
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Section 11.12. REFORMATION AND SEVERABILITY. If any provision
of this Agreement is invalid, illegal or unenforceable, that provision shall, to
the extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13. REMEDIES CUMULATIVE. No right, remedy or
election given by any term of this Agreement shall be deemed exclusive, but each
shall be cumulative with all other rights, remedies and elections available at
law or in equity.
Section 11.14. RESPECTING THE IPO. Each of the Company and the
Stockholder acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither ARS or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholder or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective or (ii) the IPO to occur at a particular price or within a particular
range of prices or to occur at all; and (c) the decision of the Stockholder to
enter into this Agreement, or to vote in favor of or consent to the Merger, has
been or will be made independent of, and without reliance on, any statements,
opinions or other communications of, or due diligence investigations that have
been or will be made or performed by, any prospective underwriter relative to
ARS or the IPO. The Underwriter shall have no obligation to either the Company
or the Stockholder with respect to any disclosure contained in the Registration
Statement.
ARTICLE XII
TERMINATION
Section 12.01. TERMINATION OF THIS AGREEMENT. (a) This
Agreement may be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of ARS and the Company;
(ii) by the Stockholder or the Company, on the one hand, or by
ARS, on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated
by December 31, 1996, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the
case of the Stockholder and the Company, either of them) seeking to
terminate this Agreement to perform or adhere to any agreement required
hereby to be performed or adhered to by it prior to or at the Closing
or thereafter on the IPO Closing Date;
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(iii) by the Stockholder or the Company, on the one hand, or
by ARS, on the other hand, if a material breach or default shall be
made by the other party (or in the case of the Stockholder and the
Company, either of them) in the observance or in the due and timely
performance of any of the covenants, agreements or conditions contained
herein; or
(iv) by ARS if it is entitled to do so as provided in Section
6.08.
(b) This Agreement may be terminated after the Closing solely:
(i) by ARS or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City business
days after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section
12.01, the Merger will be deemed for all purposes to have been
abandoned and of no force or effect. If this Agreement is terminated
pursuant to this Section 12.01 after the Certificate of Merger has been
filed with the Department of State of the State of Florida, but before
the IPO has been consummated, ARS will take all actions that Counsel
for the Company and the Stockholder advises ARS are required by the
applicable laws of the State of Florida in order to rescind the Merger.
Section 12.02. LIABILITIES IN EVENT OF TERMINATION. If this
Agreement is terminated pursuant to Section 12.01, there shall be no liability
or obligation on the part of any party hereto except (a) as provided in Section
11.07 and (b) to the extent that such liability is based on the breach by that
party of any of its representations, warranties or covenants set forth in this
Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
AMERICAN RESIDENTIAL SERVICES, INC.
By:
C. Clifford Wright, Jr.
Chief Executive Officer and President
ARS DUCT INC.
By:
C. Clifford Wright, Jr.
Chief Executive Officer and President
FLORIDA HEATING AND AIR DUCT, INC.
By:
Elliot Sokolow
President
STOCKHOLDER:
Elliot Sokolow
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<PAGE>
ADDENDUM 1
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.
ARS Duct Inc.,
Florida Heating and Air Duct, Inc.
and
the Stockholder named therein
A. Words and terms used in this Addendum which are defined in the
captioned Agreement to which this is an Addendum are used herein as therein
defined.
B. The Founding Companies are:
Atlas Services, Inc.
Bullseye Air Conditioning, Inc.
Climatic Corporation of Vero Beach
DIAL ONE Meridian and Hoosier, Inc.
Enterprises Holding Company
Florida Heating and Air Conditioning, Inc.
Florida Heating and Air Conditioning Service, Inc.
Florida Heating and Air Duct, Inc.
General Heating Engineering Company, Inc.
<PAGE>
SCHEDULE 2.03
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Duct Inc.,
Florida Heating and Air Duct, Inc.
and
the Stockholder named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.03 are used
herein as defined therein.
B. The directors of the Surviving Corporation immediately after the
Effective Time are as follows: Howard S. Hoover, Jr., William P. McCaughey and
C. Clifford Wright, Jr.
C. The officers of the Surviving Corporation immediately following the
Effective Time are as follows:
President................................... Elliot Sokolow
Vice President.............................. William P. McCaughey
Vice President and Secretary................ John D. Held
<PAGE>
SCHEDULE 2.04
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Duct Inc.,
FLORIDA HEATING AND AIR DUCT, INC.
and
the Stockholder named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.04 are used
herein as defined therein.
B. The name and address of the Stockholder is as follows:
ADDRESS
Elliot Sokolow.......................... 2751 Northeast 47th Street
Lighthouse Point, Florida 33064
C. The aggregate Merger Consideration will be $1,000
<PAGE>
SCHEDULE 3.01
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Duct Inc.,
FLORIDA HEATING AND AIR DUCT, INC.
and
the Stockholder named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.01 are used
herein as therein defined.
B. The Stockholder is an "accredited investor" as defined in Securities
Act Rule 501(a).
<PAGE>
Schedule 3.02
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.
ARS Duct Inc.
FLORIDA HEATING AND AIR DUCT, INC.
and
the Stockholders named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.02 are used
herein as therein defined.
B. Elliot Sokolow owns all the 600 outstanding shares of Company Common
Stock.
C. No exception is taken to the representations and warranties in
Section 3.02 of the captioned Agreement.
<PAGE>
SCHEDULE 3.07
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Duct Inc.,
Florida Heating and Air Duct, Inc.
and
the Stockholder named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.07 are used
herein as defined therein.
B. The Stockholder is, alone or with one or more other Persons, the
controlling Affiliate of the following Entities, businesses or trades (other
than the Company and the Company Subsidiaries, if the Stockholder is an
Affiliate of the Company) that (a) are engaged in any line of business which is
the same as or similar to any line of business in which the Company or any
Company Subsidiary is engaged or (b) are, or have within the three-year period
ending on the date of this Agreement, engaged in any transaction with the
Company or any Company Subsidiary, except for transactions in the ordinary
course of business of the Company or that Company Subsidiary:
1. Florida Heating and Air Conditioning, Inc., Florida Heating
and Air Conditioning Service, Inc., Bullseye Air Conditioning, Inc.,
and Florida Heating and Air Duct, Inc., all have common ownership or
somewhat common ownership. The common ownership is disclosed more fully
in Schedule 3.02 for each of those companies.
2. The Company leases space from FHAC Building Limited, which
is owned or controlled by Elliot P. Sokolow and Robert J. Rogoff.
<PAGE>
SCHEDULE 4.11
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Duct Inc.,
FLORIDA HEATING AND AIR DUCT, INC.
and
the Stockholder named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 4.11 are used
herein as defined therein.
B. The following Related Party Agreement will be permitted to continue
in effect past the date of the Closing in accordance with its terms:
Office/Warehouse Lease Agreement dated as of November 1, 1989
between E.M.E.S., Ltd d/b/a FHAC Commerce Center, as lessor, and
Florida Heating and Air Conditioning, Inc., as lessee, relating to the
main office and warehouse facility of Florida Heating and Air
Conditioning, Inc. in Margate, Florida. The building was sold on
1/27/90 to FHAC Building, Ltd. The lease term in such Lease Agreement
will be extended through May 31, 2005. The owners of FHAC Building,
Ltd. are Elliot P. Sokolow (79% interest), Robert J. Rogoff (20%
interest) and a corporate general partner (1%) owned and controlled by
Sokolow, the name of which corporate general partner is FHAC Building,
Inc. A copy of the Lease, Addendum and the Assumption and Indemnity
Agreement between E.M.E.S., Ltd. and FHAC Building, Ltd. are attached.
<PAGE>
SCHEDULE 6.04
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Duct Inc.,
Florida Heating and Air Duct, Inc.
and
the Stockholder named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.04 are used
herein as defined therein.
B. The Company and the Company Subsidiaries may make the following
Restricted Payments prior to the Effective Time:
None
<PAGE>
SCHEDULE 6.12
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Duct Inc.,
Florida Heating and Air Duct, Inc.
and
the Stockholder named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.12 are used
herein as defined therein.
B. The Company will make all arrangements and take all such actions as
are necessary and satisfactory to ARS to dispose, prior to the Effective Time,
of the following assets:
None
<PAGE>
SCHEDULE 8.05
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Duct Inc.,
Florida Heating and Air Duct, Inc.
and
the Stockholder named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 8.05 are used
herein as defined therein.
B. At or within 60 days following the Effective Time, ARS will cause
the following Stockholder Guaranties to be terminated:
None
EXHIBIT 2.7
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF JUNE 13, 1996
BY AND AMONG
AMERICAN RESIDENTIAL SERVICES, INC.,
ARS SERVICES INC.,
FLORIDA HEATING AND AIR CONDITIONING SERVICE, INC.
AND
THE STOCKHOLDERS NAMED HEREIN
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TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS..................................................1
ARTICLE II THE MERGER AND RELATED MATTERS...............................4
Section 2.01. Certificate of Merger..................................4
Section 2.02. The Effective Time.....................................4
Section 2.03. Certain Effects of the Merger..........................4
Section 2.04. Effect of the Merger on Capital Stock..................4
Section 2.05. Delivery, Exchange and Payment.........................5
Section 2.06. Fractional Shares......................................6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER...........6
Section 3.01. By each Stockholder....................................6
ARTICLE IV REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE STOCKHOLDERS..........................7
Section 4.01. By the Company and Each Stockholder....................7
ARTICLE V REPRESENTATIONS AND WARRANTIES OF ARS AND NEWCO..............8
Section 5.01. By ARS and Newco.......................................8
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME....................8
Section 6.01. Of Each Party..........................................8
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION.................................................9
Section 7.01. The Closing and Certain Conditions.....................9
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME......................10
Section 8.01. Of Each Party Other Than the Company..................10
ARTICLE IX INDEMNIFICATION.............................................10
Section 9.01. Indemnification Rights and Obligations................10
ARTICLE X LIMITATIONS ON COMPETITION..................................10
Section 10.01. Prohibited Activities.................................10
Section 10.02. Damages...............................................11
Section 10.03. Reasonable Restraint..................................11
Section 10.04. Severability; Reformation.............................11
Section 10.05. Independent Covenant..................................12
Section 10.06. Materiality...........................................12
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ARTICLE XI GENERAL PROVISIONS..........................................12
Section 11.01. Treatment of Confidential Information.................12
Section 11.02. Restrictions on Transfer of ARS Common Stock..........12
Section 11.03. Brokers and Agents....................................13
Section 11.04. Assignment; No Third Party Beneficiaries..............13
Section 11.05. Entire Agreement; Amendment; Waivers..................14
Section 11.06. Counterparts..........................................14
Section 11.07. Expenses..............................................14
Section 11.08. Notices...............................................14
Section 11.09. Governing Law.........................................15
Section 11.10. Exercise of Rights and Remedies.......................16
Section 11.11. Time..................................................16
Section 11.12. Reformation and Severability..........................16
Section 11.13. Remedies Cumulative...................................16
Section 11.14. Respecting the IPO....................................16
ARTICLE XII TERMINATION.................................................17
Section 12.01. Termination of This Agreement.........................17
Section 12.02. Liabilities in Event of Termination...................17
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement")
is made as of June 13, 1996, by and among American Residential Services, Inc., a
Delaware corporation ("ARS"), ARS Services Inc., a Florida corporation and a
wholly owned subsidiary of ARS ("Newco"), FLORIDA HEATING AND AIR CONDITIONING
SERVICE, INC., a Florida corporation (the "Company"), and the persons listed on
the signature pages hereof under the caption "Stockholders" (collectively, the
"Stockholders," and each of those persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their
best long-term interests to effect a business combination pursuant to which:
(a) Newco will merge into the Company on the terms and subject
to the conditions set forth herein (that merger being the "Merger");
(b) ARS will acquire the stock of all or some of the entities
listed in the accompanying Addendum 1 (each an "Other Founding Company"
and, collectively with the Company, the "Founding Companies") pursuant
to agreements that are (i) similar to this Agreement and (ii) entered
into among those entities and their equity owners, ARS and subsidiaries
of ARS (collectively, the "Other Agreements"); and
(c) ARS shall effect a public offering of shares of its common
stock and issue and sell those shares.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements, representations and undertakings contained herein, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. CERTAIN DEFINED TERMS. As used in this
Agreement, the following terms have the meanings assigned to them below in this
Section 1.01. Capitalized terms used in this Agreement and not defined below in
this Section 1.01 have the meanings assigned to them in the Preliminary
Statement or Article I of the Uniform Provisions (the text of which Article
hereby is incorporated herein by this reference), as the case may be.
"AGREEMENT" means this Agreement, including the Disclosure
Statement relating to this Agreement and all attached Schedules,
Annexes and Exhibits, as each of the
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same may be amended, modified or supplemented from time to time
pursuant to the provisions hereof or thereof.
"ARS" means American Residential Services, Inc., a Delaware
corporation.
"ARS ACQUISITION CANDIDATE" means any Entity engaged in any of
the businesses of providing repair, maintenance, replacement or
warranty and annual contract maintenance services for Plumbing,
heating/air conditioning and electrical systems to owners or occupants
of single-family homes, duplexes, condominiums and small commercial
facilities, designing and installing of any of those systems in new
construction, selling and servicing home appliances and other similar
residential and building services (a) which was called on by any of the
Company, ARS or the Subsidiaries of the Company or ARS in connection
with the possible acquisition by any of them of that Entity or (b) of
which any of them has made an acquisition analysis.
"CLOSING MEMORANDUM" means the form of closing memorandum to
be prepared by ARS for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided
in Article VII.
"COMBINED COMPANIES" means Florida Heating and Air
Conditioning, Inc., Florida Heating and Air Conditioning Service, Inc.,
Florida Heating and Air Duct, Inc. and Bullseye Air Conditioning, Inc.,
each of which is a Florida corporation.
"COMBINED FINANCIAL STATEMENTS" means (a) the audited combined
balance sheet of the Combined Companies as of December 31, 1995 and the
related audited combined statements of operations, cash flows and
shareholders' equity for the year then ended, together with the related
audit report of Arthur Andersen LLP, and, if audited by Arthur Andersen
LLP, (b) the audited combined balance sheet of the Combined Companies
as of December 31, 1994 and the related audited combined statements of
operations, cash flows and shareholders' equity for the year then
ended, together with the related audit report of Arthur Andersen LLP.
"COMPANY" means Florida Heating and Air Conditioning Service,
Inc., a Florida corporation.
"COMPANY COMMON STOCK" means the common stock, par value $1.00
per share, of the Company.
"COUNSEL FOR ARS AND NEWCO" means Baker & Botts, L.L.P.
"COUNSEL FOR THE COMPANY AND THE STOCKHOLDERS" means
Weinstein, Rosenthal & Tobin, P.C.
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"CURRENT BALANCE SHEET" means the audited combined balance
sheet of the Combined Companies at December 31, 1995.
"CURRENT BALANCE SHEET DATE" means December 31, 1995.
"DISCLOSURE STATEMENT" means the written statement executed by
the Company and each of the Stockholders and delivered to ARS prior to
the execution and delivery of this Agreement by ARS and Newco in which
either (a) exceptions are taken to each of certain of the
representations and warranties made by the Company and the Stockholders
herein or (b) it is confirmed that no exception is taken to that
representation and warranty.
"FBCA" means the Florida Business Corporation Act.
"INITIAL FINANCIAL STATEMENTS" means the Combined Financial
Statements.
"MERGER CONSIDERATION" has the meaning specified in Section
2.04.
"NEWCO" means ARS Service Inc., a Florida corporation.
"PRO RATA SHARE" means for each Stockholder the fraction
expressed as a percentage and set forth in Schedule 2.04, (a) the
numerator of which is the number of shares of outstanding Company
Common Stock owned by that Person, as set forth in Schedule 2.04, and
(b) the denominator of which is the total number of shares of
outstanding Company Common Stock owned by all Stockholders, as set
forth in Schedule 2.04.
"RESPONSIBLE OFFICER" means either of the following: Robert J.
Rogoff or Elliot Sokolow.
"SCHEDULED AGREEMENT" means the agreement described in
Schedule 4.11.
"SOKOLOW EMPLOYMENT AGREEMENT" means the Employment Agreement
entered into as of June 13, 1996 between ARS and Elliot Sokolow.
"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement
entered into as of June 13, 1996 among ARS, the Stockholders and other
Persons parties thereto.
"SURVIVING CORPORATION" means the Company, the Person to be
designated in the Certificate of Merger as the surviving corporation of
the Merger.
"TERRITORY" has the meaning specified in Section 10.01.
"THRESHOLD AMOUNT" means 2% of the Transaction Value.
"TRANSACTION VALUE" means $9,000,000.
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"TRANSFER TAXES" has the meaning specified in Section 11.07.
"UNIFORM PROVISIONS" means the Uniform Provisions of ARS for
the Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. CERTIFICATE OF MERGER. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the date of the Closing, to be filed
with the Department of State of the State of Florida.
Section 2.02. THE EFFECTIVE TIME. The effective time of the
Merger (the "Effective Time") will be the time on the IPO Closing Date which the
Certificate of Merger specifies or, if the Certificate of Merger does not
specify another time, 8:00 a.m., eastern daylight standard time, on the IPO
Closing Date.
Section 2.03. CERTAIN EFFECTS OF THE MERGER. At and as of the
Effective Time, (a) Newco will be merged with and into the Company in accordance
with the provisions of the FBCA, (b) Newco will cease to exist as a separate
legal entity, (c) the articles of incorporation of the Company will be amended
to change its authorized capital stock to 1,000 shares, par value $1.00 per
share, of Common Stock, (d) the Company will be the Surviving Corporation and,
as such, will, all with the effect provided by the FBCA, (i) possess all the
properties and rights, and be subject to all the restrictions and duties, of the
Company and Newco and (ii) be governed by the laws of the State of Florida, (e)
the Charter Documents of the Company then in effect (after giving effect to the
amendment of the Company's articles of incorporation specified in clause (c) of
this sentence) will become and thereafter remain (until changed in accordance
with (i) applicable law (in the case of the articles of incorporation) or (ii)
their terms (in the case of the bylaws)) the Charter Documents of the Surviving
Corporation, (f) the initial board of directors of the Surviving Corporation
will be the persons named in Schedule 2.03, and those persons will hold the
office of director of the Surviving Corporation subject to the provisions of the
applicable laws of the State of Florida and the Charter Documents of the
Surviving Corporation, and (g) the initial officers of the Surviving Corporation
will be as set forth in Schedule 2.03, and each of those persons will serve in
each office specified for that person in Schedule 2.03, subject to the
provisions of the Charter Documents of the Surviving Corporation, until that
person's successor is duly elected to, and, if necessary, qualified for, that
office.
Section 2.04. EFFECT OF THE MERGER ON CAPITAL STOCK. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the
right to receive, subject to the
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provisions of Section 2.05, without interest, on surrender of the
certificates evidencing those shares, (A) the amount of cash and the
number of whole and fractional shares of ARS Common Stock determined as
provided in Schedule 2.04 (the "Merger Consideration"), (ii) cease to
be outstanding and to exist and (iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of
the Company or any Company Subsidiary will (i) cease to be outstanding
and to exist and (ii) be canceled and retired; and
(c) each share of Newco Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into one
share of Common Stock, par value $1.00 per share, of the Surviving
Corporation, and the shares of Common Stock of the Surviving
Corporation issued on that conversion will constitute all the issued
and outstanding shares of Capital Stock of the Surviving Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, subject to the provisions of Section 2.05, without interest,
the Merger Consideration and the additional cash, if any, owing with respect to
those shares as provided in Section 2.06.
Section 2.05. DELIVERY, EXCHANGE AND PAYMENT. (a) At or after
the Effective Time: (i) each Stockholder, as the holder of certificates
representing shares of Company Common Stock, will, on surrender of those
certificates to ARS (or any agent that may be appointed by ARS for purposes of
this Section 2.05), receive, subject to the provisions of this Section 2.05 and
Section 2.06, the Merger Consideration; and (ii) until any certificate
representing Company Common Stock has been surrendered and replaced pursuant to
this Section 2.05, that certificate will, for all purposes, be deemed to
evidence ownership of the number of whole shares of ARS Common Stock included in
the Merger Consideration payable in respect of that certificate pursuant to
Section 2.04. All shares of ARS Common Stock issuable in the Merger will be
deemed for all purposes to have been issued by ARS at the Effective Time.
(b) Each Stockholder will deliver to ARS (or any agent that
may be appointed by ARS for purposes of this Section 2.05) on or before the IPO
Closing Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Person, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Person's expense, affixed and canceled. Each
Stockholder shall cure any deficiencies in the endorsement of the certificates
or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Person.
(c) No dividends (or interest) or other distributions declared
or earned after the Effective Time with respect to ARS Common Stock and payable
to the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing
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shares of Company Common Stock for which shares of ARS Common Stock have been
issued in the Merger until those certificates are surrendered as provided
herein, but (i) on that surrender ARS will cause to be paid, to the Person in
whose name the certificates representing such shares of ARS Common Stock shall
then be issued, the amount of dividends or other distributions previously paid
with respect to such whole shares of ARS Common Stock with a record date, or
which have accrued, subsequent to the Effective Time, but prior to surrender,
and the amount of any cash payable to such Person for and in lieu of fractional
shares pursuant to Section 2.06 and (ii) at the appropriate payment date or as
soon as practicable thereafter, ARS will cause to be paid to that Person the
amount of dividends or other distributions with a record date, or which have
been accrued, subsequent to the Effective Time, but which are not payable until
a date subsequent to surrender, which are payable with respect to such whole
shares of ARS Common Stock, subject in all cases to any applicable escheat laws.
No interest will be payable with respect to the payment of such dividends or
other distributions or cash for and in lieu of fractional shares on surrender of
outstanding certificates.
Section 2.06. FRACTIONAL SHARES. Notwithstanding any other
provision herein, no fractional shares of ARS Common Stock will be issued, and
any Stockholder entitled hereunder to receive a fractional share of ARS Common
Stock but for this Section 2.06 will be entitled hereunder to receive a cash
payment for and in lieu thereof in the amount (rounded to the nearest whole
cent) equal to that Person's fractional interest in a share of ARS Common Stock
multiplied by the IPO Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01. BY EACH STOCKHOLDER. Each Stockholder represents
and warrants to ARS that, as applied solely to himself, all the following
representations and warranties in this Article III are as of the date of this
Agreement, and will be, as amended or supplemented pursuant to Section 6.08, on
the date of the Closing and the IPO Closing Date, true and correct:
(a) (i) he will be acquiring the shares of ARS Common Stock to
be issued pursuant to Section 2.04 to him solely for his account, for
investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in
connection with any distribution; (ii) he is not a party to any
agreement or other arrangement for the disposition of any shares of ARS
Common Stock other than this Agreement and the Registration Rights
Agreement; (iii) he is an "accredited investor" as defined in
Securities Act Rule 501(a); (iv) he (A) is able to bear the economic
risk of an investment in the ARS Common Stock acquired pursuant to this
Agreement, (B) can afford to sustain a total loss of that investment,
(C) has such knowledge and experience in financial and business matters
that he is capable of evaluating the merits and risks of the proposed
investment in the ARS Common Stock, (D) has had an adequate opportunity
to ask questions and receive answers from the officers of ARS
concerning any and all matters relating to the transactions
contemplated hereby, including the background and experience of the
current and proposed
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officers and directors of ARS, the plans for the operations of the
business of ARS, the business, operations and financial condition of
the Other Founding Companies and any plans of ARS for additional
acquisitions, and (E) has asked all questions of the nature described
in preceding clause (D), and all those questions have been answered to
his satisfaction;
(b) the representations and warranties contained in Article
III of the Uniform Provisions (the text of which Article hereby is
incorporated herein by this reference) are true and correct as applied
solely to himself, and his agreements set forth in that Article hereby
are agreed to.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF
THE COMPANY AND THE STOCKHOLDERS
Section 4.01. BY THE COMPANY AND EACH STOCKHOLDER. The Company
and each Stockholder jointly and severally represent and warrant to, and agree
with, ARS that all the following representations and warranties in this Article
IV are as of the date of this Agreement, and will be, as amended or supplemented
pursuant to Section 6.08, on the date of the Closing and the IPO Closing Date,
true and correct:
(a) the Organization State of the Company is the State of
Florida, and the Company (i) is a corporation duly organized, validly
existing and in good standing under the laws of that State, (ii) has
all requisite corporate power and authority under those laws and its
Charter Documents to own or lease and to operate its properties and to
carry on its business as now conducted and (iii) is duly qualified and
in good standing as a foreign corporation in all jurisdictions (other
than the State of Florida) in which it owns or leases property or in
which the carrying on of its business as now conducted so requires
except where the failure to be so qualified, singly or in the
aggregate, would not have a Material Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is
comprised of 600 shares of Company Common Stock, of which 600 shares
have been issued and are now outstanding and no shares are held by the
Company as treasury shares, and (ii) no outstanding Derivative
Securities of the Company exist;
(c) (i) the terms and conditions of the Scheduled Agreement
are no less favorable to the Company than the Company reasonably could
have expected to obtain in an arm's- length transaction with a Person
other than an Affiliate of the Company and (ii) the rentals provided
for in the Scheduled Agreements do not exceed fair market rentals of
the property being leased under the Scheduled Agreement;
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(d) the Combined Financial Statements (including the related
notes) delivered to ARS present fairly, in all material respects, the
combined financial position of the Combined Companies at December 31,
1995 and the combined results of their operations and their combined
cash flows and stockholders' equity for the year ended December 31,
1995 and have been prepared in accordance with GAAP. As of the Current
Balance Sheet Date, the Combined Companies then did not have any
outstanding indebtedness to any Person or any liabilities of any kind
(including contingent obligations, tax assessments or unusual forward
or long-term commitments), or any unrealized or anticipated loss, which
in the aggregate then were Material to the Combined Companies and
required to be reflected in the Combined Financial Statements or in the
notes related thereto in accordance with GAAP which were not so
reflected; and
(e) the representations and warranties contained in Article IV
of the Uniform Provisions (the text of which Article hereby is
incorporated herein by this reference) are true and correct, and the
agreements set forth in that Article hereby are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ARS AND NEWCO
Section 5.01. BY ARS AND NEWCO. ARS and Newco jointly and
severally represent and warrant to the Company and each Stockholder that all the
following representations and warranties in this Article V are as of the date of
this Agreement, and will be on the date of the Closing and the IPO Closing Date,
true and correct: (a) Newco is a corporation duly organized, validly existing
and in good standing under the laws of the State of Florida, (b) no Derivative
Securities of Newco are outstanding, (c) Newco has been organized for the sole
purpose of participating in the Merger and has not, and will not, engage in any
activities other than those necessary to effectuate the Merger and (d) the
representations and warranties contained in Article V of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) are
true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01. OF EACH PARTY. Until the Effective Time, subject
to the waiver provisions of Section 11.05, each party hereto will comply with
each covenant for which provision is made in Article VI of the Uniform
Provisions (the text of which Article hereby is incorporated herein by this
reference) to be performed or observed by that party. For purposes of Section
6.10, the financial statements required to be delivered by the Company will
include financial statements of the Combined Companies corresponding to the
financial statements of the Company referred to therein.
ARTICLE VII
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THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01. THE CLOSING AND CERTAIN CONDITIONS. (a) THE
CLOSING. On or before the IPO Pricing Date, the parties hereto will take all
actions necessary to (i) effect the Merger (including, as permitted by the FBCA,
(A) the execution of a Certificate of Merger (1) meeting the requirements of the
FBCA and (2) providing that the Merger will become effective on the IPO Closing
Date and (B) the filing of that Certificate with the Department of State of the
State of Florida), (ii) verify the existence and ownership of the certificates
evidencing the Company Common Stock to be exchanged for the Merger Consideration
pursuant to Section 2.05 and (iii) satisfy the document delivery requirements to
which the obligations of the parties to effect the Merger and the other
transactions contemplated hereby are conditioned by the provisions of this
Article VII (all those actions collectively being the "Closing"). The Closing
will take place at the offices of Baker & Botts, L.L.P., 38th Floor, 910
Louisiana, Houston, Texas at 10:00 a.m., Houston time, or at such later time on
the IPO Pricing Date as ARS shall specify by written notice to Elliot Sokolow.
The actions taken at the Closing will not include the completion of either the
Merger or the delivery of the Company Common Stock or the Merger Consideration
pursuant to Section 2.05. Instead, on the IPO Closing Date, the Certificate of
Merger will become effective pursuant to Section 2.02, and all transactions
contemplated by this Agreement to be closed or completed on or before the IPO
Closing Date, including the surrender of the Company Common Stock in exchange
for the Merger Consideration (in the form of an ARS check in an amount equal to
the cash portion of the Merger Consideration) will be closed or completed, as
the case may be. During the period from the Closing to the IPO Closing Date,
this Agreement may be terminated by the parties only pursuant to Section
12.01(b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND
THE STOCKHOLDERS. The obligations of the Company and the Stockholders with
respect to the actions to be taken by them at or before the Closing are subject
to the satisfaction on or before the date of the Closing, or waiver by them
pursuant to Section 11.05, of all the conditions set forth in Sections 7.02(a)
and 7.03. The obligations of the Stockholders with respect to the actions to be
taken on the IPO Closing Date are subject to the satisfaction on that date to
the following conditions: (i) each of the Stockholders Agreement and the Sokolow
Employment Agreement then shall be in full force and effect; and (ii) all the
conditions set forth in Sections 7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF ARS AND NEWCO.
The obligations of ARS and Newco with respect to actions to be taken by them at
or before the Closing are subject to the satisfaction on or before the date of
the Closing, or waiver by them pursuant to Section 11.05, of the following
conditions: (i) the Company shall have delivered to ARS a copy of the articles
of incorporation, as amended to the date of the Closing and certified by the
Department of State of the State of Florida as of a Current Date, of the
Company; and (ii) all the conditions set forth in Sections 7.02(a) and 7.04(a).
(d) The obligations of ARS and Newco with respect to the
actions to be taken on the IPO Closing Date are subject to the satisfaction on
that date of the following conditions: (i) the
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Sokolow Employment Agreement then shall be in full force and effect; and (ii)
all the conditions set forth in Sections 7.02(b) and 7.04(b).
(e) The text of Article VII of the Uniform Provisions hereby
is incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01. OF EACH PARTY OTHER THAN THE COMPANY. From and
after the Effective Time, subject to the waiver provisions of Section 11.05,
each party hereto (other than the Company) will comply with each covenant for
which provision is made in Article VIII of the Uniform Provisions (the text of
which Article hereby is incorporated herein by this reference) to be performed
or observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01. INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text
of Article IX of the Uniform Provisions hereby is incorporated herein by this
reference.
ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.01. PROHIBITED ACTIVITIES. Each Stockholder agrees,
severally and not jointly with any other Person, that he will not, during the
period beginning on the date hereof and ending on the third anniversary of the
date hereof, directly or indirectly, for any reason, for his own account or on
behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether
as an employee, independent contractor, consultant or advisor, or as a
sales representative or distributor of any kind, in any business
selling any products or providing any services in competition with the
Company, any Company Subsidiary or ARS or any Subsidiary of ARS (ARS
and its Subsidiaries collectively being "ARS" for purposes of this
Article X) within a radius of 100 miles of each location in which any
of the Company or the Company Subsidiaries was engaged in business on
the date hereof or immediately prior to the Effective Time (those
locations collectively being the "Territory");
(b) call on any natural person who is at that time employed by
the Company, any Company Subsidiary or ARS in any managerial capacity
with the purpose or intent of
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attracting that person from the employ of the Company, any Company
Subsidiary or ARS, provided that the Stockholder may call on and hire
any of his Immediate Family Members;
(c) call on any Person that at that time is, or at any time
within one year prior to that time was, a customer of the Company, any
Company Subsidiary or ARS within the Territory, (i) for the purpose of
soliciting or selling any product or service in competition with the
Company, any Company Subsidiary or ARS within the Territory and (ii)
with the knowledge of that customer relationship; or
(d) call on any ARS Acquisition Candidate, with the knowledge
of that Person's status as an ARS Acquisition Candidate, for the
purpose of acquiring that Person or arranging the acquisition of that
Person by any Person other than ARS.
Notwithstanding the foregoing, any Stockholder may own and hold as a passive
investment up to 1% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock is listed on the New York Stock Exchange or included
in the Nasdaq National Market. For purposes hereof and the respective tax
reporting positions of the parties hereto, each party hereto agrees that the
percentage of the cash portion of the Merger Consideration to be received by
each Stockholder pursuant to Section 2.04 which equals 1% of that Stockholder's
Pro Rata Share of the Transaction Value will represent, and be received as,
consideration for that Stockholder's agreement to observe the covenants in this
Section 10.01.
Section 10.02. DAMAGES. Because of the difficulty of measuring
economic losses to ARS as a result of any breach by a Stockholder of his
covenants in Section 10.01, and because of the immediate and irreparable damage
that could be caused to ARS for which it would have no other adequate remedy,
each Stockholder agrees that ARS may enforce the provisions of Section 10.01 by
injunctions and restraining orders against that Stockholder if he breaches any
of those provisions.
Section 10.03. REASONABLE RESTRAINT. The parties hereto each
agree that Sections 10.01 and 10.02 impose a reasonable restraint on the
Stockholders in light of the activities and business of ARS on the date hereof,
the current business plans of ARS and the investment by each Stockholder in ARS
as a result of the Merger.
Section 10.04. SEVERABILITY; REFORMATION. The covenants in
this Article X are severable and separate, and the unenforceability of any
specific covenant in this Article X is not intended by any party hereto to, and
shall not, affect the provisions of any other covenant in this Article X. If any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth in Section 10.01 are unreasonable as applied
to any Stockholder, the parties hereto, including that Stockholder, acknowledge
their mutual intention and agreement that those restrictions be enforced to the
fullest extent the court deems reasonable, and thereby shall be reformed to that
extent as applied to that Stockholder and any other Stockholder similarly
situated.
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Section 10.05. INDEPENDENT COVENANT. All the covenants in this
Article X are intended by each party hereto to, and shall, be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of any Stockholder against ARS,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by ARS of any covenant in this Article X. It is
specifically agreed that the period specified in Section 10.01 shall be computed
in the case of each Stockholder by excluding from that computation any time
during which that Stockholder is in violation of any provision of Section 10.01.
The covenants contained in this Article X shall not be affected by any breach of
any other provision hereof by any party hereto.
Section 10.06. MATERIALITY. The Company and each Stockholder,
severally and not jointly with any other Person, hereby agree that this Article
X is a material and substantial part of the transactions contemplated hereby.
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. TREATMENT OF CONFIDENTIAL INFORMATION. Each
party hereto will comply with each covenant for which provision is made in
Section 11.01 of the Uniform Provisions (the text of which Section hereby is
incorporated herein by this reference) to be performed or observed by that
party.
Section 11.02. RESTRICTIONS ON TRANSFER OF ARS COMMON STOCK.
(a) During the two-year period ending on the second anniversary of the IPO
Closing Date (the "Restricted Period") (or if the two-year "holding" period for
restricted securities under Rule 144 under the Securities Act is reduced by the
SEC, the Restricted Period will be correspondingly reduced), no Stockholder
voluntarily will, except pursuant to and in accordance with the applicable
provisions of the Registration Rights Agreement: (i) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint or otherwise dispose of (A) any
shares of ARS Common Stock received by any Stockholder in the Merger or (B) any
interest in (including any option to buy or sell) any of those shares of ARS
Common Stock, in whole or in part, and ARS will have no obligation to, and shall
not, treat any such attempted transfer as effective for any purpose; or (ii)
engage in any transaction, whether or not with respect to any shares of ARS
Common Stock or any interest therein, the intent or effect of which is to reduce
the risk of owning the shares of ARS Common Stock acquired pursuant to Section
2.04 (including, for example engaging in put, call, short-sale, straddle or
similar market transactions); provided, however, that this Section 11.02 shall
not restrict any transfer of ARS Common Stock acquired by a Stockholder pursuant
to Section 2.04 to any of that Stockholder's Related Persons who agree in
writing to be bound by the provisions of Section 11.01 and this Section 11.02.
The certificates evidencing the ARS Common Stock delivered to each Stockholder
pursuant to Section 2.05 will bear a legend substantially in the form set forth
below and containing such other information as ARS may deem necessary or
appropriate:
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EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE
OTHER PARTIES THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY
NOT BE VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED,
PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE
ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY
SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF ANY OF THOSE SHARES,
DURING THE TWO-YEAR PERIOD ENDING ON __________ [DATE THAT IS THE
SECOND ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED PERIOD")
(OR IF THE TWO-YEAR "HOLDING" PERIOD FOR RESTRICTED SECURITIES UNDER
RULE 144 UNDER THE SECURITIES ACT OF 1933 IS REDUCED BY THE SECURITIES
AND EXCHANGE COMMISSION, THE RESTRICTED PERIOD WILL BE CORRESPONDINGLY
REDUCED). ON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE
ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER
PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of ARS Common Stock to be delivered to
that Stockholder pursuant to Section 2.04 have not been and, except pursuant to
the Registration Rights Agreement, if applicable, will not be registered under
the Securities Act and therefore may not be resold by that Stockholder without
compliance with the Securities Act and (ii) covenants that none of the shares of
ARS Common Stock issued to that Stockholder pursuant to Section 2.04 will be
offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable provisions of
the Securities Act and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of ARS
Common Stock issued pursuant to Section 2.04 will bear the following legend in
addition to the legend prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF
THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE
SECURITIES LAWS.
In addition, certificates evidencing shares of ARS Common Stock issued pursuant
to Section 2.04 to each Stockholder will bear any legend required by the
securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03. BROKERS AND AGENTS. The Stockholders jointly
and severally represent and warrant to ARS that the Company has not directly or
indirectly employed or become obligated to pay any broker or similar agent in
connection with the transactions contemplated hereby and agree, without regard
to the Threshold Amount limitations set forth in Article IX, to indemnify ARS
against all Damage Claims arising out of claims for any and all fees and
commissions of brokers or similar agents employed or promised payment by the
Company.
Section 11.04. ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding
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on and inure to the benefit of the parties hereto, the successors of ARS, and
the heirs and legal representatives of the Stockholders (and, in the case of any
trust, the successor trustees of that trust). Neither this Agreement nor any
other Transaction Document is intended, or shall be construed, deemed or
interpreted, to confer on any Person not a party hereto or thereto any rights or
remedies hereunder or thereunder, except as provided in Section 6.05(b) or
11.14, in Article IX or as otherwise provided expressly herein or therein.
Section 11.05. ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This
Agreement and the documents delivered pursuant hereto constitute the entire
agreement and understanding among the Stockholders, the Company, Newco and ARS
and supersede all prior agreements and understandings, both written and oral,
relating to the subject matter of this Agreement. This Agreement may be amended,
modified or supplemented, and any right hereunder may be waived, if, but only
if, that amendment, modification, supplement or waiver is in writing and signed
by each of the Stockholders, the Company and ARS. The waiver of any of the terms
and conditions hereof shall not be construed or interpreted as, or deemed to be,
a waiver of any other term or condition hereof.
Section 11.06. COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
Section 11.07. EXPENSES. Whether or not the transactions
contemplated hereby are consummated, (a) ARS will pay the fees, expenses and
disbursements of ARS and Newco and their Representatives which are incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance of and compliance
with all conditions to be performed by ARS and Newco under this Agreement,
including the costs of preparing the Registration Statement, (b) the
Stockholders will pay from personal funds, and not from funds of the Company or
any Company Subsidiary, all sales, use, transfer and other similar taxes and
fees (collectively, "Transfer Taxes") incurred in connection with the
transactions contemplated hereby and (c) the Company will pay the fees, expenses
and disbursements of Counsel for the Company and the Stockholders incurred in
connection with the subject matter of this Agreement and the Registration
Statement on or before the IPO Closing Date; provided, however, if the Company
or the Stockholders terminates this Agreement otherwise than as permitted by
Article XII, the Company will, no later than 10 Houston, Texas business days
after ARS makes a written request therefor, reimburse ARS in the amount equal to
the aggregate fees, costs and other expenses invoiced to ARS by Arthur Andersen
LLP in connection with its audit of the financial statements of the Combined
Company at December 31, 1995 and for the 12-month period then ended. The
Stockholders will file all necessary documentation and Returns with respect to
all Transfer Taxes. In addition, each Stockholder acknowledges that he, and not
the Company or ARS or the Surviving Corporation, will pay all Taxes due upon
receipt of the consideration payable to that Stockholder pursuant to Article II.
Section 11.08. NOTICES. All notices required or permitted
hereunder shall be in writing, and shall be deemed to be delivered and received
(a) if personally delivered or if delivered
-14-
by telex, telegram, facsimile or courier service, when actually received by the
party to whom notice is sent or (b) if delivered by mail (whether actually
received or not), at the close of business on the third Houston, Texas business
day next following the day when placed in the mail, postage prepaid, certified
or registered, addressed to the appropriate party or parties, at the address of
such party set forth below (or at such other address as such party may designate
by written notice to all other parties in accordance herewith):
(i) if to ARS or Newco, addressed to it at:
American Residential Services, Inc.
5850 San Felipe
Suite 500
Houston, Texas 77057
Attn.: C. Clifford Wright, Jr.
Chief Executive Officer
with copies (which shall not constitute notice for purposes of
this Agreement) to:
Baker & Botts, L.L.P.
One Shell Plaza
Houston, Texas 77002-4995
Attn: James L. Leader, Esq.;
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
FLORIDA HEATING AND AIR CONDITIONING SERVICE, INC.
1700 Banks Road
Margate, Florida 33063
Attn: Elliot Sokolow
with copies (which shall not constitute notice for purposes of
this Agreement) to:
Weinstein, Rosenthal & Tobin, P.C.
1776 Resurgens Plaza
945 East Paces Ferry Road, N.E.
Atlanta, Georgia 30326
Attn: Melvin E. Weinstein, Esq.
SECTION 11.09. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS
-15-
THEREOF; PROVIDED, HOWEVER, THAT ARTICLE X AND THE RIGHTS AND OBLIGATIONS
THEREUNDER OF THE PARTIES THERETO WILL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA WITHOUT REGARD TO THE CONFLICTS
OF LAW PROVISIONS THEREOF.
Section 11.10. EXERCISE OF RIGHTS AND REMEDIES. Except as
otherwise provided herein, no delay or omission in the exercise of any right,
power or remedy accruing to any party hereto as a result of any breach or
default hereunder by any other party hereto shall impair any such right, power
or remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11. TIME. Time is of the essence in the performance
of this Agreement in all respects.
Section 11.12. REFORMATION AND SEVERABILITY. If any provision
of this Agreement is invalid, illegal or unenforceable, that provision shall, to
the extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13. REMEDIES CUMULATIVE. No right, remedy or
election given by any term of this Agreement shall be deemed exclusive, but each
shall be cumulative with all other rights, remedies and elections available at
law or in equity.
Section 11.14. RESPECTING THE IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither ARS or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that ARS will use its reasonable best efforts to
cause the Registration Statement to become effective prior to December 31, 1996)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to ARS or the
IPO. The Underwriter shall have no obligation to any of the Company and the
Stockholders with respect to any disclosure contained in the Registration
Statement.
-16-
ARTICLE XII
TERMINATION
Section 12.01. TERMINATION OF THIS AGREEMENT. (a) This
Agreement may be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of ARS and the Company;
(ii) by the Stockholders or the Company, on the one hand, or
by ARS, on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated
by December 31, 1996, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the
case of the Stockholders and the Company, any of them) seeking to
terminate this Agreement to perform or adhere to any agreement required
hereby to be performed or adhered to by it prior to or at the Closing
or thereafter on the IPO Closing Date;
(iii) by the Stockholders or the Company, on the one hand, or
by ARS, on the other hand, if a material breach or default shall be
made by the other party (or in the case of the Stockholders and the
Company, any of them) in the observance or in the due and timely
performance of any of the covenants, agreements or conditions contained
herein; or
(iv) by ARS if it is entitled to do so as provided in Section
6.08.
(b) This Agreement may be terminated after the Closing solely:
(i) by ARS or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City business
days after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section
12.01, the Merger will be deemed for all purposes to have been abandoned and of
no force or effect. If this Agreement is terminated pursuant to this Section
12.01 after the Certificate of Merger has been filed with the Department of
State of the State of Florida, but before the IPO has been consummated, ARS will
take all actions that Counsel for the Company and the Stockholders advises ARS
are required by the applicable laws of the State of Florida in order to rescind
the Merger.
Section 12.02. LIABILITIES IN EVENT OF TERMINATION. If this
Agreement is terminated pursuant to Section 12.01, there shall be no liability
or obligation on the part of any party hereto except (a) as provided in Section
11.07 and (b) to the extent that such liability is based on the breach by that
party of any of its representations, warranties or covenants set forth in this
Agreement.
-17-
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
AMERICAN RESIDENTIAL SERVICES, INC.
By:
C. Clifford Wright, Jr.
Chief Executive Officer and President
ARS SERVICES INC.
By:
C. Clifford Wright, Jr.
Chief Executive Officer and President
FLORIDA HEATING AND AIR CONDITIONING
SERVICE, INC.
By:
Robert J. Rogoff
President
STOCKHOLDERS:
Robert J. Rogoff
Elliot Sokolow
-18-
<PAGE>
ADDENDUM 1
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.
ARS Services Inc.,
Florida Heating and Air Conditioning Service, Inc.
and
the Stockholders named therein
A. Words and terms used in this Addendum which are defined in the
captioned Agreement to which this is an Addendum are used herein as therein
defined.
B. The Founding Companies are:
Atlas Services, Inc.
Bullseye Air Conditioning, Inc.
Climatic Corporation of Vero Beach
DIAL ONE Meridian and Hoosier, Inc.
Enterprises Holding Company
Florida Heating and Air Conditioning, Inc.
Florida Heating and Air Conditioning Service, Inc.
Florida Heating and Air Duct, Inc.
General Heating Engineering Company, Inc.
<PAGE>
SCHEDULE 2.03
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Service Inc.,
Florida Heating and Air Conditioning Service, Inc.
and
the Stockholders named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.03 are used
herein as defined therein.
B. The directors of the Surviving Corporation immediately after the
Effective Time are as follows: Howard S. Hoover, Jr., William P. McCaughey and
C. Clifford Wright, Jr.
C. The officers of the Surviving Corporation immediately following the
Effective Time are as follows:
President................................... Elliot Sokolow
Vice President.............................. William P. McCaughey
Vice President and Secretary................ John D. Held
<PAGE>
SCHEDULE 2.04
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Service Inc.,
FLORIDA HEATING AND AIR CONDITIONING SERVICE, INC.
and
the Stockholders named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.04 are used
herein as defined therein.
B. The name and address of each Stockholder are as follows:
ADDRESS
Robert J. Rogoff........................
Elliot Sokolow.......................... 2751 Northeast 47th Street
Lighthouse Point, Florida 33064
C. Subject to increase or reduction by the application of the Positive
Working Capital Adjustment or the Negative Working Capital Adjustment, as the
case may be the aggregate Merger Consideration will be comprised of (1)
$6,000,000 in cash and (2) such number of whole and fractional shares of ARS
Common Stock as shall equal the quotient of (A) $3,000,000 divided by (B) the
IPO Price, and the Stockholders will be entitled to receive the Merger
Consideration pursuant to Section 2.04 as follows: (i) the 300 shares of Company
Common Stock owned by Robert J. Rogoff will be converted into the right to
receive $4,500,000 in cash; and (ii) the 300 shares of Company Common Stock
owned by Elliot Sokolow will be converted into the right to receive (A)
$1,500,000 in cash and (B) such number of whole and fractional shares of ARS
Common Stock as shall equal that quotient. For purposes of this Agreement the
Pro Rata Share of each of Robert J. Rogoff and Elliott Sokolow is 50%.
<PAGE>
SCHEDULE 3.01
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Service Inc.,
FLORIDA HEATING AND AIR CONDITIONING SERVICE, INC.
and
the Stockholders named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.01 are used
herein as therein defined.
B. Each Stockholder is an "accredited investor" as defined in
Securities Act Rule 501(a).
<PAGE>
SCHEDULE 3.02
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Service Inc.,
FLORIDA HEATING AND AIR CONDITIONING SERVICE, INC.
and
the Stockholders named therein
A. Words and terms used in this Schedule which are defined in the
Captioned Agreement to which this Schedule is attached as Schedule 3.02 are used
herein as defined therein.
B. The outstanding Company Common Stock is owned as follows:
Robert J. Rogoff ..........................300 Shares
Elliot Sokolow ............................300 Shares
C. No exception is taken to the representations and warranties in
Section 3.02 of the captioned Agreement.
<PAGE>
SCHEDULE 3.07
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Service Inc.,
Florida Heating and Air Conditioning Service, Inc.
and
the Stockholder named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.07 are used
herein as defined therein.
B. The Stockholder is, alone or with one or more other Persons, the
controlling Affiliate of the following Entities, businesses or trades (other
than the Company and the Company Subsidiaries, if the Stockholder is an
Affiliate of the Company) that (a) are engaged in any line of business which is
the same as or similar to any line of business in which the Company or any
Company Subsidiary is engaged or (b) are, or have within the three-year period
ending on the date of this Agreement, engaged in any transaction with the
Company or any Company Subsidiary, except for transactions in the ordinary
course of business of the Company or that Company Subsidiary:
1. Florida Heating and Air Conditioning, Inc., Florida Heating
and Air Conditioning Service, Inc., Bullseye Air Conditioning, Inc., and
Florida Heating and Air Duct, Inc., all have common ownership or somewhat common
ownership. The common ownership is disclosed more fully in Schedule 3.02 for
each of those companies.
2. The Company leases space from FHAC Building Limited, which
is owned or controlled by Elliot P. Sokolow and Robert J. Rogoff.
<PAGE>
SCHEDULE 4.11
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Services Inc.,
FLORIDA HEATING AND AIR CONDITIONING SERVICE, INC.
and
the Stockholders named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 4.11 are used
herein as defined therein.
B. The following Related Party Agreements will be permitted to continue
in effect past the date of the Closing in accordance with their respective
terms:
Office/Warehouse Lease Agreement dated as of November 1, 1989
between E.M.E.S., Ltd d/b/a FHAC Commerce Center, as lessor, and
Florida Heating and Air Conditioning, Inc., as lessee, relating to the
main office and warehouse facility of Florida Heating and Air
Conditioning, Inc. in Margate, Florida. The Building was sold on
1/27/90 to FHAC Building, Ltd. The lease term in such Lease Agreement
will be extended through May 31, 2005. The owners of FHAC Building,
Ltd. are Elliot P. Sokolow (79% interest), Robert J. Rogoff (20%
interest) and a corporate general partner (1%) owned and controlled by
Sokolow, the name of which corporate general partner is FHAC Building,
Inc. A copy of the Lease, Addendum and the Assumption and Indemnity
Agreement between E.M.E.S., Ltd. and FHAC Building, Ltd. are attached.
<PAGE>
SCHEDULE 6.04
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Service Inc.,
FLORIDA HEATING AND AIR CONDITIONING SERVICE, INC.
and
the Stockholder named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.04 are used
herein as defined therein.
B. The Company and the Company Subsidiaries may make the following
Restricted Payments prior to the Effective Time:
None
<PAGE>
SCHEDULE 6.12
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Services Inc.,
FLORIDA HEATING AND AIR CONDITIONING SERVICE, INC.
and
the Stockholder named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.12 are used
herein as defined therein.
B. The Company will make all arrangements and take all such actions as
are necessary and satisfactory to ARS to dispose, prior to the Effective Time,
of the following assets:
None
<PAGE>
SCHEDULE 8.05
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Service Inc.,
FLORIDA HEATING AND AIR CONDITIONING SERVICE, INC.
and
the Stockholder named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 8.05 are used
herein as defined therein.
B. At or within 60 days following the Effective Time, ARS will cause
the following Stockholder Guaranties to be terminated:
FORD MOTOR CREDIT
3111 N. University Drive #800
Coral Springs, FL 33075
PJA953EP5K Truck Loan
PJA953EROX "
PJA953EROR "
PJA953EROT "
PJA953EP5N "
PJA953EP5M "
PJA953EN6G "
PJA953EROW "
PJA953EW1Y "
PJA953EW1X "
TFA210599J "
BARNETT BANK
P.O. Box 2759
Jacksonville, FL 32256
060-960-3697257-9001 Car Loan
REPUBLIC SECURITY BANK
7601 N. Federal Highway
Boca Raton, FL 33487
8000679001 Truck Loan
MERRILL LYNCH LINE OF CREDIT For Florida Heating & Air Conditioning Service, Inc
P.O. Box 173318
Denver, CO 80217-3318
ROBERT ROGOFF PERSONAL GUARANTEES
FORD MOTOR CREDIT
3111 N. University Dr. #800
Coral Springs, FL 33075
PJA953Y44X Truck Loan
PJA953Y44W Truck Loan
PJA953Y44Y Truck Loan
NEWS SUN SENTINEL
P.O. Box 14430
Ft. Lauderdale, Fl 33302 Florida Heating & Air Conditioning Service, Inc.
Ad Purchases
MIAMI HERALD
P.O. Box 522190
Miami, Fl 33152 Florida Heating & Air Conditioning Service, Inc.
Ad Purchases
PALM BEACH POST
P.O. Box 24694
West Palm Beach, FL 33416 Florida Heating & Air Conditioning Service, Inc.
Ad Purchases
MERRILL LYNCH LINE OF CREDIT For Florida heating & Air Conditioning Service, Inc
P.O. Box 173318
Denver, CO 80217-3318
EXHIBIT 2.8
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF JUNE 13, 1996
BY AND AMONG
AMERICAN RESIDENTIAL SERVICES, INC.,
ARS GENERAL INC.,
GENERAL HEATING ENGINEERING COMPANY, INC.
AND
THE STOCKHOLDERS NAMED HEREIN
-1-
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS...............................................1
ARTICLE II THE MERGER AND RELATED MATTERS............................5
Section 2.01. Certificate of Merger..................................5
Section 2.02. The Effective Time.....................................5
Section 2.03. Certain Effects of the Merger..........................5
Section 2.04. Effect of the Merger on Capital Stock..................6
Section 2.05. Delivery, Exchange and Payment.........................6
Section 2.06. Fractional Shares......................................9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF EACH
STOCKHOLDER...............................................9
Section 3.01. By each Stockholder....................................9
ARTICLE IV REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE STOCKHOLDERS......................10
Section 4.01. By the Company and Each Stockholder...................10
ARTICLE V REPRESENTATIONS AND WARRANTIES OF ARS AND NEWCO..........11
Section 5.01. By ARS and Newco......................................11
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME................11
Section 6.01. Of Each Party.........................................11
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION.............................................11
Section 7.01. The Closing and Certain Conditions....................11
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME...................13
Section 8.01. Of Each Party Other Than the Company..................13
ARTICLE IX INDEMNIFICATION..........................................13
Section 9.01. Indemnification Rights and Obligations................13
ARTICLE X LIMITATIONS ON COMPETITION...............................13
Section 10.01. Prohibited Activities................................13
Section 10.02. Damages..............................................14
Section 10.03. Reasonable Restraint.................................14
Section 10.04. Severability; Reformation............................14
Section 10.05. Independent Covenant.................................14
-i-
Section 10.06. Materiality..........................................15
ARTICLE XI GENERAL PROVISIONS.......................................15
Section 11.01. Treatment of Confidential Information................15
Section 11.02. Restrictions on Transfer of ARS Common Stock.........15
Section 11.03. Brokers and Agents...................................16
Section 11.04. Assignment; No Third Party Beneficiaries.............16
Section 11.05. Entire Agreement; Amendment; Waivers.................17
Section 11.06. Counterparts.........................................17
Section 11.07. Expenses.............................................17
Section 11.08. Notices..............................................18
Section 11.09. Governing Law........................................19
Section 11.10. Exercise of Rights and Remedies......................19
Section 11.11. Time.................................................19
Section 11.12. Reformation and Severability.........................19
Section 11.13. Remedies Cumulative..................................19
Section 11.14. Respecting the IPO...................................19
ARTICLE XII TERMINATION..............................................20
Section 12.01. Termination of This Agreement........................20
Section 12.02. Liabilities in Event of Termination..................21
-ii-
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement")
is made as of June 13, 1996, by and among American Residential Services, Inc., a
Delaware corporation ("ARS"), ARS General Inc., a Delaware corporation and a
wholly owned subsidiary of ARS ("Newco"), General Heating Engineering Company,
Inc., a Delaware corporation (the "Company"), and the persons listed on the
signature pages hereof under the caption "Stockholders" (collectively, the
"Stockholders," and each of those persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their
best long-term interests to effect a business combination pursuant to which:
(a) Newco will merge into the Company on the terms and subject
to the conditions set forth herein (that merger being the "Merger");
(b) ARS will acquire the stock of all or some of the entities
listed in the accompanying Addendum 1 (each an "Other Founding Company"
and, collectively with the Company, the "Founding Companies") pursuant
to agreements that are (i) similar to this Agreement and (ii) entered
into among those entities and their equity owners, ARS and subsidiaries
of ARS (collectively, the "Other Agreements"); and
(c) ARS shall effect a public offering of shares of its common
stock and issue and sell those shares.
The respective boards of directors of ARS, Newco and the
Company have approved and adopted this Agreement to effect a transaction subject
to Section 351 of the Code.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements, representations and undertakings contained herein, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. CERTAIN DEFINED TERMS. As used in this
Agreement, the following terms have the meanings assigned to them below in this
Section 1.01. Capitalized terms used in this Agreement and not defined below in
this Section 1.01 have the meanings assigned to them in the Preliminary
Statement or Article I of the Uniform Provisions (the text of which Article
hereby is incorporated herein by this reference), as the case may be.
-1-
"ADJUSTMENT DETERMINATION DATE" means the date that is 30 days
following the ARS's delivery of the Post-closing Statement to the
Stockholders, unless the Closing Date Working Capital and the Positive
Working Capital Adjustment or the Negative Working Capital Adjustment,
as the case may be, are determined pursuant to Section 2.05 by Arthur
Andersen LLP, in which event the Adjustment Determination Date is the
date Arthur Andersen LLP delivers those determinations in writing to
ARS.
"AGREED RATE" means 8.0% per annum.
"AGREEMENT" means this Agreement, including the Disclosure
Statement relating to this Agreement and all attached Schedules,
Annexes and Exhibits, as each of the same may be amended, modified or
supplemented from time to time pursuant to the provisions hereof or
thereof.
"ARS" means American Residential Services, Inc., a Delaware
corporation.
"ARS ACQUISITION CANDIDATE" means any Entity engaged in any of
the businesses of providing repair, maintenance, replacement or
warranty and annual contract maintenance services for Plumbing,
heating/air conditioning and electrical systems to owners or occupants
of single-family homes, duplexes, condominiums and small commercial
facilities, designing and installing of any of those systems in new
construction, selling and servicing home appliances and other similar
residential and building services (a) which was called on by any of the
Company, ARS or the Subsidiaries of the Company or ARS in connection
with the possible acquisition by any of them of that Entity or (b) of
which any of them has made an acquisition analysis.
"CLOSING DATE BALANCE SHEET" of the Company means a balance
sheet of the Company as at the IPO Closing Date which is prepared in
accordance with GAAP on a basis consistent with the basis on which the
Current Balance Sheet was prepared.
"CLOSING DATE WORKING CAPITAL" of the Company means the
Company's Working Capital as determined from the Closing Date Balance
Sheet, provided, that if that determination is made pursuant to Section
2.05 by Arthur Andersen LLP, the amount equal to 50% of the fees and
expenses of Arthur Andersen LLP which are attributable to its audit of
the Closing Date Balance Sheet and its making of that determination
will be deemed a liability of the Company for the purpose of
determining its Closing Date Working Capital and resulting Positive
Working Capital Adjustment or Negative Working Capital Adjustment, as
the case may be.
"CLOSING MEMORANDUM" means the form of closing memorandum to
be prepared by ARS for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided
in Article VII.
-2-
"COMPANY" means General Heating Engineering Company, Inc., a
Delaware corporation.
"COMPANY COMMON STOCK" means the common stock, par value
$20.00 per share, of the Company.
"COUNSEL FOR ARS AND NEWCO" means Baker & Botts, L.L.P.
"COUNSEL FOR THE COMPANY AND THE STOCKHOLDERS" means Jones,
Day, Reavis & Pogue.
"CURRENT BALANCE SHEET" means the audited balance sheet of the
Company as at December 31, 1995 which is included in the Initial
Financial Statements.
"CURRENT BALANCE SHEET DATE" means December 31, 1995.
"DISCLOSURE STATEMENT" means the written statement executed by
the Company and each of the Stockholders and delivered to ARS prior to
the execution and delivery of this Agreement by ARS and Newco in which
either (a) exceptions are taken to each of certain of the
representations and warranties made by the Company and the Stockholders
herein or (b) it is confirmed that no exception is taken to that
representation and warranty.
"INITIAL FINANCIAL STATEMENTS" means (a) the audited balance
sheets of the Company as at December 31, 1994 and 1995 and the related
audited statements of income (operations), cash flows and stockholders'
equity for each of the Company's three fiscal years in the three-year
period ended December 31, 1995, together with the related audit report
of Arthur Andersen LLP.
"INTERIM DATE BALANCE SHEET" of the Company means the balance
sheet as at the end of the Company's fiscal quarter next preceding the
date of the Closing which is included in the Financial Statements.
"INTERIM DATE WORKING CAPITAL" of the Company means the
Company's Working Capital as determined from the Interim Date Balance
Sheet by ARS on a basis consistent with the determination of the
Company's Working Capital from the Current Balance Sheet.
"INTERIM NEGATIVE WORKING CAPITAL ADJUSTMENT" means the
amount, if any, by which the Company's Interim Date Working Capital is
more negative than ($2,672,780).
"INTERIM POSITIVE WORKING CAPITAL ADJUSTMENT" means the
amount, if any, by which the Company's Interim Date Working Capital is
greater (or less negative) than ($2,672,780).
-3-
"MENDITCH EMPLOYMENT AGREEMENTS" means the three Employment
Agreements entered into as of June 13, 1996 between ARS and Frank N.
Menditch, Howard C. Menditch and Bruce L. Menditch, respectively.
"MERGER CONSIDERATION" has the meaning specified in Section
2.04.
"NEGATIVE WORKING CAPITAL ADJUSTMENT" means the amount, if
any, by which the Company's Closing Date Working Capital is more
negative than ($2,672,780).
"NEWCO" means ARS General Inc., a Delaware corporation.
"POSITIVE WORKING CAPITAL ADJUSTMENT" means the amount, if
any, by which the Company's Closing Date Working Capital is greater (or
less negative) than ($2,672,780).
"POST-CLOSING STATEMENT" has the meaning specified in Section
2.05.
"PRO RATA SHARE" means for each Stockholder the fraction
expressed as a percentage and set forth in Schedule 2.04, (a) the
numerator of which is the number of shares of outstanding Company
Common Stock owned by that Person, as set forth in Schedule 2.04, and
(b) the denominator of which is the total number of shares of
outstanding Company Common Stock owned by all Stockholders, as set
forth in Schedule 2.04.
"RESPONSIBLE OFFICER" means any of the following: Frank N.
Menditch, Howard C. Menditch and Bruce L. Menditch.
"RETAINED AMOUNT" has the meaning specified in Section 2.05.
"SCHEDULED AGREEMENTS" means the agreements described in
Schedule 4.11.
"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement
entered into as of June 13, 1996 among ARS, the Stockholders and other
Persons parties thereto.
"SURVIVING CORPORATION" means the Company, the Person to be
designated in the Certificate of Merger as the surviving corporation of
the Merger.
"TERRITORY" has the meaning specified in Section 10.01.
"THRESHOLD AMOUNT" means 2% of the Transaction Value.
"TRANSACTION VALUE" means (a) at any time prior to the
Adjustment Determination Date, $25,000,000, and (b) on and after the
Adjustment Determination Date, $25,000,000 plus the Positive Working
Capital Adjustment, if any, or minus the Negative Working Capital
Adjustment, if any.
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"TRANSFER TAXES" has the meaning specified in Section 11.07.
"UNIFORM PROVISIONS" means the Uniform Provisions of ARS for
the Acquisition of Founding Companies attached hereto as Annex 1.
"WORKING CAPITAL" of the Company means, as at any date as
determined (except in the case of the Company's accumulated adjustments
account) by reference to a consolidated balance sheet of the Company as
at that date which is prepared in accordance with GAAP, the amount by
which (a) the sum, without duplication of amounts, of all amounts that
are included and classified as current assets on that balance sheet
exceeds, or is exceeded by, (b) the sum, without duplication of
amounts, of (i) all amounts that are included and classified as
liabilities or as mandatorily redeemable Capital Stock on that balance
sheet, (ii) the then accumulated adjustments account of the Company and
(iii) $89,128. If at any time those current assets are exceeded by
those liabilities, Working Capital will be expressed as a negative
amount. The accumulated adjustments account of the Company shall be
deemed to equal $10,035,616 at December 31, 1995 and shall be adjusted
thereafter in accordance with applicable federal income tax rules and
regulations.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. CERTIFICATE OF MERGER. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the date of the Closing to the
Secretary of State of the State of Delaware.
Section 2.02. THE EFFECTIVE TIME. The effective time of the
Merger (the "Effective Time") will be the time on the IPO Closing Date which the
Certificate of Merger specifies or, if the Certificate of Merger does not
specify another time, 8:00 a.m., eastern daylight standard time, on the IPO
Closing Date.
Section 2.03. CERTAIN EFFECTS OF THE MERGER. At and as of the
Effective Time, (a) Newco will be merged with and into the Company in accordance
with the provisions of the DGCL, (b) Newco will cease to exist as a separate
legal entity, (c) the certificate of incorporation of the Company will be
amended to change (i) its name to "General Heating & Air Conditioning Company,
Inc." and (ii) its authorized capital stock to 1,000 shares, par value $1.00 per
share, of Common Stock, (d) the Company will be the Surviving Corporation and,
as such, will, all with the effect provided by the DGCL, (i) possess all the
properties and rights, and be subject to all the restrictions and duties, of the
Company and Newco and (ii) be governed by the laws of the State of Delaware, (e)
the Charter Documents of the Company then in effect (after giving effect to the
amendment of the Company's certificate of incorporation specified in clause (c)
of this sentence) will become and thereafter remain (until changed in accordance
with (i) applicable law (in the case of the certificate of incorporation) or
(ii) their terms (in the case of the by-laws)) the Charter Documents of the
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Surviving Corporation, (f) the initial board of directors of the Surviving
Corporation will be the persons named in Schedule 2.03, and those persons will
hold the office of director of the Surviving Corporation subject to the
provisions of the applicable laws of the State of Delaware and the Charter
Documents of the Surviving Corporation, and (g) the initial officers of the
Surviving Corporation will be as set forth in Schedule 2.03, and each of those
persons will serve in each office specified for that person in Schedule 2.03,
subject to the provisions of the Charter Documents of the Surviving Corporation,
until that person's successor is duly elected to, and, if necessary, qualified
for, that office.
Section 2.04. EFFECT OF THE MERGER ON CAPITAL STOCK. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the
right to receive, subject to the provisions of Section 2.05, without
interest, on surrender of the certificate evidencing those shares, (A)
the amount of cash and the number of whole shares of ARS Common Stock
set forth or determined as provided in Schedule 2.04 (the "Merger
Consideration") and (B) the amount of cash for and in lieu of
fractional shares of ARS Common Stock as will be determined pursuant to
Section 2.06, (ii) cease to be outstanding and to exist and (iii) be
canceled and retired;
(b) each share of Company Common Stock held in the treasury of
the Company or any Company Subsidiary will (i) cease to be outstanding
and to exist and (ii) be canceled and retired; and
(c) each share of Newco Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into one
share of Common Stock, par value $1.00 per share, of the Surviving
Corporation, and the shares of Common Stock of the Surviving
Corporation issued on that conversion will constitute all the issued
and outstanding shares of Capital Stock of the Surviving Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, subject to the provisions of Section 2.05, without interest,
the Merger Consideration and the additional cash, if any, owing with respect to
those shares as provided in Section 2.06.
Section 2.05. DELIVERY, EXCHANGE AND PAYMENT. (a) At or after
the Effective Time: (i) each Stockholder, as the holder of certificates
representing shares of Company Common Stock, will, on surrender of those
certificates to ARS (or any agent that may be appointed by ARS for purposes of
this Section 2.05), receive, subject to the provisions of this Section 2.05 and
Section 2.06, the Merger Consideration; and (ii) until any certificate
representing Company Common Stock has been surrendered and replaced pursuant to
this Section 2.05, that certificate will, for all purposes, be deemed to
evidence ownership of the number of whole shares of ARS Common Stock
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included in the Merger Consideration payable in respect of that certificate
pursuant to Section 2.04. All shares of ARS Common Stock issuable in the Merger
will be deemed for all purposes to have been issued by ARS at the Effective
Time.
(b) Each Stockholder will deliver to ARS (or any agent that
may be appointed by ARS for purposes of this Section 2.05) on or before the IPO
Closing Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Person, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Person's expense, affixed and canceled. Each
Stockholder shall cure any deficiencies in the endorsement of the certificates
or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Person.
(c) No dividends (or interest) or other distributions declared
or earned after the Effective Time with respect to ARS Common Stock and payable
to the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of ARS Common Stock have been issued in the Merger until
those certificates are surrendered as provided herein, but (i) on that surrender
ARS will cause to be paid, to the Person in whose name the certificates
representing such shares of ARS Common Stock shall then be issued, the amount of
dividends or other distributions previously paid with respect to such whole
shares of ARS Common Stock with a record date, or which have accrued, subsequent
to the Effective Time, but prior to surrender, and the amount of any cash
payable to such Person for and in lieu of fractional shares pursuant to Section
2.06 and (ii) at the appropriate payment date or as soon as practicable
thereafter, ARS will cause to be paid to that Person the amount of dividends or
other distributions with a record date, or which have been accrued, subsequent
to the Effective Time, but which are not payable until a date subsequent to
surrender, which are payable with respect to such whole shares of ARS Common
Stock, subject in all cases to any applicable escheat laws. No interest will be
payable with respect to the payment of such dividends or other distributions or
cash for and in lieu of fractional shares on surrender of outstanding
certificates.
(d) Prior to the date of the Closing, ARS will cause to be
prepared and delivered to the Stockholders a statement setting forth the Interim
Positive Working Capital Adjustment, if any, or the Interim Negative Working
Capital Adjustment, if any. If an Interim Positive Working Capital Adjustment
has been determined, ARS will, promptly after the Effective Time, but subject to
the certificate surrender requirements of Section 2.05(a), pay to the
Stockholders, without interest, their respective Pro Rata Shares of the amount
of the Interim Positive Working Capital Adjustment. If an Interim Negative
Working Capital Adjustment has been determined, ARS will, notwithstanding the
provisions of Section 2.04, after the Effective Time hold back from the Merger
Consideration an amount equal to the Stockholders respective Pro Rata Shares of
the amount of the Interim Negative Working Capital Adjustment (the "Retained
Amount") for disposition pursuant to Section 2.05(f).
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(e) As soon as practicable, and in any event within 60 days,
following the Effective Time, ARS will cause to be prepared and delivered to the
Stockholders (i) the Closing Date Balance Sheet and (ii) a statement (the
"Post-closing Statement") of the Closing Date Working Capital and the Positive
Working Capital Adjustment, if any, or the Negative Working Capital Adjustment,
if any. The Post-closing Statement will be final and binding on ARS and the
Stockholders unless, within 30 days following the delivery of the Post-closing
Statement, a Stockholder notifies ARS in writing that the Stockholder does not
accept as correct the amount of the Closing Date Working Capital or the amount
of the Positive Working Capital Adjustment or the Negative Working Capital
Adjustment, as the case may be, as set forth in the Post-closing Statement. If
any Stockholder timely delivers to ARS that notice respecting the Post-closing
Statement, the Closing Date Balance Sheet will be audited, and the Closing Date
Working Capital and the Positive Working Capital Adjustment or the Negative
Working Capital Adjustment, as the case may be, will be determined within 30
days after delivery to ARS of that notice, by Arthur Andersen LLP, pursuant to
its audit of the Closing Date Balance Sheet and these determinations will be
final and binding on ARS and all the Stockholders.
(f) If a Positive Working Capital Adjustment is determined
with finality pursuant to Section 2.05(e), ARS will, promptly after the
Adjustment Determination Date, but subject to the certificate surrender
requirements of Section 2.05(a), pay to the Stockholders their respective Pro
Rata Shares of the sum, together with interest thereon from (and including) the
IPO Closing Date to (but excluding) the Adjustment Determination Date at the
Agreed Rate, of (i) the entire Retained Amount, if any, and (ii) the amount by
which (A) the amount of the Positive Working Capital Adjustment exceeds (B) the
amount of the Interim Positive Working Capital Adjustment previously paid to the
Stockholders, if any. If a Negative Working Capital Adjustment is determined
with finality pursuant to Section 2.05(e) then, subject to the certificate
surrender requirements of Section 2.05(a):
(i) ARS will (A) be entitled to retain for itself out of the
Retained Amount an amount equal to the lesser of (1) the amount of the
Negative Working Capital Adjustment, together with interest thereon at
the Agreed Rate from (and including) the IPO Closing Date to (but
excluding) the Adjustment Determination Date, and (2) the Retained
Amount, and if there is any remaining portion of the Retained Amount
that ARS is not entitled to retain for itself pursuant to the foregoing
provisions of this clause (i), (B) promptly pay all to the Stockholders
their respective Pro Rata Shares of that remaining amount, together
with interest thereon at the Agreed Rate from (and including) the IPO
Closing Date to (but excluding) the Adjustment Determination Date; and
(ii) if the sum of the Negative Working Capital Adjustment and
the interest thereon at the Agreed Rate which has accrued during the
period referred to in clause (i)(A)(1) of this sentence exceeds the
Retained Amount, if any, the Stockholders will, no later than 10
Houston, Texas business days after ARS makes a written request
therefor, pay in cash their respective Pro Rata Shares of the sum of
(A) the amount of that excess and (B) the Interim Positive Working
Capital Adjustment, if any, together with interest on that
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sum at the Agreed Rate from (and including) the IPO Closing Date to
(but excluding) the Adjustment Determination Date..
Section 2.06. FRACTIONAL SHARES. Notwithstanding any other
provision herein, no fractional shares of ARS Common Stock will be issued, and
any Stockholder entitled hereunder to receive a fractional share of ARS Common
Stock but for this Section 2.06 will be entitled hereunder to receive a cash
payment for and in lieu thereof in the amount (rounded to the nearest whole
cent) equal to that Person's fractional interest in a share of ARS Common Stock
multiplied by the IPO Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01. BY EACH STOCKHOLDER. Each Stockholder represents
and warrants to ARS that, as applied solely to himself, all the following
representations and warranties in this Article III are as of the date of this
Agreement, and will be, as amended or supplemented pursuant to Section 6.08, on
the date of the Closing and the IPO Closing Date, true and correct:
(a) (i) he will be acquiring the shares of ARS Common Stock to
be issued pursuant to Section 2.04 to him solely for his account, for
investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in
connection with any distribution; (ii) he is not a party to any
agreement or other arrangement for the disposition of any shares of ARS
Common Stock other than this Agreement and the Registration Rights
Agreement; (iii) he is an "accredited investor" as defined in
Securities Act Rule 501(a); (iv) he (A) is able to bear the economic
risk of an investment in the ARS Common Stock acquired pursuant to this
Agreement, (B) can afford to sustain a total loss of that investment,
(C) has such knowledge and experience in financial and business matters
that he is capable of evaluating the merits and risks of the proposed
investment in the ARS Common Stock, (D) has had an adequate opportunity
to ask questions and receive answers from the officers of ARS
concerning any and all matters relating to the transactions
contemplated hereby, including the background and experience of the
current and proposed officers and directors of ARS, the plans for the
operations of the business of ARS, the business, operations and
financial condition of the Other Founding Companies and any plans of
ARS for additional acquisitions, and (E) has asked all questions of the
nature described in preceding clause (D), and all those questions have
been answered to his satisfaction; and
(b) the representations and warranties contained in Article
III of the Uniform Provisions (the text of which Article hereby is
incorporated herein by this reference) are true and correct as applied
solely to himself, and his agreements set forth in that Article hereby
are agreed to.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF
THE COMPANY AND THE STOCKHOLDERS
Section 4.01. BY THE COMPANY AND EACH STOCKHOLDER. The Company
and each Stockholder jointly and severally represent and warrant to, and agree
with, ARS that all the following representations and warranties in this Article
IV are as of the date of this Agreement, and will be, as amended or supplemented
pursuant to Section 6.08, on the date of the Closing and the IPO Closing Date,
true and correct:
(a) the Organization State of the Company is the State of
Delaware, and the Company (i) is a corporation duly organized, validly
existing and in good standing under the laws of that State, (ii) has
all requisite corporate power and authority under those laws and its
Charter Documents to own or lease and to operate its properties and to
carry on its business as now conducted and (iii) is duly qualified and
in good standing as a foreign corporation in all jurisdictions (other
than the State of Delaware) in which it owns or leases property or in
which the carrying on of its business as now conducted so requires
except where the failure to be so qualified, singly or in the
aggregate, would not have a Material Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is
comprised of 5,000 shares of Company Common Stock, of which 462 shares
have been issued and are now outstanding and 2,290 shares are held by
the Company as treasury shares, and (ii) no outstanding Derivative
Securities of the Company exist;
(c) the terms and conditions of each of the Scheduled
Agreements are no less favorable to the Company than the Company
reasonably could have expected to obtain in an arm's-length transaction
with a Person other than an Affiliate of the Company, and the rentals
provided for in the Scheduled Agreements do not exceed fair market
rentals of the properties being rented or leased under the Scheduled
Agreements;
(d) prior to the date of the Closing, the Company will have
(i) acquired ownership of, and will have the lawful right to do
business under, the names "General Heating & Air Conditioning Company,
Inc.," "General Heating and Plumbing Co. Inc.," "General Heating Energy
Saver Store, Inc." and "Fireplace Wholesalers, Inc.," and (ii) acquired
ownership of and will have the exclusive, lawful right to use all
Proprietary Rights of the type described in clause (b) of the
definition of Proprietary Rights herein which (i) are presently, were
or are expected to be used in the business of the Company and are owned
by any Related party of the Company and, if not described in this
clause (i), contain "General Heating" as any party thereof; and
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(e) the representations and warranties contained in Article IV
of the Uniform Provisions (the text of which Article hereby is
incorporated herein by this reference) are true and correct, and the
agreements set forth in that Article hereby are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ARS AND NEWCO
Section 5.01. BY ARS AND NEWCO. ARS and Newco jointly and
severally represent and warrant to the Company and each Stockholder that all the
following representations and warranties in this Article V are as of the date of
this Agreement, and will be, as amended or supplemented pursuant to Section
6.08, on the date of the Closing and the IPO Closing Date, true and correct: (a)
Newco is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware, (b) no Derivative Securities of Newco
are outstanding, (c) Newco has been organized for the sole purpose of
participating in the Merger and has not, and will not, engage in any activities
other than those necessary to effectuate the Merger and (d) the representations
and warranties contained in Article V of the Uniform Provisions (the text of
which Article hereby is incorporated herein by this reference) are true and
correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01. OF EACH PARTY. Until the Effective Time, subject
to the waiver provisions of Section 11.05, each party hereto will comply with
each covenant for which provision is made in Article VI of the Uniform
Provisions (the text of which Article hereby is incorporated herein by this
reference) to be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01. THE CLOSING AND CERTAIN CONDITIONS. (a) THE
CLOSING. On or before the IPO Pricing Date, the parties hereto will take all
actions necessary to (i) effect the Merger (including, as permitted by the DGCL,
(A) the execution of a Certificate of Merger (1) meeting the requirements of the
DGCL and (2) providing that the Merger will become effective on the IPO Closing
Date and (B) the filing of that Certificate with the Secretary of State of the
State of Delaware), (ii) verify the existence and ownership of the certificates
evidencing the Company Common Stock to be exchanged for the Merger Consideration
pursuant to Section 2.05 and (iii) satisfy the document delivery requirements to
which the obligations of the parties to effect the Merger and the other
transactions contemplated hereby are conditioned by the provisions of this
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Article VII (all those actions collectively being the "Closing"). The Closing
will take place at the offices of Baker & Botts, L.L.P., 38th Floor, 910
Louisiana, Houston, Texas at 10:00 a.m., Houston time, or at such later time on
the IPO Pricing Date as ARS shall specify by written notice to Frank N.
Menditch. The actions taken at the Closing will not include the completion of
either the Merger or the delivery of the Company Common Stock or the Merger
Consideration pursuant to Section 2.05. Instead, on the IPO Closing Date, the
Certificate of Merger will become effective pursuant to Section 2.02, and all
transactions contemplated by this Agreement to be closed or completed on or
before the IPO Closing Date, including the surrender of the Company Common Stock
in exchange for the Merger Consideration (including a certified check or checks
in an amount equal to the cash portion of the Merger Consideration (less the
Retained Amount, if any)) will be closed or completed, as the case may be.
During the period from the Closing to the IPO Closing Date, this Agreement may
be terminated by the parties only pursuant to Section 12.01(b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND
THE STOCKHOLDERS. The obligations of the Company and the Stockholders with
respect to the actions to be taken by them at or before the Closing are subject
to the satisfaction on or before the date of the Closing, or waiver by them
pursuant to Section 11.05, of all the conditions set forth in Sections 7.02(a)
and 7.03. The obligations of the Stockholders with respect to the actions to be
taken on the IPO Closing Date are subject to the satisfaction on that date of
the following conditions: (i) the Stockholders' Agreement and each Menditch
Employment Agreement then shall be in full force and effect; (ii) the consent of
ARS to make an election pursuant to Section 1362(e)(3) of the Code shall have
been given; and (iii) all the conditions set forth in Sections 7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF ARS AND NEWCO.
The obligations of ARS and Newco with respect to actions to be taken by them at
or before the Closing are subject to the satisfaction on or before the date of
the Closing, or waiver by them pursuant to Section 11.05, of the following
conditions: (i) the Company shall have delivered to ARS a copy of the
certificate of incorporation, as amended to the date of the Closing and
certified by the Secretary of State of the State of Delaware as of a Current
Date, of the Company; and (ii) all the conditions set forth in Sections 7.02(a)
and 7.04(a).
(d) The obligations of ARS and Newco with respect to the
actions to be taken on the IPO Closing Date are subject to the satisfaction on
that date of the following conditions: (i) each Menditch Employment Agreement
then shall be in full force and effect; and (ii) all the conditions set forth in
Sections 7.02(b) and 7.04(b).
(e) The text of Article VII of the Uniform Provisions hereby
is incorporated herein by this reference.
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ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01. OF EACH PARTY OTHER THAN THE COMPANY. From and
after the Effective Time, subject to the waiver provisions of Section 11.05,
each party hereto (other than the Company) will comply with each covenant for
which provision is made in Article VIII of the Uniform Provisions (the text of
which Article hereby is incorporated herein by this reference) to be performed
or observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01. INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text
of Article IX of the Uniform Provisions hereby is incorporated herein by this
reference.
ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.01. PROHIBITED ACTIVITIES. Each Stockholder agrees,
severally and not jointly with any other Person, that he will not, during the
period beginning on the date hereof and ending on the third anniversary of the
date hereof, directly or indirectly, for any reason, for his own account or on
behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether
as an employee, independent contractor, consultant or advisor, or as a
sales representative or distributor of any kind, in any business
selling any products or providing any services in competition with the
Company, any Company Subsidiary or ARS or any Subsidiary of ARS (ARS
and its Subsidiaries collectively being "ARS" for purposes of this
Article X) within a radius of 100 miles of each location in which any
of the Company or the Company Subsidiaries was engaged in business on
the date hereof or immediately prior to the Effective Time (those
locations collectively being the "Territory");
(b) call on any natural person who is at that time employed by
the Company, any Company Subsidiary or ARS in any managerial capacity
with the purpose or intent of attracting that person from the employ of
the Company, any Company Subsidiary or ARS, provided that the
Stockholder may call on and hire any of his Immediate Family Members;
(c) call on any Person that at that time is, or at any time
within one year prior to that time was, a customer of the Company, any
Company Subsidiary or ARS within the Territory, (i) for the purpose of
soliciting or selling any product or service in competition
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with the Company, any Company Subsidiary or ARS within the Territory
and (ii) with the knowledge of that customer relationship; or
(d) call on any ARS Acquisition Candidate, with the knowledge
of that Person's status as an ARS Acquisition Candidate, for the
purpose of acquiring that Person or arranging the acquisition of that
Person by any Person other than ARS.
Notwithstanding the foregoing, any Stockholder may own and hold as a passive
investment up to 1% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock is listed on the New York Stock Exchange or included
in the Nasdaq National Market. For purposes hereof and the respective tax
reporting positions of the parties hereto, each party hereto agrees that the
percentage of the cash portion of the Merger Consideration to be received by
each Stockholder pursuant to Section 2.04 which equals 1% of that Stockholder's
Pro Rata Share of the Transaction Value will represent, and be received as,
consideration for that Stockholder's agreement to observe the covenants in this
Section 10.01.
Section 10.02. DAMAGES. Because of the difficulty of measuring
economic losses to ARS as a result of any breach by a Stockholder of his
covenants in Section 10.01, and because of the immediate and irreparable damage
that could be caused to ARS for which it would have no other adequate remedy,
each Stockholder agrees that ARS may enforce the provisions of Section 10.01 by
injunctions and restraining orders against that Stockholder if he breaches any
of those provisions.
Section 10.03. REASONABLE RESTRAINT. The parties hereto each
agree that Sections 10.01 and 10.02 impose a reasonable restraint on the
Stockholders in light of the activities and business of ARS on the date hereof,
the current business plans of ARS and the investment by each Stockholder in ARS
as a result of the Merger.
Section 10.04. SEVERABILITY; REFORMATION. The covenants in
this Article X are severable and separate, and the unenforceability of any
specific covenant in this Article X is not intended by any party hereto to, and
shall not, affect the provisions of any other covenant in this Article X. If any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth in Section 10.01 are unreasonable as applied
to any Stockholder, the parties hereto, including that Stockholder, acknowledge
their mutual intention and agreement that those restrictions be enforced to the
fullest extent the court deems reasonable, and thereby shall be reformed to that
extent as applied to that Stockholder and any other Stockholder similarly
situated.
Section 10.05. INDEPENDENT COVENANT. All the covenants in this
Article X are intended by each party hereto to, and shall, be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of any Stockholder against ARS,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by ARS of any covenant in this Article X. It is
specifically agreed that the period specified in Section 10.01 shall be computed
in the case of each Stockholder by excluding from that computation any time
during which that Stockholder is in violation of any provision of Section
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10.01. The covenants contained in this Article X shall not be affected by any
breach of any other provision hereof by any party hereto.
Section 10.06. MATERIALITY. The Company and each Stockholder,
severally and not jointly with any other Person, hereby agree that this Article
X is a material and substantial part of the transactions contemplated hereby.
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. TREATMENT OF CONFIDENTIAL INFORMATION. Each
party hereto will comply with each covenant for which provision is made in
Section 11.01 of the Uniform Provisions (the text of which Section hereby is
incorporated herein by this reference) to be performed or observed by that
party.
Section 11.02. RESTRICTIONS ON TRANSFER OF ARS COMMON STOCK.
(a) During the two-year period ending on the second anniversary of the IPO
Closing Date (the "Restricted Period") (or if the two-year "holding" period for
restricted securities under Rule 144 under the Securities Act is reduced by the
SEC, the Restricted Period will be correspondingly reduced), no Stockholder
voluntarily will, except pursuant to and in accordance with the applicable
provisions of the Registration Rights Agreement: (i) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint or otherwise dispose of (A) any
shares of ARS Common Stock received by any Stockholder in the Merger or (B) any
interest in (including any option to buy or sell) any of those shares of ARS
Common Stock, in whole or in part, and ARS will have no obligation to, and shall
not, treat any such attempted transfer as effective for any purpose; or (ii)
engage in any transaction, whether or not with respect to any shares of ARS
Common Stock or any interest therein, the intent or effect of which is to reduce
the risk of owning the shares of ARS Common Stock acquired pursuant to Section
2.04 (including, for example engaging in put, call, short-sale, straddle or
similar market transactions); provided, however, that this Section 11.02 shall
not restrict any transfer of ARS Common Stock acquired by a Stockholder pursuant
to Section 2.04 to any of that Stockholder's Related Persons who agree in
writing to be bound by the provisions of Section 11.01 and this Section 11.02.
The certificates evidencing the ARS Common Stock delivered to each Stockholder
pursuant to Section 2.05 will bear a legend substantially in the form set forth
below and containing such other information as ARS may deem necessary or
appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE
OTHER PARTIES THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY
NOT BE VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED,
PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE
ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY
SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF ANY OF THOSE SHARES,
DURING THE TWO-YEAR PERIOD ENDING ON __________ [DATE THAT IS THE
SECOND ANNIVERSARY OF
-15-
THE IPO CLOSING DATE] (THE "RESTRICTED PERIOD") (OR IF THE TWO-YEAR
"HOLDING" PERIOD FOR RESTRICTED SECURITIES UNDER RULE 144 UNDER THE
SECURITIES ACT OF 1933 IS REDUCED BY THE SECURITIES AND EXCHANGE
COMMISSION, THE RESTRICTED PERIOD WILL BE CORRESPONDINGLY REDUCED). ON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER
AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED
WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of ARS Common Stock to be delivered to
that Stockholder pursuant to Section 2.04 have not been and, except pursuant to
the Registration Rights Agreement, if applicable, will not be registered under
the Securities Act and therefore may not be resold by that Stockholder without
compliance with the Securities Act and (ii) covenants that none of the shares of
ARS Common Stock issued to that Stockholder pursuant to Section 2.04 will be
offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable provisions of
the Securities Act and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of ARS
Common Stock issued pursuant to Section 2.04 will bear the following legend in
addition to the legend prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF
THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE
SECURITIES LAWS.
In addition, certificates evidencing shares of ARS Common Stock issued pursuant
to Section 2.04 to each Stockholder will bear any legend required by the
securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03. BROKERS AND AGENTS. The Stockholders jointly
and severally represent and warrant to ARS that the Company has not directly or
indirectly employed or become obligated to pay any broker or similar agent in
connection with the transactions contemplated hereby and agree, without regard
to the Threshold Amount limitations set forth in Article IX, to indemnify ARS
against all Damage Claims arising out of claims for any and all fees and
commissions of brokers or similar agents employed or promised payment by the
Company.
Section 11.04. ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of ARS, and the heirs and legal representatives
of the Stockholders (and, in the case of any trust, the successor trustees of
that trust). Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies hereunder or thereunder,
except as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise
provided expressly herein or therein.
-16-
Section 11.05. ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This
Agreement and the documents delivered pursuant hereto constitute the entire
agreement and understanding among the Stockholders, the Company, Newco and ARS
and supersede all prior agreements and understandings, both written and oral,
relating to the subject matter of this Agreement. This Agreement may be amended,
modified or supplemented, and any right hereunder may be waived, if, but only
if, that amendment, modification, supplement or waiver is in writing and signed
by each of the Stockholders, the Company and ARS. The waiver of any of the terms
and conditions hereof shall not be construed or interpreted as, or deemed to be,
a waiver of any other term or condition hereof.
Section 11.06. COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
Section 11.07. EXPENSES. Whether or not the transactions
contemplated hereby are consummated, (a) ARS will pay the fees, expenses and
disbursements of ARS and Newco and their Representatives which are incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance of and compliance
with all conditions to be performed by ARS and Newco under this Agreement,
including the costs of preparing the Registration Statement, (b) the
Stockholders will pay from personal funds, and not from funds of the Company or
any Company Subsidiary, all sales, use, transfer and other similar taxes and
fees (collectively, "Transfer Taxes") incurred in connection with the
transactions contemplated hereby and (c) the Company will pay the fees, expenses
and disbursements of Counsel for the Company and the Stockholders incurred in
connection with the subject matter of this Agreement and the Registration
Statement on or before the IPO Closing Date (which fees, expenses and
disbursements will, to the extent accrued through the IPO Closing Date but then
unpaid will be recorded as a liability of the Company for the purpose of
determining its Closing Date Working Capital and resulting Positive Working
Capital Adjustment or Negative Working Capital Adjustment, as the case may be);
provided, however, if the Company or the Stockholders terminate this Agreement
otherwise than as permitted by Article XII, the Company will, no later than 10
Houston, Texas business days after ARS makes a written request therefor,
reimburse ARS in the amount equal to the aggregate fees, costs and other
expenses invoiced to ARS by Arthur Andersen LLP in connection with its audit of
the Company's financial statements at December 31, 1995 and for the 12-month
period then ended. The Stockholders will file all necessary documentation and
Returns with respect to all Transfer Taxes. In addition, each Stockholder
acknowledges that he, and not the Company or ARS or the Surviving Corporation,
will pay all Taxes due upon receipt of the consideration payable to that
Stockholder pursuant to Article II.
Section 11.08. NOTICES. All notices required or permitted
hereunder shall be in writing, and shall be deemed to be delivered and received
(a) if personally delivered or if delivered by telex, telegram, facsimile or
courier service, when actually received by the party to whom notice is sent or
(b) if delivered by mail (whether actually received or not), at the close of
business on the third Houston, Texas business day next following the day when
placed in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set
-17-
forth below (or at such other address as such party may designate by written
notice to all other parties in accordance herewith):
(i) if to ARS or Newco, addressed to it at:
American Residential Services, Inc.
5850 San Felipe
Suite 500
Houston, Texas 77057
Attn.: C. Clifford Wright, Jr.
Chief Executive Officer
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Baker & Botts, L.L.P.
One Shell Plaza
Houston, Texas 77002-4995
Attn: James L. Leader, Esq.;
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
General Heating Engineering Company, Inc.
9070 Euclid Avenue
Manassas, Virginia 22110
Attn: Frank N. Menditch
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Jones, Day, Reavis & Pogue
1450 G Street, N.W.
Suite 700
Washington, D.C. 20000
Attn: Kevin D. Cramer, Esq.
SECTION 11.09. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF; PROVIDED, HOWEVER,
THAT ARTICLE X AND THE RIGHTS AND OBLIGATIONS THEREUNDER OF THE PARTIES THERETO
WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE
STATE OF MARYLAND WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
-18-
Section 11.10. EXERCISE OF RIGHTS AND REMEDIES. Except as
otherwise provided herein, no delay or omission in the exercise of any right,
power or remedy accruing to any party hereto as a result of any breach or
default hereunder by any other party hereto shall impair any such right, power
or remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11. TIME. Time is of the essence in the performance
of this Agreement in all respects.
Section 11.12. REFORMATION AND SEVERABILITY. If any provision
of this Agreement is invalid, illegal or unenforceable, that provision shall, to
the extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13. REMEDIES CUMULATIVE. No right, remedy or
election given by any term of this Agreement shall be deemed exclusive, but each
shall be cumulative with all other rights, remedies and elections available at
law or in equity.
Section 11.14. RESPECTING THE IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither ARS or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that ARS will use its reasonable best efforts to
cause the Registration Statement to become effective prior to December 31, 1996)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to ARS or the
IPO. The Underwriter shall have no obligation to any of the Company and the
Stockholders with respect to any disclosure contained in the Registration
Statement.
-19-
ARTICLE XII
TERMINATION
Section 12.01. TERMINATION OF THIS AGREEMENT. (a) This
Agreement may be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of ARS and the Company;
(ii) by the Stockholders or the Company, on the one hand, or
by ARS, on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated
by December 31, 1996, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the
case of the Stockholders and the Company, any of them) seeking to
terminate this Agreement to perform or adhere to any agreement required
hereby to be performed or adhered to by it prior to or at the Closing
or thereafter on the IPO Closing Date;
(iii) by the Stockholders or the Company, on the one hand, or
by ARS, on the other hand, if a material breach or default shall be
made by the other party (or in the case of the Stockholders and the
Company, any of them) in the observance or in the due and timely
performance of any of the covenants, agreements or conditions contained
herein;
(iv) by ARS if it is entitled to do so as provided in Section
6.08;
(b) This Agreement may be terminated after the Closing solely:
(i) by ARS or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City business
days after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section
12.01, the Merger will be deemed for all purposes to have been abandoned and of
no force or effect and, if the Certificate of Merger shall have been filed with
the Secretary of State of the State of Delaware prior to that termination, each
of the Company and Newco is authorized to execute and file with the Secretary of
State of the State of Delaware a certificate of that termination pursuant to
Section 103(d) of the DGCL.
Section 12.02. LIABILITIES IN EVENT OF TERMINATION. If this
Agreement is terminated pursuant to Section 12.01, there shall be no liability
or obligation on the part of any party hereto except (a) as provided in Section
11.07 and (b) to the extent that such liability is based on the breach by that
party of any of its representations, warranties or covenants set forth in this
Agreement.
-20-
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
AMERICAN RESIDENTIAL SERVICES, INC.
By:
C. Clifford Wright, Jr.
Chief Executive Officer and President
ARS GENERAL INC.
By:
C. Clifford Wright, Jr.
Chief Executive Officer and President
GENERAL HEATING ENGINEERING COMPANY, INC.
By:
Frank N. Menditch
President
STOCKHOLDERS:
Frank N. Menditch
Howard C. Menditch
Bruce L. Menditch
-21-
ADDENDUM 1
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.
ARS General Inc.,
General Heating Engineering Company, Inc.
and
the Stockholders named therein
A. Words and terms used in this Addendum which are defined in
the captioned Agreement to which this Schedule is an Addendum are used herein as
therein defined.
B. The Founding Companies are:
Atlas Services, Inc.
Bullseye Air Conditioning, Inc.
Climatic Corporation of Vero Beach
DIAL ONE Meridian and Hoosier, Inc.
Enterprises Holding Company
Florida Heating and Air Conditioning, Inc.
Florida Heating and Air Conditioning Service, Inc.
Florida Heating and Air Duct, Inc.
General Heating Engineering Company, Inc.
-22-
SCHEDULE 2.03
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS General Inc.,
General Heating Engineering Company, Inc.
and
the Stockholders named therein
A. Words and terms used in this Schedule which are defined in
the captioned Agreement to which this Schedule is attached as Schedule 2.03 are
used herein as defined therein.
B. The directors of the Surviving Corporation immediately
after the Effective Time are as follows: Howard S. Hoover, Jr., William P.
McCaughey and C. Clifford Wright, Jr.
C. The officers of the Surviving Corporation immediately
following the Effective Time are as follows:
President ...............................................Frank N. Menditch
Executive Vice President ................................Howard C. Menditch
Vice President and Assistant Secretary...................Bruce L. Menditch
Vice President and Secretary ............................John D. Held
Vice President...........................................William P. McCaughey
SCHEDULE 2.04
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS General Inc.,
General Heating Engineering Company, Inc.
and
the Stockholders named therein
A. Words and terms used in this Schedule which are defined in
the captioned Agreement to which this Schedule is attached as Schedule 2.04 are
used herein as defined therein.
B. The name and address of each Stockholder are as follows:
ADDRESS
Frank N. Menditch..................... 9231 Potomac School Drive
Potomac, Maryland 20854
Howard C. Menditch.................... 11037 Snowshoe Lane
Rockville, Maryland 20852
Bruce L. Menditch..................... 9200 Potomac School Drive
Potomac, Maryland 20854
C. Subject to increase or reduction by the application of the
Positive Working Capital Adjustment or the Negative Working Capital Adjustment,
as the case may be the aggregate Merger Consideration will be comprised of (1)
$15,000,000 in cash and (2) such number of whole and fractional shares of ARS
Common Stock as shall equal the quotient of (A) $10,000,000 divided by (B) the
IPO Price, and the Stockholders will be entitled to receive the Merger
Consideration pursuant to Section 2.04 as follows:
Shares of Pre-Merger Pro Rata Share
Company Common Stock of
Owned Merger Consideration
STOCKHOLDERS:
Frank N. Menditch ........................ 154 33.33%
Howard C. Menditch ....................... 154 33.34
Bruce L. Menditch ........................ 154 33.33
--- ------
462 100.00%
=== ======
SCHEDULE 3.01
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS General Inc.,
General Heating Engineering Company, Inc.
and
the Stockholders named therein
A. Words and terms used in this Schedule which are defined in
the captioned Agreement to which this Schedule is attached as Schedule 3.01 are
used herein as therein defined.
B. Each Stockholder is an "accredited investor" as defined in
Securities Act Rule 501(a).
SCHEDULE 3.02
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS General Inc.,
General Heating Engineering Company, Inc.
and
the Stockholders named therein
A. Words and terms used in this Schedule which are defined in
the captioned Agreement to which this Schedule is attached as Schedule 3.02 are
used herein as defined therein.
B. Frank N. Menditch, Howard C. Menditch and Bruce L. Menditch
each own 154 of the 462 outstanding shares of Company Common Stock.
C. No exception is taken to the representations and warranties
in Section 3.02 of the captioned Agreement.
SCHEDULE 3.07
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS General Inc.,
General Heating Engineering Company, Inc.
and
the Stockholder named therein
A. Words and terms used in this Schedule which are defined in
the captioned Agreement to which this Schedule is attached as Schedule 3.07 are
used herein as defined therein.
B. The Stockholder is, alone or with one or more other
Persons, the controlling Affiliate of the following Entities, businesses or
trades (other than the company and the Company Subsidiaries, if the Stockholder
is an Affiliate of the Company) that (a) are engaged in any line of business
which is the same as or similar to any line of business in which the Company or
any Company Subsidiary is engaged or (b) are, or have within the three-year
period ending on the date of this Agreement, engaged in any transaction with the
Company or any Company Subsidiary, except for transactions in the ordinary
course of business of the Company or that Company Subsidiary:
(a) Bruce Menditch, Frank Menditch and Howard Menditch own
controlling interests in companies that, by their corporate charter,
are intended to engage in lines of business similar to the line of
business to which General Heating Engineering Company, Inc.
is engaged. These companies are:
1. Fireplace Wholesalers, Inc. (Maryland; incorporated April 18, 1979)
2. General Heating Air Conditioning Company, Inc. (Virginia; incorporated
April 24, 1995)
3. General Heating and Plumbing Co. Inc. (Maryland, incorporated May 5,
1978)
4. General Heating Energy Saver Store, Inc. (Maryland, incorporated
October 3, 1979)
5. General Heating Engineering Company of Richmond (Virginia, incorporated
November 22, .......1991)
6. Imlay Heating & Air Conditioning Company, Inc. (Virginia; incorporated
July 3, 1989)
Other than the use of the names Fireplace Wholesalers and
General Heating Air Conditioning Company in the Company's business,
none of these companies have any assets, employees or activities, and
are not in fact engaged in any line of business which is the same as or
similar to any line of business in which the Company is engaged.
(b) Effective January 2, 1995, the Company purchased all of
the assets and assumed all of the outstanding liabilities of General
Heating Engineering Company of Richmond, Inc. ("Richmond"). Richmond
continues to exist as a shell company.
Effective July 31, 1994, the Company purchased all of the
assets and assumed all of the outstanding liabilities of Imlay Heating & Air
Conditioning Company, Inc. ("Imlay"). Imlay continues to exist as a shell
company.
SCHEDULE 4.11
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS General Inc.,
General Heating Engineering Company, Inc.
and
the Stockholders named therein
A. Words and terms used in this Schedule which are defined in
the captioned Agreement to which this Schedule is attached as Schedule 4.11 are
used herein as defined therein.
B. The following Related Party Agreements will be permitted to
continue in effect past the date of the Closing in accordance with their
respective present terms:
(1) Lease Agreement, made January 1, 1996, by and between
Menditch Investments Limited Partnership, as Landlord, and General
Heating Engineering Company, Inc., as Tenant, relating to Premises,
being two separate warehouse bays located at 8512 Bucyrus Court, Bay
#103 and Bay #109, #111, Manassas, Virginia.
(2) Lease Agreement, made January 1, 1996, by and between
Menditch Investments Limited Partnership, as Landlord, and General
Heating Engineering Company, Inc., as Tenant, relating to a warehouse
bay and office area located at 8514 Bucyrus Court, Manassas, Virginia.
(3) Lease Agreement, made January 1, 1996, by and between
Menditch Investments Limited Partnership, as Landlord, and General
Heating Engineering Company, Inc., as Tenant, relating to offices,
warehouse bays and loading docks located at 9010 Maier Rd. Units
101-111, Laurel, Maryland.
(4) Lease Agreement, made January 1, 1996, by and between
Menditch Investments Limited Partnership, as Landlord, and General
Heating Engineering Company, Inc., as Tenant, relating to offices,
warehouse bays and loading docks located at 9070 Euclid Ave. Units # 1
through # 8, Manassas, Virginia.
SCHEDULE 6.04
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS General Inc.,
General Heating Engineering Company, Inc.
and
the Stockholders named therein
A. Words and terms used in this Schedule which are defined in
the captioned Agreement to which this Schedule is attached as Schedule 6.04 are
used herein as defined therein.
B. The Company and the Company Subsidiaries may make the
following Restricted Payments prior to the Effective Time:
1. Prior to the Closing of the IPO, the Stockholders will cause the
Company to make a distribution of cash and other current assets (which
distribution of current assets may include the assignment of accounts receivable
and notes receivable) to the Stockholders, pro rata to their shareholdings in
the Company, such distribution to equal, in the aggregate, (i) 10,035,616 , plus
(i) any additional amounts that are recorded in the accumulated adjustments
account between January 1, 1996 and the date immediately preceding the IPO in
accordance with applicable federal income tax rules and regulations.
2 In connection with the distribution of the accumulated adjustments
account, the Company expects to incur indebtedness, possibly secured by certain
assets of the Company, to fund a portion of such distribution. This indebtedness
would remain an obligation of the Company following the Effective Time.
3. Prior to the closing of the IPO, the Company will distribute to its
Stockholders all life insurance policies owned by the Company which insure the
lives of the Stockholders of the Company (or in the alternate the cash surrender
value of said policies).
SCHEDULE 6.12
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS General Inc.,
General Heating Engineering Company, Inc.
and
the Stockholders named therein
A. Words and terms used in this Schedule which are defined in
the captioned Agreement to which this Schedule is attached as Schedule 6.12 are
used herein as defined therein.
B. The Company will make all arrangements and take all such
actions as are necessary and satisfactory to ARS to dispose, prior to the
Effective Time, of the following assets:
1. Prior to the Closing of the IPO, the Stockholders will
cause the Company to make a distribution of cash and other current
assets (which distribution of current assets may include the assignment
of accounts receivable and notes receivable) to the Stockholders, pro
rata to their shareholdings in the Company, such distribution to equal,
in the aggregate, (i) 10,035,616 , plus (i) any additional amounts that
are recorded in the accumulated adjustments account between January 1,
1996 and the date immediately preceding the IPO in accordance with
applicable federal income tax rules and regulations.
2 In connection with the distribution of the accumulated
adjustments account, the Company expects to incur indebtedness,
possibly secured by certain assets of the Company, to fund a portion of
such distribution. This indebtedness would remain an obligation of the
Company following the Effective Time.
3. Prior to the closing of the IPO, the Company will
distribute to its Stockholders all life insurance policies owned by the
Company which insure the lives of the Stockholders of the Company (or
in the alternate the cash surrender value of said policies).
SCHEDULE 8.05
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS General Inc.,
General Heating Engineering Company, Inc.
and
the Stockholders named therein
A. Words and terms used in this Schedule which are defined in
the captioned Agreement to which this Schedule is attached as Schedule 8.05 are
used herein as defined therein.
B. At or within 60 days following the Effective Time, ARS will
cause the following Stockholder Guaranties to be terminated:
None
EXHIBIT 2.9
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF JUNE 13, 1996
BY AND AMONG
AMERICAN RESIDENTIAL SERVICES, INC.,
ARS ACQUISITION INC.,
ENTERPRISES HOLDING COMPANY
AND
THE STOCKHOLDERS NAMED HEREIN
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS..............................................1
ARTICLE II THE MERGER AND RELATED MATTERS...........................6
Section 2.01. Certificate of Merger..................................6
Section 2.02. The Effective Time.....................................6
Section 2.03. Certain Effects of the Merger..........................6
Section 2.04. Effect of the Merger on Capital Stock and Warrants.....6
Section 2.05. Delivery, Exchange and Payment.........................7
Section 2.06. Fractional Shares......................................9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER.......9
Section 3.01. By each Stockholder....................................9
ARTICLE IV REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE STOCKHOLDERS.....................10
Section 4.01. By the Company and Each Stockholder...................10
ARTICLE V REPRESENTATIONS AND WARRANTIES OF ARS AND NEWCO.........11
Section 5.01. By ARS and Newco......................................11
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME...............11
Section 6.01. Of Each Party.........................................11
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION............................................11
Section 7.01. The Closing and Certain Conditions....................11
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME..................13
Section 8.01. Of Each Party Other Than the Company..................13
ARTICLE IX INDEMNIFICATION.........................................13
Section 9.01. Indemnification Rights and Obligations................13
ARTICLE X LIMITATIONS ON COMPETITION..............................13
Section 10.01. Prohibited Activities................................13
Section 10.02. Damages..............................................14
Section 10.03. Reasonable Restraint.................................14
Section 10.04. Severability; Reformation............................14
Section 10.05. Independent Covenant.................................14
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Section 10.06. Materiality..........................................15
ARTICLE XI GENERAL PROVISIONS......................................15
Section 11.01. Treatment of Confidential Information................15
Section 11.02. Restrictions on Transfer of ARS Common Stock.........15
Section 11.03. Brokers and Agents...................................16
Section 11.04. Assignment; No Third Party Beneficiaries.............16
Section 11.05. Entire Agreement; Amendment; Waivers.................17
Section 11.06. Counterparts.........................................17
Section 11.07. Expenses.............................................17
Section 11.08. Notices..............................................17
Section 11.09. Governing Law........................................18
Section 11.10. Exercise of Rights and Remedies......................18
Section 11.11. Time.................................................19
Section 11.12. Reformation and Severability.........................19
Section 11.13. Remedies Cumulative..................................19
Section 11.14. Respecting the IPO...................................19
ARTICLE XII TERMINATION.............................................20
Section 12.01. Termination of This Agreement........................20
Section 12.02. Liabilities in Event of Termination..................20
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement")
is made as of June 13, 1996, by and among American Residential Services, Inc., a
Delaware corporation ("ARS"), ARS Acquisition Inc., a Texas corporation and a
wholly owned subsidiary of ARS ("Newco"), Enterprises Holding Company, a Texas
corporation (the "Company"), and the persons listed on the signature pages
hereof under the caption "Stockholders" (collectively, the "Stockholders," and
each of those persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their
best long-term interests to effect a business combination pursuant to which:
(a) Newco will merge into the Company on the terms and subject
to the conditions set forth herein (that merger being the "Merger");
(b) ARS will acquire the stock of all or some of the entities
listed in the accompanying Addendum 1 (each an "Other Founding Company"
and, collectively with the Company, the "Founding Companies") pursuant
to agreements that are (i) similar to this Agreement and (ii) entered
into among those entities and their equity owners, ARS and subsidiaries
of ARS (collectively, the "Other Agreements"); and
(c) ARS shall effect a public offering of shares of its common
stock and issue and sell those shares.
The respective boards of directors of ARS, Newco and the
Company have approved and adopted this Agreement to effect a transaction subject
to Section 351 of the Code.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements, representations and undertakings contained herein, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. CERTAIN DEFINED TERMS. As used in this
Agreement, the following terms have the meanings assigned to them below in this
Section 1.01. Capitalized terms used in this Agreement and not defined below in
this Section 1.01 have the meanings assigned to them in the Preliminary
Statement or Article I of the Uniform Provisions (the text of which Article
hereby is incorporated herein by this reference), as the case may be.
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"ADCOT" means ADCOT, Inc., a Texas corporation.
"ADJUSTMENT DETERMINATION DATE" means the date that is 30 days
following delivery by ARS of the Post-closing Statement to the
Stockholders, unless the Closing Date Working Capital and the Positive
Working Capital Adjustment or the Negative Working Capital Adjustment,
as the case may be, are determined pursuant to Section 2.05 by Arthur
Andersen LLP, in which event the Adjustment Determination Date is the
date Arthur Andersen LLP delivers those determinations in writing to
ARS.
"AGREED RATE" means 8.0% per annum.
"AGREEMENT" means this Agreement, including the Disclosure
Statement relating to this Agreement and all attached Schedules,
Annexes and Exhibits, as each of the same may be amended, modified or
supplemented from time to time pursuant to the provisions hereof or
thereof.
"ARS" means American Residential Services, Inc., a Delaware
corporation.
"ARS ACQUISITION CANDIDATE" means any Entity engaged in any of
the businesses of providing repair, maintenance, replacement or
warranty and annual contract maintenance services for Plumbing,
heating/air conditioning and electrical systems to owners or occupants
of single-family homes, duplexes, condominiums and small commercial
facilities, designing and installing of any of those systems in new
construction, selling and servicing home appliances and other similar
residential and building services (i) which was called on by any of the
Company, ARS or the Subsidiaries of the Company or ARS in connection
with the possible acquisition by any of them of that Entity or (ii) of
which any of them has made an acquisition analysis.
"ARS ACQUISITION SHARES" has the meaning specified in Section
2.04.
"ARS COMMON STOCK" means the common stock, par value $.001 per
share, of ARS.
"CLOSING DATE BALANCE SHEET" of the Company means a Combined
Balance Sheet as at the IPO Closing Date which is prepared in
accordance with GAAP on a basis consistent with the basis on which the
Current Balance Sheet was prepared.
"CLOSING DATE WORKING CAPITAL" of the Company means the
Working Capital as determined from the Closing Date Balance Sheet,
provided, that if that determination is made pursuant to Section 2.05
by Arthur Andersen LLP, the amount equal to 50% of the fees and
expenses of Arthur Andersen LLP which are attributable to its audit of
the Closing Date Balance Sheet and its making of that determination
will be deemed a liability of the Company for the purpose of
determining the Closing Date Working Capital and resulting
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Positive Working Capital Adjustment or Negative Working Capital
Adjustment, as the case may be.
"CLOSING MEMORANDUM" means the form of closing memorandum to
be prepared by ARS for the Closing under this Agreement in which are
included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided
in Article VII.
"COMBINED BALANCE SHEET" means as at any date a balance sheet
as at that date of the Combined Companies which has been prepaid in
accordance with GAAP.
"COMBINED COMPANIES" means the Company, ADCOT and SEI.
"COMPANY" means Enterprises Holding Company, a Texas
corporation.
"COMPANY COMMON STOCK" means the common stock, par value $.01
per share, of the Company.
"COMPANY PREFERRED STOCK" means the Series A Preferred Stock,
par value $100 per share, of the Company and the Series B Preferred
Stock, par value $100 per share of the Company.
"COUNSEL FOR ARS AND NEWCO" means Baker & Botts, L.L.P.
"COUNSEL FOR THE COMPANY" means John D. Held, Esq., the
General Counsel of the Company, in his capacity as such.
"COUNSEL FOR THE STOCKHOLDERS" means, with respect to the
holders of Company Common Stock, John D. Held, Esq., the General
Counsel of the Company in his capacity as such, and, with respect to
the holder of Company Preferred Stock, Porter & Hedges, L.L.P.
"CURRENT BALANCE SHEET" means the unaudited Combined Balance
Sheet as at March 31, 1996 which has been delivered to ARS.
"CURRENT BALANCE SHEET DATE" means March 31, 1996.
"DISCLOSURE STATEMENT" means the written statement executed by
the Company and each of the Stockholders and delivered to ARS prior to
the execution and delivery of this Agreement by ARS and Newco in which
either (a) exceptions are taken to each of certain of the
representations and warranties made by the Company and the Stockholders
herein or (b) it is confirmed that no exception is taken to that
representation and warranty.
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"DISSENTING SHARES" has the meaning specified in Section 2.04.
"EHC WARRANT" means the Warrant dated as of March 19, 1996
executed by the Company and granting to NationsBank of Texas, N.A. the
right to purchase shares of Company Common Stock.
"EQUUS" means Equus II Incorporated, a Delaware corporation
and one of the Stockholders.
"EQUUS PLEDGE" means the pledge agreement between Equus and
NationsBank of Texas, N.A., pursuant to which (a) Equus has pledged
shares of Company Preferred Stock to NationsBank of Texas, N.A. and (b)
after the Effective Time, Equus will pledge shares of ARS Common Stock
to NationsBank of Texas, N.A., in each case to secure a bank loan.
"EQUUS REGISTRATION RIGHTS AGREEMENT" means the Stock
Registration Agreement dated as of March 6, 1996 between ARS and Equus.
"INITIAL ADCOT FINANCIAL STATEMENTS" means: (a) the audited
balance sheets of ADCOT as at December 31, 1994 and 1995 and the
related audited statements of operations, cash flows and shareholders'
deficit for each of ADCOT's fiscal years in the two-year period ended
December 31, 1995, together with the related audit report of Arthur
Andersen LLP, and (b) the unaudited balance sheet of ADCOT as at March
31, 1996, the related unaudited statements of operations and cash flows
for the three months ended March 31, 1995 and 1996 and the related
unaudited statement of shareholders' deficit at March 31, 1996.
"INITIAL FINANCIAL STATEMENTS" means the Initial ADCOT
Financial Statements, the Initial SEI Financial Statements and the
Current Balance Sheet.
"INITIAL SEI FINANCIAL STATEMENTS" means: (a) the audited
consolidated balance sheets of SEI as at December 31, 1994 and 1995 and
the related audited consolidated statements of operations, cash flows
and shareholders' equity for each of SEI's three fiscal years in the
three-year period ended December 31, 1995, together with the related
audit report of Arthur Andersen LLP, and (b) the unaudited consolidated
balance sheet of SEI as at March 31, 1996, the related unaudited
consolidated statements of operations and cash flows for the three
months ended March 31, 1995 and 1996 and the related unaudited
statement of shareholders' equity at March 31, 1996.
"INTERIM DATE BALANCE SHEET" means the Combined Balance Sheet
as at the end of the Company's fiscal quarter next preceding the date
of the Closing which is included in the Financial Statements.
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"INTERIM DATE WORKING CAPITAL" means the Working Capital as
determined from the Interim Date Balance Sheet by ARS on a basis
consistent with the determination of the Working Capital from the
Current Balance Sheet.
"INTERIM NEGATIVE WORKING CAPITAL ADJUSTMENT" means the
amount, if any, by which the Interim Date Working Capital is more
negative than ($16,443,000).
"INTERIM POSITIVE WORKING CAPITAL ADJUSTMENT" means the
amount, if any, by which the Interim Date Working Capital is greater
(or less negative) than ($16,443,000).
"MERGER CONSIDERATION" has the meaning specified in Section
2.04.
"NEGATIVE WORKING CAPITAL ADJUSTMENT" means the amount, if
any, by which the Closing Date Working Capital is more negative than
($16,443,000).
"NEWCO" means ARS Acquisition Inc., a Texas corporation.
"POSITIVE WORKING CAPITAL ADJUSTMENT" means (a) the amount, if
any, by which the Closing Date Working Capital is greater (or less
negative) than ($16,443,000).
"POST-CLOSING STATEMENT" has the meaning specified in Section
2.05.
"PRO RATA SHARE" means for each Stockholder the percentage set
forth in Schedule 2.04 under the column heading "Pro Rata Share of ARS
Acquisition Shares."
"REPLACEMENT WARRANT" has the meaning specified in Section
2.04(b).
"RESPONSIBLE OFFICER" means C. Clifford Wright, Jr.
"SEI" means Services Enterprises, Inc., a Texas corporation.
"STOCKHOLDER AGREEMENT" means the Stockholders Agreement
entered into as of June 13, 1996 among ARS, the Stockholders and other
Persons parties thereto.
"SURVIVING CORPORATION" means the Company, the Person to be
designated in the Certificate of Merger as the surviving corporation of
the Merger.
"TBCA" means the Texas Business Corporation Act.
"TERRITORY" has the meaning specified in Section 10.01.
"THRESHOLD AMOUNT" means 2% of the Transaction Value.
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"TRANSACTION VALUE" means (a) at any time prior to the
Adjustment Determination Date, $5,676,000, and (b) on and after the
Adjustment Determination Date, $5,676,000 plus the Positive Working
Capital Adjustment, if any, or minus the Negative Working Capital
Adjustment, if any.
"TRANSFER TAXES" has the meaning specified in Section 11.07.
"UNIFORM PROVISIONS" means the Uniform Provisions of ARS for
the Acquisition of Founding Companies attached hereto as Annex 1.
"WORKING CAPITAL" of the Company means, as at any date and as
determined by reference to a Combined Balance Sheet at that date which
is prepared in accordance with GAAP, the amount by which (a) the sum,
without duplication of amounts, of all amounts that are included and
classified as current assets on that balance sheet exceeds, or is
exceeded by, (b) the sum, without duplication of amounts, of all
amounts that are included and classified as liabilities or as
mandatorily redeemable Capital Stock on that balance sheet; if at any
time those current assets are exceeded by those liabilities, Working
Capital will be expressed as a negative amount.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. CERTIFICATE OF MERGER. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the date of the Closing to the
Secretary of State of the State of Texas.
Section 2.02. THE EFFECTIVE TIME. The effective time of the
Merger (the "Effective Time") will be the time on the IPO Closing Date which the
Articles of Merger specify or, if the Articles of Merger do not specify another
time, 8:00 a.m., eastern daylight standard time, on the IPO Closing Date.
Section 2.03. CERTAIN EFFECTS OF THE MERGER. At and as of the
Effective Time, (a) Newco will be merged with and into the Company in accordance
with the provisions of the TBCA, (b) Newco will cease to exist as a separate
legal entity, (c) the articles of incorporation of the Company will be amended
to change (i) its name to "ARS Services Inc." and (ii) its authorized capital
stock to 1,000 shares, par value $1.00 per share, of Common Stock, (d) the
Company will be the Surviving Corporation and, as such, will, all with the
effect provided by the TBCA, (i) possess all the properties and rights, and be
subject to all the restrictions and duties, of the Company and Newco and (ii) be
governed by the laws of the State of Texas, (e) the Charter Documents of the
Company then in effect (after giving effect to the amendment of the Company's
articles of incorporation specified in clause (c) of this sentence) will become
and thereafter remain (until changed in accordance with (i) applicable law (in
the case of the articles of incorporation) or (ii)
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their terms (in the case of the bylaws)) the Charter Documents of the Surviving
Corporation, (f) the initial board of directors of the Surviving Corporation
will be the persons named in Schedule 2.03, and those persons will hold the
office of director of the Surviving Corporation subject to the provisions of the
applicable laws of the State of Texas and the Charter Documents of the Surviving
Corporation, and (g) the initial officers of the Surviving Corporation will be
as set forth in Schedule 2.03, and each of those persons will serve in each
office specified for that person in Schedule 2.03, subject to the provisions of
the Charter Documents of the Surviving Corporation, until that person's
successor is duly elected to, and, if necessary, qualified for, that office.
Section 2.04. EFFECT OF THE MERGER ON CAPITAL STOCK AND
WARRANTS. As of the Effective Time, as a result of the Merger and without any
action on the part of any holder thereof:
(a) the shares of Company Preferred Stock and Company Common
Stock issued and outstanding immediately prior to the Effective Time
will (i) be converted into the right to receive, subject to the
provisions of Section 2.05, without interest, on surrender of the
certificates evidencing those shares, (A) the amount of cash and number
of whole and fractional shares of ARS Common Stock (sometimes
collectively referred to as the "ARS Acquisition Shares") set forth or
determined as provided in Schedule 2.04 (the "Merger Consideration")
(ii) cease to be outstanding and to exist and (iii) be canceled and
retired;
(b) the EHC Warrant will (i) be converted into the right to
receive, subject to the provisions of Section 2.05(g), without
interest, on surrender of the EHC Warrant, a warrant executed by ARS in
substantially the form of Exhibit 2.04(b) (the "Replacement Warrant"),
(ii) cease to be outstanding and to exist and (iii) be canceled and
retired;
(c) the outstanding Warrant dated as of March 6, 1996
previously issued by ARS to Equus will continue to remain outstanding
and will be unaffected by the Merger, except that such warrant shall
continue to be exercisable for 100,000 shares of ARS Common Stock,
notwithstanding any stock dividend, stock split, reverse stock split or
other subdivision or reclassification of ARS Common Stock prior to the
Effective Time;
(d) each share of Newco Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into one
share of Common Stock, par value $1.00 per share, of the Surviving
Corporation, and the shares of Common Stock of the Surviving
Corporation issued on that conversion will constitute all the issued
and outstanding shares of Capital Stock of the Surviving Corporation.
Each holder of a certificate representing shares of Company Common Stock or
Company Preferred Stock immediately prior to the Effective Time will, as of the
Effective Time and thereafter, cease to have any rights respecting those shares
other than the right to receive, subject to the provisions of Section 2.05,
without interest, the consideration described in this Section 2.04 and the
additional cash, if any, owing with respect to those shares as provided in
Section 2.06. Notwithstanding the foregoing, the right to receive any Merger
Consideration will not apply to any shares of Company
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Common Stock or Company Preferred Stock which shall have statutory appraisal
rights perfected with respect thereto ("Dissenting Shares"), if those rights are
available, pursuant to the provisions of Articles 5.11, 5.12 and 5.13 of the
TBCA, it being intended and agreed that any holder of those shares shall have in
consideration for the cancellation thereof only the rights, if any, afforded to
that holder under Articles 5.11, 5.12 and 5.13 of the TBCA.
Section 2.05. DELIVERY, EXCHANGE AND PAYMENT. (a) At or after
the Effective Time: (i) each Stockholder, as the holder of certificates
representing shares of Company Common Stock or Company Preferred Stock, will, on
surrender of those certificates to ARS (or any agent that may be appointed by
ARS for purposes of this Section 2.05), receive, subject to the provisions of
this Section 2.05 and Section 2.06, the consideration provided for in Section
2.04; and (ii) until any certificate representing Company Common Stock or
Company Preferred Stock has been surrendered and replaced pursuant to this
Section 2.05, that certificate will, for all purposes, be deemed to evidence
ownership of the number of whole shares of ARS Common Stock issuable in respect
of that certificate pursuant to Section 2.04. All shares of ARS Common Stock
issuable in the Merger will be deemed for all purposes to have been issued by
ARS at the Effective Time.
(b) Each Stockholder will deliver to ARS (or any agent that
may be appointed by ARS for purposes of this Section 2.05) on or before the IPO
Closing Date the certificates representing Company Common Stock or Company
Preferred Stock owned by the Stockholder, duly endorsed in blank by that Person,
or accompanied by duly executed stock powers in blank, and with all necessary
transfer tax and other revenue stamps, acquired at that Person's expense,
affixed and canceled. Each Stockholder shall cure any deficiencies in the
endorsement of the certificates or other documents of conveyance respecting, or
in the stock powers accompanying, the certificates representing Company Common
Stock or Company Preferred Stock delivered by that Person.
(c) No dividends (or interest) or other distributions declared
or earned after the Effective Time with respect to ARS Common Stock and payable
to the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock or Company Preferred Stock for which shares of ARS Common Stock have been
issued in the Merger until those certificates are surrendered as provided
herein, but (i) on that surrender ARS will cause to be paid, to the Person in
whose name the certificates representing such shares of ARS Common Stock shall
then be issued, the amount of dividends or other distributions previously paid
with respect to such whole shares of ARS Common Stock with a record date, or
which have accrued, subsequent to the Effective Time, but prior to surrender,
and the amount of any cash payable to such Person for and in lieu of fractional
shares pursuant to Section 2.06 and (ii) at the appropriate payment date or as
soon as practicable thereafter, ARS will cause to be paid to that Person the
amount of dividends or other distributions with a record date, or which have
been accrued, subsequent to the Effective Time, but which are not payable until
a date subsequent to surrender, which are payable with respect to such whole
shares of ARS Common Stock, subject in all cases to any applicable escheat laws.
No interest will be payable with respect to the payment of such dividends or
other distributions or cash for and in lieu of fractional shares on surrender of
outstanding certificates.
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(d) Prior to the date of the Closing, ARS will cause to be
prepared and delivered to the Stockholders a statement setting forth the Interim
Positive Working Capital Adjustment, if any, or the Interim Negative Working
Capital Adjustment, if any. If an Interim Positive Working Capital Adjustment
has been determined, ARS will, promptly after the Effective Time, but subject to
the certificate surrender requirements of Section 2.05(a), pay to the
Stockholders, without interest, their respective Pro Rata Shares of the amount
of the Interim Positive Working Capital Adjustment.
(e) As soon as practicable, and in any event within 60 days,
following the Effective Time, ARS will cause to be prepared and delivered to the
Stockholders (i) the Closing Date Balance Sheet and (ii) a statement (the
"Post-closing Statement") of the Closing Date Working Capital and the Positive
Working Capital Adjustment, if any, or the Negative Working Capital Adjustment,
if any. The Post-closing Statement will be final and binding on ARS and the
Stockholders unless, within 30 days following the delivery of the Post-closing
Statement, a Stockholder notifies ARS in writing that the Stockholder does not
accept as correct the amount of the Closing Date Working Capital or the amount
of the Positive Working Capital Adjustment or the Negative Working Capital
Adjustment, as the case may be, as set forth in the Post-closing Statement. If
any Stockholder timely delivers to ARS that notice respecting the Post-closing
Statement, the Closing Date Balance Sheet will be audited, and the Closing Date
Working Capital and the Positive Working Capital Adjustment or the Negative
Working Capital Adjustment, as the case may be, will be determined within 30
days after the delivery to ARS of that notice, by Arthur Andersen LLP, and these
determinations will be final and binding on ARS and all the Stockholders.
(f) If a Positive Working Capital Adjustment is determined
with finality pursuant to Section 2.05(e), ARS will, promptly after the
Adjustment Determination Date, but subject to the certificate surrender
requirements of Section 2.05(a), pay in cash to the Stockholders on a pro rata
basis (based on their respective Pro Rata Shares of ARS Acquisition Shares) the
amount, together with interest thereon from (and including) the IPO Closing Date
to (but excluding) the Adjustment Determination Date at the Agreed Rate, by
which (i) the amount of the Positive Working Capital Adjustment exceeds (ii) the
amount of the Interim Positive Working Capital Adjustment, if any. If a Negative
Working Capital Adjustment is determined with finality pursuant to Section
2.05(e), the Stockholders will, no later than 10 Houston, Texas business days
after ARS makes a written request therefor, pay in cash their respective Pro
Rata Shares of the sum of (i) the amount of or the Negative Working Capital
Adjustment and (ii) the Interim Positive Working Capital Adjustment, if any,
together with interest on that sum at the Agreed Rate from (and including) the
IPO Closing Date to (but excluding) the Adjustment Determination Date.
(g) NationsBank of Texas, N.A. will deliver to ARS (or any
agent as may be appointed by ARS for purposes of this Section 2.05) the EHC
Warrant, duly marked canceled, against receipt of the Replacement Warrant.
Section 2.06. FRACTIONAL SHARES. Notwithstanding any other
provision herein, no fractional shares of ARS Common Stock will be issued, and
any Stockholder entitled hereunder to
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receive a fractional share of ARS Common Stock but for this Section 2.06 will be
entitled hereunder to receive a cash payment for and in lieu thereof in the
amount (rounded to the nearest whole cent) equal to that Person's fractional
interest in a share of ARS Common Stock multiplied by the IPO Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01. BY EACH STOCKHOLDER. Each Stockholder represents
and warrants to ARS that all the following representations and warranties in
this Article III are as of the date of this Agreement, and will be, as amended
or supplemented pursuant to Section 6.08, on the date of the Closing and the IPO
Closing Date, true and correct:
(a) (i) the Stockholder will be acquiring the shares of ARS
Common Stock to be issued pursuant to Section 2.04 to the Stockholder
solely for the Stockholder's account, for investment purposes only and
with no current intention or plan to distribute, sell or otherwise
dispose of any of those shares in connection with any distribution;
(ii) the Stockholder is not a party to any agreement or other
arrangement for the disposition of any shares of ARS Common Stock other
than this Agreement, the Registration Rights Agreement, the Equus
Registration Rights Agreement and the Equus Pledge; (iii) the
Stockholder is an "accredited investor" as defined in Securities Act
Rule 501(a); (iv) the Stockholder (A) is able to bear the economic risk
of an investment in the ARS Common Stock acquired pursuant to this
Agreement, (B) can afford to sustain a total loss of that investment,
(C) has such knowledge and experience in financial and business matters
that he is capable of evaluating the merits and risks of the proposed
investment in the ARS Common Stock, (D) has had an adequate opportunity
to ask questions and receive answers from the officers of ARS
concerning any and all matters relating to the transactions
contemplated hereby, including the background and experience of the
current and proposed officers and directors of ARS, the plans for the
operations of the business of ARS, the business, operations and
financial condition of the Other Founding Companies and any plans of
ARS for additional acquisitions, and (E) has asked all questions of the
nature described in preceding clause (D), and all those questions have
been answered to his satisfaction; and
(b) the representations and warranties contained in Article
III of the Uniform Provisions (the text of which Article hereby is
incorporated herein by this reference) are true and correct, and the
agreements set forth in that Article hereby are agreed to.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF
THE COMPANY AND THE STOCKHOLDERS
Section 4.01. BY THE COMPANY AND EACH STOCKHOLDER. The Company
and each Stockholder other than Equus jointly and severally represent and
warrant to, and agree with, ARS that all the following representations and
warranties in this Article IV are as of the date of this Agreement, and will be,
as amended or supplemented pursuant to Section 6.08, on the date of the Closing
and the IPO Closing Date, true and correct:
(a) the Organization State of the Company is the State of
Texas, and the Company (i) is a corporation duly organized, validly
existing and in good standing under the laws of that State, (ii) has
all requisite corporate power and authority under those laws and its
Charter Documents to own or lease and to operate its properties and to
carry on its business as now conducted and (iii) is duly qualified and
in good standing as a foreign corporation in all jurisdictions (other
than the State of Texas) in which it owns or leases property or in
which the carrying on of its business as now conducted so requires;
(b) (i) the authorized Capital Stock of the Company is
comprised of 1,000,000 shares of Company Common Stock, 49,810 shares of
Series A Preferred Stock and 190 shares of Series B Preferred Stock of
which 1,000 shares, 24,810 shares (plus the additional shares of Series
A preferred Stock issued or issuable pursuant to the dividend
provisions with respect thereto set forth in the Company's Charter
Documents) and 190 shares, respectively, have been issued and are now
outstanding and no shares of any class are held by the Company as
treasury shares, and (ii) except for the EHC Warrant, no outstanding
Derivative Securities of the Company exist; and
(c) the representations and warranties contained in Article IV
of the Uniform Provisions (the text of which Article hereby is
incorporated herein by this reference) are true and correct, and the
agreements set forth in that Article hereby are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ARS AND NEWCO
Section 5.01. BY ARS AND NEWCO. ARS and Newco jointly and
severally represent and warrant to the Company and each Stockholder that all the
following representations and warranties in this Article V are as of the date of
this Agreement, and will be on the date of the Closing and the IPO Closing Date,
true and correct: (a) Newco is a corporation duly organized, validly existing
and in good standing under the laws of the State of Texas, (b) no Derivative
Securities of Newco are outstanding, (c) Newco has been organized for the sole
purpose of
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participating in the Merger and has not, and will not, engage in any activities
other than those necessary to effectuate the Merger and (d) the representations
and warranties contained in Article V of the Uniform Provisions (the text of
which Article hereby is incorporated herein by this reference) are true and
correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01. OF EACH PARTY. Until the Effective Time, subject
to the provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party. For purposes of Section 6.10, the
financial statements required to be delivered by the Company are (a) the
separate financial statements of ADCOT and SEI that would be required if each
were named therein as the "Company" and (b) Combined Balance Sheets.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01. THE CLOSING AND CERTAIN CONDITIONS. (a) THE
CLOSING. On or before the IPO Pricing Date, the parties hereto will take all
actions necessary to (i) effect the Merger (including, as permitted by the TBCA,
(A) the execution of a Certificate of Merger (1) meeting the requirements of the
TBCA and (2) providing that the Merger will become effective on the IPO Closing
Date and (B) the filing of that Certificate with the Secretary of State of the
State of Texas), (ii) verify the existence and ownership of the certificates
evidencing the Company Common Stock and Company Preferred Stock to be exchanged
for the Merger Consideration provided for herein pursuant to Section 2.05 and
(iii) satisfy the document delivery requirements to which the obligations of the
parties to effect the Merger and the other transactions contemplated hereby are
conditioned by the provisions of this Article VII (all those actions
collectively being the "Closing"). The Closing will take place at the offices of
Baker & Botts, L.L.P., 38th Floor, 910 Louisiana, Houston, Texas at 10:00 a.m.,
Houston time, or at such later time on the IPO Pricing Date as ARS shall specify
by written notice to C. Clifford Wright, Jr. and Nolan Lehmann. The actions
taken at the Closing will not include the completion of either the Merger or the
delivery of the Company Common Stock, the Company Preferred Stock or the Merger
Consideration pursuant to Section 2.05. Instead, on the IPO Closing Date, the
Certificate of Merger will become effective pursuant to Section 2.02, and all
transactions contemplated by this Agreement to be closed or completed on or
before the IPO Closing Date, including the surrender of the Company Common Stock
and Company Preferred Stock in exchange for the Merger Consideration provided
for herein (including a certified check or checks in an amount equal to the cash
portion of the Merger Consideration) will be closed or completed, as the case
may be. During the period from the Closing to the IPO Closing Date, this
Agreement may be terminated by the parties only pursuant to Section 12.01(b)(i).
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(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND
THE STOCKHOLDERS. The obligations of the Company and the Stockholders with
respect to the actions to be taken by them at or before the Closing are subject
to the satisfaction on or before the date of the Closing, or waiver by them
pursuant to Section 11.05, of all the conditions set forth in Sections 7.02(a)
and 7.03. The obligations of the Stockholders with respect to the actions to be
taken on the IPO Closing Date are subject to the satisfaction on that date to
all of the following conditions: (i) each of the Stockholders' Agreement then
shall be in full force and effect; and (ii) the conditions set forth in Sections
7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF ARS AND NEWCO.
The obligations of ARS and Newco with respect to actions to be taken by them at
or before the Closing are subject to the satisfaction on or before the date of
the Closing, or waiver by them pursuant to Section 11.05, of the following
conditions: (i) the Company shall have delivered to ARS a copy of the articles
of incorporation, each as amended to the date of the Closing and certified by
the Secretary of State of the State of Texas as of a Current Date, of the
Company and the Company Subsidiaries; and (ii) all the conditions set forth in
Sections 7.02(a) and 7.04(a).
(d) The obligations of ARS and Newco with respect to the
actions to be taken on the IPO Closing Date are subject to the satisfaction on
that date of all the conditions set forth in Sections 7.02(b) and 7.04(b).
(e) The text of Article VII of the Uniform Provisions hereby
is incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01. OF EACH PARTY OTHER THAN THE COMPANY. From and
after the Effective Time, subject to the waiver provisions of Section 11.05,
each party hereto (other than the Company) will comply with each covenant for
which provision is made in Article VIII of the Uniform Provisions (the text of
which Article hereby is incorporated herein by this reference) to be performed
or observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01. INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text
of Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. This Article IX shall not apply to Equus.
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ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.01. PROHIBITED ACTIVITIES. Each Stockholder other
than Equus agrees, severally and not jointly with any other Person, that he will
not, during the period beginning on the date hereof and ending on the third
anniversary of the date hereof, directly or indirectly, for any reason, for his
own account or on behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether
as an employee, independent contractor, consultant or advisor, or as a
sales representative or distributor of any kind, in any business
selling any products or providing any services in competition with the
Company, any Company Subsidiary or ARS or any Subsidiary of ARS (ARS
and its Subsidiaries collectively being "ARS" for purposes of this
Article X) within a radius of 100 miles of each location in which any
of the Company or the Company Subsidiaries was engaged in business on
the date hereof or immediately prior to the Effective Time (those
locations collectively being the "Territory");
(b) call on any natural person who is at that time employed by
the Company, any Company Subsidiary or ARS in any managerial capacity
with the purpose or intent of attracting that person from the employ of
the Company, any Company Subsidiary or ARS, provided that the
Stockholder may call on and hire any of his Immediate Family Members;
(c) call on any Person that at that time is, or at any time
within one year prior to that time was, a customer of the Company, any
Company Subsidiary or ARS within the Territory, (i) for the purpose of
soliciting or selling any product or service in competition with the
Company, any Company Subsidiary or ARS within the Territory and (ii)
with the knowledge of that customer relationship; or
(d) call on any ARS Acquisition Candidate, with the knowledge
of that Person's status as an ARS Acquisition Candidate, for the
purpose of acquiring that Person or arranging the acquisition of that
Person by any Person other than ARS.
Notwithstanding the foregoing, any Stockholder may own and hold as a passive
investment up to 1% of the outstanding Capital Stock of a competing Entity if
that class of Capital Stock is listed on the New York Stock Exchange or included
in the Nasdaq National Market. For purposes hereof and the respective tax
reporting positions of the parties hereto, each party hereto agrees that the
percentage of the ARS Acquisition Shares to be received by each Stockholder
pursuant to Section 2.04 which equals 1% of that Stockholder's Pro Rata Share of
the Transaction Value will represent, and be received as, consideration for that
Stockholder's agreement, if applicable, to observe the covenants in this Section
10.01.
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Section 10.02. DAMAGES. Because of the difficulty of measuring
economic losses to ARS as a result of any breach by a Stockholder of his
covenants in Section 10.01, and because of the immediate and irreparable damage
that could be caused to ARS for which it would have no other adequate remedy,
each Stockholder agrees that ARS may enforce the provisions of Section 10.01 by
injunctions and restraining orders against that Stockholder if he breaches any
of those provisions.
Section 10.03. REASONABLE RESTRAINT. The parties hereto each
agree that Sections 10.01 and 10.02 impose a reasonable restraint on the
Stockholders in light of the activities and business of ARS on the date hereof,
the current business plans of ARS and the investment by each Stockholder in ARS
as a result of the Merger.
Section 10.04. SEVERABILITY; REFORMATION. The covenants in
this Article X are severable and separate, and the unenforceability of any
specific covenant in this Article X is not intended by any party hereto to, and
shall not, affect the provisions of any other covenant in this Article X. If any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth in Section 10.01 are unreasonable as applied
to any Stockholder, the parties hereto, including that Stockholder, acknowledge
their mutual intention and agreement that those restrictions be enforced to the
fullest extent the court deems reasonable, and thereby shall be reformed to that
extent as applied to that Stockholder and any other Stockholder similarly
situated.
Section 10.05. INDEPENDENT COVENANT. All the covenants in this
Article X are intended by each party hereto to, and shall, be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of any Stockholder against ARS,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by ARS of any covenant in this Article X. It is
specifically agreed that the period specified in Section 10.01 shall be computed
in the case of each Stockholder by excluding from that computation any time
during which that Stockholder is in violation of any provision of Section 10.01.
The covenants contained in this Article X shall not be affected by any breach of
any other provision hereof by any party hereto.
Section 10.06. MATERIALITY. The Company and each Stockholder,
severally and not jointly with any other Person, hereby agree that this Article
X is a material and substantial part of the transactions contemplated hereby.
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. TREATMENT OF CONFIDENTIAL INFORMATION. Each
party hereto will comply with each covenant for which provision is made in
Section 11.01 of the Uniform Provisions (the text of which Section hereby is
incorporated herein by this reference).
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Section 11.02. RESTRICTIONS ON TRANSFER OF ARS COMMON STOCK.
(a) During the two-year period ending on the second anniversary of the IPO
Closing Date (the "Restricted Period") (or if the two-year "holding" period for
restricted securities under Rule 144 under the Securities Act is reduced by the
SEC, the Restricted Period will be correspondingly reduced), no Stockholder
voluntarily will, except pursuant to and in accordance with the applicable
provisions of the Registration Rights Agreement: (i) sell, assign, exchange,
transfer, encumber, pledge (except for a pledge of ARS Common Stock to
NationsBank of Texas, N.A. pursuant to the Equus Pledge), distribute, appoint or
otherwise dispose of (A) any shares of ARS Common Stock received by any
Stockholder in the Merger or (B) any interest in (including any option to buy or
sell) any of those shares of ARS Common Stock, in whole or in part, and ARS will
have no obligation to, and shall not, treat any such attempted transfer as
effective for any purpose; or (ii) engage in any transaction, whether or not
with respect to any shares of ARS Common Stock or any interest therein, the
intent or effect of which is to reduce the risk of owning the shares of ARS
Common Stock acquired pursuant to Section 2.04 hereof (including, for example
engaging in put, call, short-sale, straddle or similar market transactions);
provided, however, that this Section 11.02 shall not restrict any transfer of
ARS Common Stock acquired by a Stockholder pursuant to Section 2.04 to any of
that Stockholder's Related Persons who agree in writing to be bound by the
provisions of Section 11.01 and this Section 11.02. The certificates evidencing
the ARS Common Stock delivered to each Stockholder pursuant to Section 2.05 will
bear a legend substantially in the form set forth below and containing such
other information as ARS may deem necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE
OTHER PARTIES THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY
NOT BE VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED,
PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE
ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY
SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF ANY OF THOSE SHARES,
DURING THE TWO-YEAR PERIOD ENDING ON __________ [DATE THAT IS THE
SECOND ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED PERIOD")
(OR IF THE TWO-YEAR "HOLDING" PERIOD FOR RESTRICTED SECURITIES UNDER
RULE 144 UNDER THE SECURITIES ACT OF 1933 IS REDUCED BY THE SECURITIES
AND EXCHANGE COMMISSION, THE RESTRICTED PERIOD WILL BE CORRESPONDINGLY
REDUCED). ON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE
ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER
PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of ARS Common Stock to be delivered to
that Stockholder pursuant to Section 2.04 have not been and, except pursuant to
the Registration Rights Agreement, if applicable, will not be registered under
the Securities Act and therefore may not be resold by that Stockholder without
compliance with the Securities Act and (ii) covenants that none of the shares of
ARS Common Stock issued to that Stockholder pursuant to Section 2.04 will be
offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance
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with all the applicable provisions of the Securities Act and the rules and
regulations of the SEC and applicable state securities laws and regulations. All
certificates evidencing shares of ARS Common Stock issued pursuant to Section
2.04 will bear the following legend in addition to the legend prescribed by
Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF
THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE
SECURITIES LAWS.
In addition, certificates evidencing shares of ARS Common Stock issued pursuant
to Section 2.04 to each Stockholder will bear any legend required by the
securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03. BROKERS AND AGENTS. The Stockholders jointly
and severally each represent and warrant to ARS that the Company has not
directly or indirectly employed or become obligated to pay any broker or similar
agent in connection with the transactions contemplated hereby and agree, without
regard to the Threshold Amount limitations set forth in Article IX, to indemnify
ARS against all Damage Claims arising out of claims for any and all fees and
commissions of brokers or similar agents employed or promised payment by the
Company.
Section 11.04. ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of ARS, and the heirs and legal representatives
of the Stockholders (and, in the case of any trust, the successor trustees of
that trust). Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies hereunder or thereunder,
except as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise
provided expressly herein or therein.
Section 11.05. ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This
Agreement and the documents delivered pursuant hereto constitute the entire
agreement and understanding among the Stockholders, the Company, Newco and ARS
and supersede all prior agreements and understandings, both written and oral,
relating to the subject matter of this Agreement. This Agreement may be amended,
modified or supplemented, and any right hereunder may be waived, if, but only
if, that amendment, modification, supplement or waiver is in writing and signed
by each of the Stockholders, the Company and ARS. The waiver of any of the terms
and conditions hereof shall not be construed or interpreted as, or deemed to be,
a waiver of any other term or condition hereof.
Section 11.06. COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
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Section 11.07. EXPENSES. Whether or not the transactions
contemplated hereby are consummated, (a) ARS will pay the fees, expenses and
disbursements of ARS and Newco and their Representatives which are incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance of and compliance
with all conditions to be performed by ARS and Newco under this Agreement,
including the costs of preparing the Registration Statement, (b) the
Stockholders will pay from personal funds, and not from funds of the Company or
any Company Subsidiary, all sales, use, transfer and other similar taxes and
fees (collectively, "Transfer Taxes") incurred in connection with the
transactions contemplated hereby and (c) the Company will pay the fees, expenses
and disbursements of Counsel for the Stockholders (but not the Counsel for the
Company) incurred in connection with the subject matter of this Agreement and
the Registration Statement on or before the IPO Closing Date (which fees,
expenses and disbursements will, to the extent accrued through the IPO Closing
Date but then unpaid, be recorded as a liability of the Company for the purpose
of determining its Closing Date Working Capital and resulting Positive Working
Capital Adjustment or Negative Working Capital Adjustment, as the case may be);
provided, however, if the Company or the Stockholders terminate this Agreement
otherwise than as permitted by Article XII, the Company will, no later than 10
Houston, Texas business days after ARS makes a written request therefor,
reimburse ARS in the amount equal to the aggregate fees, costs and other
expenses invoiced to ARS by Arthur Andersen LLP in connection with its audit of
the Company's financial statements at December 31, 1995 and for the year then
ended. The Stockholders will file all necessary documentation and Returns with
respect to all Transfer Taxes. In addition, each Stockholder acknowledges that
he, and not the Company or ARS or the Surviving Corporation, will pay all Taxes
due upon receipt of the consideration payable to that Stockholder pursuant to
Article II.
Section 11.08. NOTICES. All notices required or permitted
hereunder shall be in writing, and shall be deemed to be delivered and received
(a) if personally delivered or if delivered by telex, telegram, facsimile or
courier service, when actually received by the party to whom notice is sent or
(b) if delivered by mail (whether actually received or not), at the close of
business on the third Houston, Texas business day next following the day when
placed in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
(i) if to ARS or Newco, addressed to it at:
American Residential Services, Inc.
5850 San Felipe
Suite 500
Houston, Texas 77057
Attn.: C. Clifford Wright, Jr.
Chief Executive Officer
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with copies (which shall not constitute notice for purposes of this
Agreement) to:
Baker & Botts, L.L.P.
One Shell Plaza
Houston, Texas 77002-4995
Attn: James L. Leader, Esq.;
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
Enterprises Holding Company
5850 San Felipe, Suite 500
Houston, Texas 77057
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Enterprises Holding Company
5850 San Felipe, Suite 500
Houston, Texas 77057
Attn: John D. Held, Esq.
Section 11.09. GOVERNING LAW. This Agreement and the rights
and obligations of the parties hereto shall be governed by and construed and
enforced in accordance with the substantive laws of the State of New York
without regard to the conflicts of law provisions thereof; provided, however,
that Article X and the rights and obligations thereunder of the parties thereto
will be governed by and construed in accordance with the substantive laws of the
State of Texas without regard to the conflicts of law provisions thereof.
Section 11.10. EXERCISE OF RIGHTS AND REMEDIES. Except as
otherwise provided herein, no delay or omission in the exercise of any right,
power or remedy accruing to any party hereto as a result of any breach or
default hereunder by any other party hereto shall impair any such right, power
or remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11. TIME. Time is of the essence in the performance
of this Agreement in all respects.
Section 11.12. REFORMATION AND SEVERABILITY. If any provision
of this Agreement is invalid, illegal or unenforceable, that provision shall, to
the extent possible, be modified in such
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manner as to be valid, legal and enforceable but so as to most nearly retain the
intent of the parties hereto as expressed herein, and if such a modification is
not possible, that provision shall be severed from this Agreement, and in either
case the validity, legality and enforceability of the remaining provisions of
this Agreement shall not in any way be affected or impaired thereby.
Section 11.13. REMEDIES CUMULATIVE. No right, remedy or
election given by any term of this Agreement shall be deemed exclusive, but each
shall be cumulative with all other rights, remedies and elections available at
law or in equity.
Section 11.14. RESPECTING THE IPO. (a) Each of the Company and
the Stockholders acknowledges and agrees that: (i) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (ii) neither ARS or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (A) the Registration Statement to become
effective (provided, however, that ARS will use its reasonable best efforts to
cause the Registration Statement to become effective prior to December 31, 1996)
or (B) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (iii) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to ARS or the
IPO. The Underwriter shall have no obligation to any of the Company and the
Stockholders with respect to any disclosure contained in the Registration
Statement.
(b) Pursuant to Section 3.4 of the Equus Registration Rights
Agreement, Equus hereby consents to the granting by ARS of the registration
rights set forth in Registration Rights Agreement to each of the Stockholders
and each of the equity owners of the Other Founding Companies and each Person
who may hereafter become a party to the Registration Rights Agreement pursuant
to the terms thereof.
ARTICLE XII
TERMINATION
Section 12.01. TERMINATION OF THIS AGREEMENT. (a) This
Agreement may be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of ARS and the Company;
(ii) by the Stockholders or the Company, on the one hand, or
by ARS, on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing
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shall not have been consummated by December 31, 1996, unless the
failure of such transactions to be consummated results from the willful
failure of the party (or in the case of the Stockholders and the
Company, any of them) seeking to terminate this Agreement to perform or
adhere to any agreement required hereby to be performed or adhered to
by it prior to or at the Closing or thereafter on the IPO Closing Date;
(iii) by the Stockholders or the Company, on the one hand, or
by ARS, on the other hand, if a material breach or default shall be
made by the other party (or in the case of the Stockholders and the
Company, any of them) in the observance or in the due and timely
performance of any of the covenants, agreements or conditions contained
herein;
(iv) by ARS if it is entitled to do so as provided in Section
6.08;
(b) This Agreement may be terminated after the Closing solely:
(i) by ARS or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City business
days after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section
12.01, the Merger will be deemed for all purposes to have been abandoned and of
no force or effect and, if the Certificate of Merger shall have been filed with
the Secretary of State of the State of Texas prior to that termination, each of
the Company and Newco is authorized to execute and file with the Secretary of
State of the State of Texas a certificate of that termination pursuant to
Article 5.03(I) of the TBCA.
Section 12.02. LIABILITIES IN EVENT OF TERMINATION. If this
Agreement is terminated pursuant to Section 12.01, there shall be no liability
or obligation on the part of any party hereto except (a) as provided in Section
11.07 and (b) to the extent that such liability is based on the breach by that
party of any of its representations, warranties or covenants set forth in this
Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
AMERICAN RESIDENTIAL SERVICES, INC.
By: _________________________
C. Clifford Wright, Jr.
Chief Executive Officer and President
ARS ACQUISITION INC.
By: _________________________
C. Clifford Wright, Jr.
Chief Executive Officer and President
ENTERPRISES HOLDING COMPANY
By: _________________________
Name:
Title:
STOCKHOLDERS:
_________________________
C. Clifford Wright, Jr.
_________________________
William P. McCaughey
_________________________
Howard S. Hoover, Jr.
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ELIZABETH ENGLAND (HOOVER) ROTAN
1996 FAMILY TRUST
_________________________
Elizabeth England (Hoover) Rotan,
as Co-Trustee
_________________________
J. Barrett Rouse, as Co-Trustee
EDWARD McCALL ROTAN II 1996 FAMILY
TRUST
_________________________
Elizabeth England (Hoover) Rotan,
as Co-Trustee
_________________________
J. Barrett Rouse, as Co-Trustee
EQUUS II INCORPORATED
By: _________________________
Name:
Title:
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SPECIAL JOINDER BY NATIONSBANK OF TEXAS, N.A.
NationsBank of Texas, N.A. hereby joins in this Agreement for the sole
purpose of evidencing its agreement to be bound by the provisions set forth in
Section 2.03(c) and Section 2.05(g) of this Agreement. The parties acknowledge
and agree that NationsBank of Texas, N.A. is not a "Stockholder" for purposes of
this Agreement. NationsBank of Texas, N.A. also hereby consents to the
execution, delivery and performance of this Agreement by the parties.
NationsBank of Texas, N.A.
By: _________________________
Name:
Title:
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ADDENDUM 1
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.
ARS Acquisition Inc.,
Enterprises Holding Company
and
the Stockholders named therein
A. Words and terms used in this Addendum which are defined in the
captioned Agreement to which this is an Addendum are used herein as therein
defined.
B. The Founding Companies are:
Atlas Services, Inc.
Bullseye Air Conditioning, Inc.
Climatic Corporation of Vero Beach
DIAL ONE Meridian and Hoosier, Inc.
Enterprises Holding Company
Florida Heating and Air Conditioning, Inc.
Florida Heating and Air Conditioning Service, Inc.
Florida Heating and Air Duct, Inc.
General Heating Engineering Company, Inc.
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SCHEDULE 2.03
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Acquisition Inc.,
Enterprises Holding Company
and
the Stockholders named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.03 are used
herein as defined therein.
B. The directors of the Surviving Corporation immediately after the
Effective Time are as follows: Howard S. Hoover, Jr., William P. McCaughey and
C. Clifford Wright, Jr.
C. The officers of the Surviving Corporation immediately following the
Effective Time are as follows:
President C. Clifford Wright
Vice President William P. McCaughey
Vice President and Secretary John D. Held
Treasurer A. Jefferson Walker, III
Controller Michael Mamaux
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SCHEDULE 2.04
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Acquisition Inc.,
Enterprises Holding Company
and
the Stockholders named therein
A. Words and terms used in this Schedule which are defined in
the captioned Agreement to which this Schedule is attached as Schedule 2.04 are
used herein as defined therein.
B. The name and address of each Stockholder are as follows:
NAME ADDRESS
Howard S. Hoover, Jr............. 5850 San Felipe
Suite 500
Houston, Texas 77057
C. Clifford Wright, Jr........... 5850 San Felipe
Suite 500
Houston, Texas 77057
William P. McCaughey............. 5850 San Felipe
Suite 500
Houston, Texas 77057
Equus II Incorporated............ c/o Equus Capital Corporation
2929 Allen Parkway, Suite 2500
Houston, Texas 77019
Attn: Mr. Randall B. Hale, Vice President
C. Subject to increase or reduction by the application of the
Positive Working Capital Adjustment or the Negative Working Capital Adjustment,
as the case may be: (1) the aggregate Merger Consideration will be comprised of
(A) cash in the amount equal to the sum of (i) $500,000 and (ii) the amount of
all accrued and unpaid dividends on the Company Preferred Stock through the IPO
Closing Date and (B) such number of whole and fractional shares of ARS
Common Stock as shall equal the quotient of (i) $7,676,000 divided by (ii) the
IPO Price; (2) the Stockholders will be entitled to receive the Merger
Consideration pursuant to Section 2.04, as follows: (A) the 25,000 shares of
Company Preferred Stock will be converted into the right to receive $500,000 in
cash and such number of whole and fractional shares of ARS Acquisition Stock as
shall equal the quotient of (i) $5,584,000 divided by (2) the IPO Price; and (B)
the 1,000 shares of Company Common Stock will be converted into the right to
receive such number of whole and fractional shares of ARS Common Stock as shall
equal the quotient of (i) $2,092,000 divided by (ii) the IPO Price; and (3) the
Stockholders will be entitled to receive the ARS Acquisition Shares pursuant to
Section 2.04 as follows:
<TABLE>
<CAPTION>
Shares of Shares of Total Value
Pre-Merger Pre-Merger Pro Rata Share of ARS
Company Company of ARS Acquisition
Common Preferred Acquisition Shares Issuable
STOCKHOLDERS STOCK OWNED STOCK OWNED SHARES IN THE MERGER
---------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Howard S. Hoover, Jr. 180 -- 4.90568% $ 376,560
Elizabeth England (Hoover)
Rotan 1996 Family Trust 35 -- 0.95388% $ 73,220
Edward McCall Rotan II
1996 Family Trust 35 -- 0.95388% $ 73,220
C. Clifford Wright, Jr. 375 -- 10.22017% $ 784,500
William P. McCaughey 375 -- 10.22017% $ 784,500
Equus II Incorporated -- 25,000 (1) 72.74622% $ 5,584,000
---------- -------- ---------- ----------
1,000 25,000 (1) 100.0000% $7,676,000
====== ======== ========== ==========
</TABLE>
- -------------------
(1) Plus the additional shares of Preferred Stock issued or issuable pursuant
to the dividend provisions with respect thereto set forth in the Company's
Charter Documents.
For purposes of Section 2.05, the following table sets forth the Pro Rata Share
of each stockholder:
Pro Rata
STOCKHOLDERS SHARE
- ------------ --------
Howard S. Hoover, Jr. 6.000%
Elizabeth England (Hoover)
Rotan 1996 Family Trust 1.165%
Edward McCall Rotan II
1996 Family Trust 1.165%
C. Clifford Wright, Jr. 12.500%
William P. McCaughey 12.500%
Equus II Incorporated 66.670%
--------
100.000%
<PAGE>
SCHEDULE 3.01
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Acquisition Inc.,
Enterprises Holding Company
and
the Stockholders named therein
A. Words and terms used in this Schedule which are defined in
the captioned Agreement to which this Schedule is attached as Schedule 3.01 are
used herein as therein defined.
B. Each Stockholder is an "accredited investor" as defined in
Securities Act Rule 501(a).
<PAGE>
SCHEDULE 3.02
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Acquisition Inc.,
Enterprises Holding Company
and
the Stockholders named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.02 are used
herein as defined therein.
B. The record and beneficial owners of the Company Capital Stock and
all Liens on such stock are as follows:
OWNER SHARES LIENS
----- ------ -----
Howard S. Hoover, Jr. 180 shares of common stock None
C. Clifford Wright, Jr. 375 shares of common stock None
William P. McCaughey 375 shares of common stock None
Edward McCall Rotan II 1996 35 shares of common stock None
Family Trust
Elizabeth England (Hoover) 35 shares of common stock None
Rotan 1996 Family Trust
Equus II Incorporated 24,810 shares of Series A Preferred None
Stock (plus accumulated PIK dividends)
Equus II Incorporated 190 shares of Series B Preferred Stock None
<PAGE>
SCHEDULE 3.07
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Acquisition Inc.,
Enterprises Holding Company
and
the Stockholders named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.07 are used
herein as defined therein.
B. The Stockholder is, alone or with one or more other Persons, the
controlling Affiliate of the following Entities, businesses or trades (other
than the Company and the Company Subsidiaries, if the Stockholder is an
Affiliate of the Company) that (a) are engaged in any line of business which is
the same as or similar to any line of business in which the Company or any
Company Subsidiary is engaged or (b) are, or have within the three-year period
ending on the date of this Agreement, engaged in any transaction with the
Company or any Company Subsidiary, except for transactions in the ordinary
course of business of the Company or that Company Subsidiary:
Equus II Incorporated and certain of its private institutional
and publicly traded mutual funds affiliates and their respective portfolio
companies may now have investments in, and may hereafter from time to time
invest in, companies similar to the Company's line of business.
<PAGE>
SCHEDULE 4.11
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Acquisition Inc.,
Enterprises Holding Company
and
the Stockholders named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 4.11 are used
herein as defined therein.
B. The following Related Party Agreement will be permitted to continue
in effect past the date of the Closing in accordance with its terms:
The provisions of Sections 9.2, 9.3, 9.4 and 9.7, Article XI
and Section B.1 of the Loan and Preferred Stock Purchase Agreement dated as of
March 19, 1996, among Equus II Incorporated, Enterprises Holding Company, and
the stockholders of Enterprises Holding Company shall survive the Merger and
shall remain in effect thereafter as an obligation of the Surviving Corporation.
Otherwise, not applicable, other than as contemplated in
Agreement and Plan of Reorganization by and among ARS, ARS Acquisition, Inc.,
Enterprises Holding Company and the stockholders named therein.
<PAGE>
SCHEDULE 6.04
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Acquisition Inc.,
Enterprises Holding Company
and
the Stockholders named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.04 are used
herein as defined therein.
B. The Company and the Company Subsidiaries may make the following
Restricted Payments prior to the Effective Time:
Described below are all exceptions to the covenants set forth
in Section 6.04 of the Agreement.
Dividends on shares of Preferred Stock of Enterprises Holding
Company (payable in shares of additional Preferred Stock of Enterprises Holding
Company as provided in its Certificate of Incorporation) shall continue to
accrue and be payable through the IPO Closing Date.
<PAGE>
SCHEDULE 6.12
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Acquisition Inc.,
Enterprises Holding Company
and
the Stockholders named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.12 are used
herein as defined therein.
B. The Company will make all arrangements and take all such actions as
are necessary and satisfactory to ARS to dispose, prior to the Effective Time,
of the following assets:
None
<PAGE>
SCHEDULE 8.05
to the
Agreement and Plan of Reorganization
dated as of June 13, 1996
by and among
American Residential Services, Inc.,
ARS Acquisition Inc.,
Enterprises Holding Company
and
the Stockholders named therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 8.05 are used
herein as defined therein.
B. At or within 60 days following the Effective Time, ARS will cause
the following Stockholder Guaranties to be terminated:
None.
EXHIBIT 2.10
Atlas Services, Inc.
Annex 1
AMERICAN RESIDENTIAL SERVICES, INC.
UNIFORM PROVISIONS
FOR THE
ACQUISITION
OF
FOUNDING COMPANIES
WORDS AND TERMS USED IN THESE UNIFORM PROVISIONS WHICH ARE
DEFINED IN THE AGREEMENT AND PLAN OF REORGANIZATION AMONG AMERICAN RESIDENTIAL
SERVICES, INC., ARS ATLAS INC., ATLAS SERVICES, INC. AND THE STOCKHOLDERS NAMED
THEREIN (CALLED THEREIN AND HEREIN "THIS AGREEMENT") TO WHICH THESE UNIFORM
PROVISIONS ARE ATTACHED AS ANNEX 1 ARE USED HEREIN AS DEFINED THEREIN.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I ADDITIONAL DEFINITIONS........................................................................-1-
Section 1.02. Additional Defined Terms................................................................-1-
Section 1.03. Other Definitional Provisions..........................................................-14-
Section 1.04 Captions................................................................................-15-
ARTICLE III REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER...........................................-16-
Section 3.02. Ownership and Status of Company Capital Stock..........................................-16-
Section 3.03. Power of the Stockholder; Approval of the Merger.......................................-16-
Section 3.04. No Conflicts or Litigation.............................................................-16-
Section 3.05. No Brokers.............................................................................-17-
Section 3.06. Preemptive and Other Rights; Waiver....................................................-17-
Section 3.07. Control of Related Businesses..........................................................-17-
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS.........................................................................-18-
Section 4.02. Qualification..........................................................................-18-
Section 4.03. Authorization; Enforceability; Absence of Conflicts; Required Consents.................-18-
Section 4.04. Charter Documents and Records; No Violation............................................-19-
Section 4.05. No Defaults. ...................................................................-19-
Section 4.06. Company Subsidiaries...................................................................-19-
Section 4.07. Capital Stock of the Company and the Company Subsidiaries..............................-20-
Section 4.08. Transactions in Capital Stock..........................................................-20-
Section 4.09. No Bonus Shares........................................................................-20-
Section 4.10. Predecessor Status; etc................................................................-20-
Section 4.11. Related Party Agreements...............................................................-21-
Section 4.12. Litigation.............................................................................-21-
Section 4.13. Financial Statements; Disclosure.......................................................-21-
Section 4.14. Compliance With Laws...................................................................-22-
Section 4.15. Certain Environmental Matters..........................................................-23-
Section 4.16. Liabilities and Obligations............................................................-23-
Section 4.17. Receivables............................................................................-24-
Section 4.18. Owned and Leased Real Properties.......................................................-24-
Section 4.19. Owned and Leased Property, Plant and Equipment.........................................-25-
Section 4.20. Proprietary Rights.....................................................................-25-
Section 4.21. Title to Other Properties..............................................................-25-
Section 4.22. Commitments............................................................................-26-
Section 4.23. Capital Expenditures...................................................................-27-
Section 4.24. Inventories............................................................................-27-
Section 4.25. Insurance..............................................................................-28-
- i -
Section 4.26. Employee Matters.......................................................................-28-
Section 4.27. Compliance With ERISA, etc.............................................................-31-
Section 4.28. Taxes..................................................................................-33-
Section 4.29. Government Contracts...................................................................-34-
Section 4.30. Absence of Changes.....................................................................-34-
Section 4.31. Bank Relations; Powers of Attorney.....................................................-36-
Section 4.32. Relations With Governments, etc........................................................-36-
ARTICLE V REPRESENTATIONS AND WARRANTIES OF ARS AND NEWCO..............................................-37-
Section 5.02. Organization; Power....................................................................-37-
Section 5.03. Authorization; Enforceability; Absence of Conflicts; Required
Consents...........................................................................-37-
Section 5.04. Charter Documents......................................................................-38-
Section 5.05. Capital Stock of ARS and Newco.........................................................-38-
Section 5.06. Subsidiaries...........................................................................-39-
Section 5.07. Liabilities............................................................................-39-
Section 5.08. Compliance With Laws; No Litigation....................................................-39-
Section 5.09. No Brokers.............................................................................-39-
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME....................................................-40-
Section 6.02 Access and Cooperation; Due Diligence...................................................-40-
Section 6.03. Conduct of Business Pending Closing....................................................-40-
Section 6.04. Prohibited Activities..................................................................-41-
Section 6.05. No Shop; Release of Directors..........................................................-42-
Section 6.06. Notice to Bargaining Agents............................................................-43-
Section 6.07. Notification of Certain Matters........................................................-43-
Section 6.08. Supplemental Information...............................................................-44-
Section 6.09. Cooperation in Connection With the IPO.................................................-44-
Section 6.10. Additional Financial Statements........................................................-45-
Section 6.11. Termination of Plans...................................................................-45-
Section 6.12. Disposition of Unwanted Assets.........................................................-45-
Section 6.13. HSR Act Matters........................................................................-45-
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION.............................................................................-46-
Section 7.02. Conditions to the Obligations of Each Party............................................-46-
Section 7.03. Conditions to the Obligations of the Company and the Stockholders......................-47-
Section 7.04. Conditions to the Obligations of ARS and Newco.........................................-48-
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME.......................................................-50-
Section 8.02. Disclosure.............................................................................-50-
Section 8.03. Preparation and Filing of Tax Returns..................................................-50-
Section 8.04. Directors..............................................................................-50-
- ii -
Section 8.05. Removal of Guaranties..................................................................-50-
ARTICLE IX INDEMNIFICATION..............................................................................-51-
Section 9.02. Survival of Representations and Warranties.............................................-51-
Section 9.03. Indemnification of ARS Indemnified Parties.............................................-51-
Section 9.04. Indemnification of Stockholder Indemnified Parties.....................................-52-
Section 9.05. Conditions of Indemnification..........................................................-53-
Section 9.06. Remedies Not Exclusive.................................................................-55-
Section 9.07. Limitations on Indemnification.........................................................-55-
ARTICLE XI GENERAL PROVISIONS...........................................................................-56-
Section 11.01. Treatment of Confidential Information.................................................-56-
</TABLE>
- iii -
THE UNIFORM PROVISIONS
ARTICLE I
ADDITIONAL DEFINITIONS
Section 1.02. ADDITIONAL DEFINED TERMS. As used in this
Agreement, the following terms have the meanings assigned to them below:
"ACQUISITION PROPOSAL" has the meaning specified in Section
6.05.
"AFFILIATE" means, as to any specified Person, any other
Person that, directly or indirectly through one or more intermediaries
or otherwise, controls, is controlled by or is under common control
with the specified Person. As used in this definition, "control" means
the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of a Person (whether
through ownership of Capital Stock of that Person, by contract or
otherwise).
"AIR CONDITIONING AND REFRIGERATION CONTRACTING" means the
design, installation, construction, maintenance, service, repair,
alteration or modification of any appliance, equipment or other product
used in environmental air conditioning or filtering, commercial
refrigeration or process cooling or heating systems.
"ARS COMMON STOCK" means the common stock, par value $.001 per
share, of ARS.
"ARS INDEMNIFIED PARTY" means ARS and its Affiliates and each
of their respective officers, directors, employees, agents and counsel;
provided, however, that no Person who indemnifies ARS Indemnified
Parties in this Agreement in his capacity as a Stockholder will be an
ARS Indemnified Party for purposes of this Agreement, notwithstanding
that the Person is an ARS Indemnified Party for purposes of one or more
of the Other Agreements.
"ARS INDEMNIFIED LOSS" has the meaning specified in Section
9.03.
"CAPITAL LEASE" means a lease of (or other agreement conveying
the right to use) real or personal property that is required to be
classified and accounted for as a capital lease under GAAP as in effect
on the date of this Agreement.
"CAPITAL STOCK" means, with respect to: (a) any corporation,
any share, or any depositary receipt or other certificate representing
any share, of an equity ownership interest in that corporation; and (b)
any other Entity, any share, membership or other percentage interest,
unit of participation or other equivalent (however designated) of an
equity interest in that Entity.
-1-
"CASH COMPENSATION" means, as applied to any employee,
nonemployee director or officer of, or any natural person who performs
consulting or other independent contractor services for, the Company or
any Company Subsidiary, the wages, salaries, bonuses (discretionary and
formula), fees and other cash compensation paid or payable by the
Company and each Company Subsidiary to that employee or other natural
person.
"CERCLA" means the Comprehensive Environmental Response,
Conservation, and Liability Act of 1980.
"CERTIFICATE OF MERGER" means: (a) if the Surviving
Corporation is a Delaware corporation, the certificate of merger
respecting the Merger which contains the information required by the
DGCL to effect the Merger; and (b) if the Company's Organization State
is not Delaware, the articles or certificate of merger respecting the
Merger which contains the information required by the laws of the
Company's Organization State to effect the Merger.
"CHARTER DOCUMENTS" means, with respect to any Entity at any
time, in each case as amended, modified and supplemented at that time,
the articles or certificate of formation, incorporation or organization
(or the equivalent organizational documents) of that Entity, (b) the
bylaws or limited liability company agreement or regulations (or the
equivalent governing documents) of that Entity and (c) each document
setting forth the designation, amount and relative rights, limitations
and preferences of any class or series of that Entity's Capital Stock
or of any rights in respect of that Entity's Capital Stock.
"CLAIM NOTICE" has the meaning specified in Section 9.05.
"CLOSING" has the meaning specified in Section 7.01.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY COMMITMENT" has the meaning specified in Section
4.22.
"COMPANY ERISA BENEFIT PLAN" has the meaning specified in
Section 4.26.
"COMPANY ERISA PENSION PLAN" has the meaning specified in
Section 4.26.
"COMPANY SUBSIDIARY" means at any time any Entity that is a
Subsidiary of the Company at that time.
"CONFIDENTIAL INFORMATION" means, with respect to any Person,
all trade secrets and other confidential, nonpublic and/or proprietary
information of that Person, including information derived from reports,
investigations, research, work in progress, codes, marketing and sales
programs, capital expenditure projects, cost summaries, pricing
formulae, contract analyses, financial information, projections,
confidential filings with any
-2-
Governmental Authority and all other confidential, nonpublic concepts,
methods of doing business, ideas, materials or information prepared or
performed for, by or on behalf of that Person.
"CURRENT BALANCE SHEET" has the meaning specified in Section
1.01.
"CURRENT BALANCE SHEET DATE" has the meaning specified in
Section 1.01.
"CURRENT DATE" means any day during the 20-day period ending
on the date of the Closing.
"DAMAGE" to any specified Person means any cost, damage
(including any consequential, exemplary, punitive or treble damage) or
expense (including reasonable fees and actual disbursements by
attorneys, consultants, experts or other Representatives and Litigation
costs) to, any fine of or penalty on or any liability (including loss
of earnings or profits) of any other nature of that Person.
"DAMAGE CLAIM" means, as asserted (a) against any specified
Person, any claim, demand or Litigation made or pending against that
Person for Damages to any other Person, or (b) by the specified Person,
any claim or demand of the specified Person against any other Person
for Damages to the specified Person.
"DGCL" means the General Corporation Law of the State of
Delaware.
"DERIVATIVE SECURITIES" of a specified Entity means any
Capital Stock or debt security or other Indebtedness of the specified
Entity or any other Person which is convertible into or exchangeable
for, or any option, warrant or other right to acquire, (a) any unissued
Capital Stock of the specified Entity or (b) any Capital Stock of the
specified Entity which has been issued and is being held by the Entity
directly or indirectly as treasury Capital Stock.
"EFFECTIVE TIME" has the meaning specified in Section 2.02.
"ELECTION PERIOD" has the meaning specified in Section 9.05.
"EMPLOYEE POLICIES AND PROCEDURES" means at any time all
employee manuals and all material policies, procedures and work-related
rules that apply at that time to any employee, nonemployee director or
officer of, or any other natural person performing consulting or other
independent contractor services for, the Company or any Company
Subsidiary.
"EMPLOYMENT AGREEMENT" means at any time any (a) agreement to
which the Company or any Company Subsidiary is a party which then
relates to the direct or indirect
-3-
employment or engagement, or arises from the past employment or
engagement, of any natural person by the Company or any Company
Subsidiary, whether as an employee, a nonemployee officer or director,
a consultant or other independent contractor, a sales representative or
a distributor of any kind, including any employee leasing or service
agreement and any noncompetition agreement, and (b) agreement between
the Company or any Company Subsidiary and any Person which arises from
the sale of a business by that Person to the Company or any Company
Subsidiary and limits that Person's competition with the Company or any
Company Subsidiary.
"ENTITY" means any sole proprietorship, corporation,
partnership of any kind having a separate legal status, limited
liability company, business trust, unincorporated organization or
association, mutual company, joint stock company or joint venture.
"ENVIRONMENTAL LAWS" means any and all Governmental
Requirements relating to the environment or worker health or safety,
including ambient air, surface water, land surface or subsurface
strata, or to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals or industrial, toxic or hazardous
substances or wastes (including Solid Wastes, Hazardous Wastes or
Hazardous Substances) or noxious noise or odor into the environment, or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, recycling, removal, transport or handling
of pollutants, contaminants, chemicals or industrial, toxic or
hazardous substances or wastes (including petroleum, petroleum
distillates, asbestos or asbestos-containing material, polychlorinated
biphenyls, chlorofluorocarbons (including chlorofluorocarbon-12) or
hydrochlorofluoro- carbons).
"ERISA" means the Employee Retirement Income Security Act of
1974.
"ERISA AFFILIATE" means, with respect to any specified Person
at any time, any other Person, including an Affiliate of the specified
Person, that is, or at any time within six years of that time was, a
member of any ERISA Group of which the specified Person is or was a
member at the same time.
"ERISA AFFILIATE PENSION PLAN" has the meaning specified in
Section 4.26.
"ERISA EMPLOYEE BENEFIT PLAN" means any "employee benefit
plan" as defined in Section 3(3) of ERISA and includes any ERISA
Pension Benefit Plan.
"ERISA GROUP" means any "group of organizations" within the
meaning of Section 414(b), (c), (m) or (o) of the Code or any
"controlled group" as defined in Section 4001(a)(14) of ERISA.
"ERISA PENSION BENEFIT PLAN" means any "employee pension
benefit plan," as defined in Section 3(2) of ERISA, including any plan
that is covered by Title IV of ERISA
-4-
or subject to the minimum funding standards under Section 412 of the
Code (excluding any Multiemployer Plan).
"EXCHANGE ACT" means the Securities Exchange Act of 1934.
"FINAL PROSPECTUS" means the prospectus included in the
Registration Statement at the time it becomes effective, except that if
the prospectus first furnished to the Underwriter after the
Registration Statement becomes effective for use in connection with the
IPO differs from the prospectus included in the Registration Statement
at the time it becomes effective (whether or not that prospectus so
furnished is required to be filed with the SEC pursuant to Securities
Act Rule 424(b)), the prospectus so furnished is the "Final
Prospectus."
"FINANCIAL STATEMENTS" means the Initial Financial Statements
and the other financial statements of the Company and the Company
Subsidiaries, if any, delivered to ARS pursuant to Section 6.10 prior
to the Effective Time.
"GAAP" means generally accepted accounting principles and
practices in the United States as in effect from time to time which (i)
have been concurred in by Arthur Andersen LLP and (ii) have been or are
applied on a basis consistent (except for changes concurred in by
Arthur Andersen LLP) with the most recent audited Financial Statements
delivered to ARS prior to the Effective Time.
"GENERAL RELEASE" means the general release of the Company and
the Company Subsidiaries to be executed at or before and delivered to
ARS and the Company at the Closing, effective as of the Effective Time,
by each Stockholder in the form of Exhibit 1.02-A with the blanks
appropriately filled.
"GOVERNMENTAL APPROVAL" means at any time any authorization,
consent, approval, permit, franchise, certificate, license,
implementing order or exemption of, or registration or filing with, any
Governmental Authority, including any certification or licensing of a
natural person to engage in a profession or trade or a specific
regulated activity, at that time.
"GOVERNMENTAL AUTHORITY" means (a) any national, state,
county, municipal or other government, domestic or foreign, or any
agency, board, bureau, commission, court, department or other
instrumentality of any such government, or (b) any Person having the
authority under any applicable Governmental Requirement to assess and
collect Taxes for its own account.
"GOVERNMENTAL REQUIREMENT" means at any time (a) any law,
statute, code, ordinance, order, rule, regulation, judgment, decree,
injunction, writ, edict, award, authorization or other requirement of
any Governmental Authority in effect at that time or (b) any obligation
included in any certificate, certification, franchise, permit or
license
-5-
issued by any Governmental Authority or resulting from binding
arbitration, including any requirement under common law, at that time.
"GUARANTY" means, for any specified Person, without
duplication, any liability, contingent or otherwise, of that Person
guaranteeing or otherwise becoming liable for any obligation of any
other Person (the "primary obligor") in any manner, whether directly or
indirectly, and including any liability of the specified Person, direct
or indirect, (a) to purchase or pay (or advance or supply funds for the
purchase or payment of) that obligation or to purchase (or to advance
or supply funds for the purchase of) any security for the payment of
that obligation, (b) to purchase property, securities or services for
the purpose of assuring the owner of that obligation of its payment or
(c) to maintain working capital, equity capital or other financial
statement condition or liquidity of the primary obligor so as to enable
the primary obligor to pay that obligation; provided, that the term
"Guaranty" does not include endorsements for collection or deposit in
the ordinary course of the endorser's business.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976.
"IMMEDIATE FAMILY MEMBER" of a Stockholder means at any time:
(a) if that Stockholder is a natural person, any child or grandchild
(by blood or legal adoption) or spouse of that Stockholder at that
time, or any child of that spouse; and (b) if that Stockholder is an
Entity whose ultimate beneficial owner is a natural person, or a
natural person and his spouse, any child or grandchild (by blood or
legal adoption) or spouse at that time (if not then an ultimate
beneficial owner of that Entity), or any child of that spouse, of the
ultimate beneficial owner or owners.
"INDEBTEDNESS" of any Person means, without duplication, (a)
any liability of that Person (i) for borrowed money or arising out of
any extension of credit to or for the account of that Person (including
reimbursement or payment obligations with respect to surety bonds,
letters of credit, banker's acceptances and similar instruments), for
the deferred purchase price of property or services or arising under
conditional sale or other title retention agreements, other than trade
payables arising in the ordinary course of business, (ii) evidenced by
notes, bonds, debentures or similar instruments, (iii) in respect of
Capital Leases or (iv) in respect of Interest Rate Protection
Agreements, (b) any liability secured by any Lien upon any property or
assets of that Person (or upon any revenues, income or profits of that
Person therefrom), whether or not that Person has assumed that
liability or otherwise become liable for the payment thereof or (c) any
liability of others of the type described in the preceding clause (a)
or (b) in respect of which that Person has incurred, assumed or
acquired a liability by means of a Guaranty.
"INDEMNITY NOTICE" has the meaning specified in Section 9.05.
"INDEMNIFIED PARTY" has the meaning specified in Section 9.05.
-6-
"INDEMNIFYING PARTY" has the meaning specified in Section
9.05.
"INFORMATION" means written information, including (a) data,
certificates, reports and statements (excluding Financial Statements)
and (b) summaries of unwritten agreements, arrangements, contracts,
plans, policies, programs or practices or of unwritten amendments or
modifications of, supplements to or waivers under any of the foregoing
documents.
"IPO" means the first time after May 1, 1996 a registration
statement filed under the Securities Act and respecting a primary
offering by ARS of shares of ARS Common Stock (other than a
registration statement respecting shares being offered pursuant to a
Company ERISA Benefit Plan or any Other Compensation Plan) is declared
effective under the Securities Act and the shares registered by that
registration statement are issued and sold by ARS (otherwise than
pursuant to the exercise by the Underwriter of any over-allotment
option).
"IPO CLOSING DATE" means the date on which ARS first receives
payment for the shares of ARS Common Stock it sells to the Underwriter
in the IPO.
"IPO PRICE" means the price per share of ARS Common Stock
which is set forth as the "price to public" on the cover page of the
Final Prospectus.
"IPO PRICING DATE" means the date, if any, on which ARS and
the Underwriter agree in the Underwriting Agreement to the price per
share of Common Stock at which the Underwriter, subject to the terms
and conditions of the Underwriting Agreement, will purchase newly
issued shares of ARS Common Stock from ARS on the IPO Closing Date.
"INTEREST RATE PROTECTION AGREEMENT" means, for any Person, an
interest rate swap, cap or collar agreement or similar arrangement
providing for the transfer or mitigation of interest rate risks of that
Person either generally or under specific contingencies between that
Person and any other Person.
"IRS" means the Internal Revenue Service.
"LIEN" means, with respect to any property or asset of any
Person (or any revenues, income or profits of that Person therefrom)
(in each case whether the same is consensual or nonconsensual or arises
by contract, operation of law, legal process or otherwise), (a) any
mortgage, lien, security interest, pledge, attachment, levy or other
charge or encumbrance of any kind thereupon or in respect thereof or
(b) any other arrangement under which the same is transferred,
sequestered or otherwise identified with the intention of subjecting
the same to, or making the same available for, the payment or
performance of any liability in priority to the payment of the
ordinary, unsecured creditors of that Person, including any "adverse
claim" (as defined in Section 8-302(b) of each applicable Uniform
Commercial Code) in the case of any Capital Stock. For purposes of this
Agreement, a Person shall be
-7-
deemed to own subject to a Lien any asset that it has acquired or holds
subject to the interest of a vendor or lessor under any conditional
sale agreement, Capital Lease or other title retention agreement
relating to that asset.
"LITIGATION" means any action, case, proceeding, claim,
grievance, suit or investigation or other proceeding conducted by or
pending before any Governmental Authority or any arbitration
proceeding.
"MATERIAL" means, as applied to any Entity, material to the
business, operations, property or assets, liabilities, financial
condition or results of operations of that Entity and its Subsidiaries
considered as a whole.
"MATERIAL ADVERSE EFFECT" means, with respect to the
consequences of any fact or circumstance (including the occurrence or
non-occurrence of any event) to the Company and the Company
Subsidiaries considered as a whole (or after the Effective Time the
Surviving Corporation and the Company Subsidiaries considered as a
whole), that such fact or circumstance has caused, is causing or will
cause, directly, indirectly or consequentially, singly or in the
aggregate with other facts and circumstances, any Damages in excess of
the Threshold Amount.
"MATERIAL AGREEMENT" of an Entity means any contract or
agreement (a) to which that Entity or any of its Subsidiaries is a
party, or by which that Entity or any of its Subsidiaries is bound or
to which any property or assets of that Entity or any of its
Subsidiaries is subject and (b) which is Material to that Entity.
"MINIMUM CASH AMOUNT" has the meaning specified in Section
7.02.
"MOODY'S" means Moody's Investors Service, Inc.
"MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA, Section 414 of the Code or Section
3(37) of ERISA.
"NEWCO COMMON STOCK" means the common stock, par value $.001
per share, of Newco.
"ORGANIZATION STATE" means, as applied to (a) any corporation,
its state or other jurisdiction of incorporation, (b) any limited
liability company or limited partnership, the state or other
jurisdiction under whose laws it is organized and existing in that
legal form, and (c) any other Entity, the state or other jurisdiction
whose laws govern that Entity's internal affairs.
"OTHER AGREEMENTS" has the meaning specified in the
Preliminary Statement in this Agreement.
-8-
"OTHER COMPENSATION PLAN" means any compensation arrangement,
plan, policy, practice or program established, maintained or sponsored
by the Company or any Company Subsidiary, or to which the Company or
any Company Subsidiary contributes, on behalf of any of its employees,
nonemployee directors or officers or other natural persons performing
consulting or other independent contractor services for the Company or
any Company Subsidiary, (a) including all such arrangements, plans,
policies, practices or programs providing for severance pay, deferred
compensation, incentive, bonus or performance awards or the actual or
phantom ownership of any Capital Stock or Derivative Securities of the
Company or any Company Subsidiary, but (b) excluding all Company ERISA
Pension Plans and Employment Agreements.
"OTHER FINANCING SOURCES" has the meaning specified in Section
7.02.
"OTHER TRANSACTION DOCUMENTS" means the Other Agreements and
the other written agreements, documents, instruments and certificates
at any time executed pursuant to or in connection with the Other
Agreements (other than the Transaction Documents and the Underwriting
Agreement), all as amended, modified or supplemented from time to time.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERMITTED INVESTMENTS" means at the time of purchase or other
acquisition by the Company or any Company Subsidiary (a) obligations
issued or guaranteed by the United States of America with a remaining
maturity not exceeding one year, (b) commercial paper with maturities
of not more than 270 days and a published rating of not less than A-1
by S&P or P-1 by Moody's and (c) certificates of deposit and bankers'
acceptances having maturities of not more than one year of any
commercial bank or trust company if (A) that bank or trust company has
a combined capital and surplus of at least $500,000,000 and (B) its
unsecured long-term debt obligations, or those of a holding company of
which it is a subsidiary, are rated not less than A- by S&P or A3 by
Moody's.
"PERMITTED LIENS" means, as applied to the property or assets
of any Person (or any revenues, income or profits of that Person
therefrom): (a) Liens for Taxes if the same are not at the time due and
delinquent; (b) Liens of carriers, warehousemen, mechanics, laborers
and materialmen for sums not yet due; (c) Liens incurred in the
ordinary course of that Person's business in connection with workmen's
compensation, unemployment insurance and other social security
legislation (other than pursuant to ERISA or Section 412(n) of the
Code); (d) Liens incurred in the ordinary course of that Person's
business in connection with deposit accounts or to secure the
performance of bids, tenders, trade contracts, statutory obligations,
surety and appeal bonds, performance and return-of-money bonds and
other obligations of like nature; (e) easements, rights-of-way,
reservations, restrictions and other similar encumbrances incurred in
the ordinary course of that Person's business or existing on property
and not materially interfering with the ordinary conduct of that
Person's business or the use of that property; (f) defects or
irregularities in that Person's title to its
-9-
real properties which do not materially (i) diminish the value of the
surface estate or (ii) interfere with the ordinary conduct of that
Person's business or the use of any of such properties; (g) any
interest or title of a lessor of assets being leased by any Person
pursuant to any Capital Lease disclosed in Section 4.19 of the
Disclosure Statement or any lease that, pursuant to GAAP, would be
accounted for as an operating lease; and (h) Liens securing purchase
money Indebtedness disclosed in Section 4.18 or 4.19 of the Disclosure
Statement so long as such Liens do not attach to any property or assets
other than the properties or assets purchased with the proceeds of such
Indebtedness.
"PERSON" means any natural person, Entity, estate, trust,
union or employee organization or Governmental Authority or, for the
purpose of the definition of "ERISA Affiliate," any trade or business.
"PLAN" has the meaning specified in Section 4.27.
"PLUMBING" means the installation, repair, service or
maintenance of any piping, fixtures, appurtenances or appliances in and
about buildings where any natural person or persons live, work or
assemble for a supply of gas, water or liquids, or any combination
thereof, or for the disposal of waste water or sewage.
"PLUMBING LAWS" means any and all Governmental Requirements
related to Plumbing, such as Governmental Requirements relating to the
planning, superintending, installation, alteration, repair, service and
renovation of any pipeline, fixtures, appurtenances, appliances or
drain or waste pipes, and including Governmental Requirements relating
to the licensing of natural persons as plumbers of any classification.
"PRIVATE PLACEMENT MEMORANDUM" means the ARS Private Placement
Memorandum dated as of June 13, 1996 relating to the offer of ARS
Common Stock in connection with the Merger.
"PROFESSIONAL CODES" means any and all Governmental
Requirements relating to the licensing or other regulation of the
business of Air Conditioning and Refrigeration Contracting, the
installation, repair or replacement of electrical appliances, equipment
and systems, Plumbing or other residential or commercial on-site
services, including building, electric and mechanical codes, Plumbing
Laws and Governmental Requirements relating to Residential Service
Companies.
"PROHIBITED TRANSACTION" means any transaction that is
prohibited under Section 4975 of the Code or Section 406 of ERISA and
not exempt under Section 4975 of the Code or Section 408 of ERISA.
-10-
"PROPERTY, PLANT AND EQUIPMENT" means at any time any property
that then would be included and classified as property, plant and
equipment on a consolidated balance sheet prepared in accordance with
GAAP of the Company and the Company Subsidiaries.
"PROPRIETARY RIGHTS" means (a) patents, applications for
patents and patent rights, (b) in each case, whether registered,
unregistered or under pending registration, trademark rights, trade
names, trade name rights, corporate names, business names, trade styles
or dress, service marks and logos and other trade designations and
copyrights and (c), in the case of the Company or any Company
Subsidiary, all agreements relating to the technology, know-how or
processes used in any business of the Company or any Company
Subsidiary.
"QUALIFIED PLANS" has the meaning specified in Section 4.27.
"REGISTRATION RIGHTS AGREEMENT" means the registration rights
agreement to be executed and delivered at the Closing by ARS and the
Stockholders electing to be parties thereto in the form of Exhibit
1.02-B, with the blanks appropriately filled.
"REGISTRATION STATEMENT" means the registration statement,
including (a) each preliminary prospectus included therein prior to the
date on which that registration statement is declared effective under
the Securities Act (including any prospectus filed with the SEC
pursuant to Securities Act Rule 424(b)), (b) the Final Prospectus and
(c) any amendments thereof and all supplements and exhibits thereto,
filed by ARS with the SEC to register shares of ARS Common Stock under
the Securities Act for public offering and sale in the IPO.
"RETURNS" means the returns, reports or statements (including
any information returns) any Governmental Requirement requires to be
filed for purposes of any Tax.
"RELATED PARTY AGREEMENT" means any contract or other
agreement, written or oral, (a) to which the Company or any Company
Subsidiary is a party or is bound or by which any property of the
Company or any Company Subsidiary is bound or may be subject and (b)
(i) to which any Stockholder or any of that Stockholder's Related
Persons or Affiliates also is a party, (ii) of which any Stockholder or
any of that Stockholder's Related Persons or Affiliates is a
beneficiary or (iii) as to which any transaction contemplated thereby
properly would be characterized (without regard to the amount involved)
as a related party transaction for purposes of applying the disclosure
requirements of GAAP or the SEC applicable to the Registration
Statement.
"RELATED PERSON" of a Stockholder means: (a) if that
Stockholder is a natural person, (i) any Immediate Family Member of
that Stockholder, (ii) any Estate of that Stockholder or any Immediate
Family Member of that Stockholder, (iii) the trustee of any inter vivos
or testamentary trust of which all the beneficiaries are Related
Persons of that Stockholder and (iv) any Entity the entire equity
interest in which is owned by any one or more of that
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Stockholder and Related Persons of that Stockholder; and (b) if that
Stockholder is an Entity, Estate or trust, (i) any Person who owns an
equity interest in that Stockholder on the date hereof, (ii) any Person
who would be a Related Person under clause (a) of this definition of a
natural person who is an ultimate beneficial owner of that Stockholder
or (iii) any other Entity the entire equity interest in which is owned
by any one or more of that Stockholder and Related Persons of that
Stockholder. As used in this definition, "Estate" means, as to any
natural person who has died or been adjudicated mentally incompetent by
a court of competent jurisdiction, (i) that person's estate or (ii) the
administrator, conservator, executor, guardian or representative of
that estate.
"REPRESENTATIVES" means, with respect to any Person, the
directors, officers, employees, Affiliates, accountants (including
independent certified public accountants), advisors, attorneys,
consultants or other agents of that Person, or any other
representatives of that Person or of any of those directors, officers,
employees, Affiliates, accountants (including independent certified
public accountants), advisors, attorneys, consultants or other agents.
"REPORTABLE EVENT" means, with respect to any Company ERISA
Pension Plan, (a) the occurrence of any of the events set forth in
Section 4043(b) or (c) (other than a Reportable Event as to which the
provision of 30 days' notice to the PBGC is waived under applicable
regulations), 4062(e) or 4063(a) of ERISA with respect to that plan,
(b) any event requiring the Company or any ERISA Affiliate to provide
security to that plan under Section 401(a)(29) of the Code or (c) any
failure to make a payment required by Section 412(m) of the Code with
respect to that plan.
"RESIDENTIAL SERVICE COMPANY" means any Person who issues and
performs, or arranges to perform, services pursuant to a Residential
Service Contract.
"RESIDENTIAL SERVICE CONTRACT" means any agreement or contract
whereby, for a fee, a Person undertakes, for a specified period of
time, to maintain, repair or replace all or any part of the structural
components, the appliances or the electrical, plumbing, heating,
cooling or air-conditioning systems on any residential property.
"RCRA" means the Resource Conservation and Recovery Act of
1976.
"RESTRICTED PAYMENT" means, with respect to any Entity at any
time, any of the following effected by that Entity: (a) any declaration
or payment of any dividend or other distribution, direct or indirect,
on account of any Capital Stock of that Entity or any Affiliate of that
Entity or (b) any direct or indirect redemption, retirement, purchase
or other acquisition for value of, or any direct or indirect purchase,
payment or sinking fund or similar deposit for the redemption,
retirement, purchase or other acquisition for value of, or to obtain
the surrender of, any then outstanding Capital Stock of that Entity or
any Affiliate of that Entity or any then outstanding warrants, options
or other rights to acquire or
-12-
subscribe for or purchase unissued or treasury Capital Stock of that
Entity or any Affiliate of that Entity.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933.
"SOLID WASTES, HAZARDOUS WASTES OR HAZARDOUS SUBSTANCES" have
the meanings ascribed to those terms in CERCLA, RCRA or any other
Environmental Law applicable to the business or operations of the
Company or any Company Subsidiary which imparts a broader meaning to
any of those terms than does CERCLA or RCRA.
"S&P" means Standard and Poor's Rating Group.
"STOCKHOLDER INDEMNIFIED PARTY" means (a) each Stockholder and
each of that Stockholder's Affiliates (other than the Company or,
following the Effective Time, the Surviving Corporation or ARS or any
of its Subsidiaries, if the Stockholder is an Affiliate of ARS), agents
and counsel and (b) prior to the Effective Time, the Company and each
of its officers, directors, employees, agents and counsel who are not
Stockholder Indemnified Parties within the meaning of clause (a) of
this definition.
"STOCKHOLDER INDEMNIFIED LOSS" has the meaning specified in
Section 9.04.
"SUBSIDIARY" of any specified Person at any time, means any
entity a majority of the Capital Stock of which is at that time owned
or controlled, directly or indirectly, by the specified Person.
"SUPPLEMENTAL INFORMATION" has the meaning specified in
Section 6.08.
"TAX" or "TAXES" means all net or gross income, gross
receipts, net proceeds, sales, use, ad valorem, value added, franchise,
bank shares, withholding, payroll, employment, excise, property, deed,
stamp, alternative or add-on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges or
assessments of any nature whatever imposed by any Governmental
Requirement, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"TAXING AUTHORITY" means any Governmental Authority having or
purporting to exercise jurisdiction with respect to any Tax.
"TERMINATION EVENT" means, with respect to any Company ERISA
Pension Plan, (a) any Reportable Event with respect to that plan which
is likely to result in the termination of that plan, (b) the
termination of, or the filing of a notice of intent to terminate, that
plan or the treatment of any amendment to that plan as a termination
under Section 4041(c) of
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ERISA or (c) the institution of proceedings to terminate, or the
appointment of a trustee to administer, that plan under Section 4042 of
ERISA.
"THIRD PARTY CLAIM" has the meaning specified in Section 9.05.
"TRANSACTION DOCUMENT" means this Agreement, the Certificates
of Merger, the General Releases, the Registration Rights Agreement and
the other written agreements, documents, instruments and certificates
executed pursuant to or in connection with this Agreement (other than
the Other Transaction Documents and the Underwriting Agreement),
including those specified in Article VII to be delivered at or before
the Closing, all as amended, modified or supplemented from time to
time.
"UNDERWRITER" means collectively (a) the investment banking
firms that prospectively may enter into the Underwriting Agreement and
(b) from and after the IPO Pricing Date, the investment banking firms
parties to the Underwriting Agreement.
"UNDERWRITING AGREEMENT" has the meaning specified in Section
7.02.
"WELFARE PLAN" means an "employee welfare benefit plan" as
defined in Section 3(1) of ERISA.
"WHOLLY OWNED SUBSIDIARY" means any corporation or other
Entity all of whose outstanding Capital Stock on a fully diluted basis
is owned and controlled, directly or indirectly through another Wholly
Owned Subsidiary, by the Company.
Section 1.03. OTHER DEFINITIONAL PROVISIONS. (a) Except as
otherwise specified herein, all references herein to any Governmental
Requirement defined or referred to herein, including the Code, CERCLA, ERISA,
the Exchange Act, RCRA and the Securities Act, shall be deemed references to
that Governmental Requirement or any successor Governmental Requirement, as the
same may have been amended or supplemented from time to time, and any rules or
regulations promulgated thereunder.
(b) When used in this Agreement, the words "herein," "hereof"
and "hereunder" and words of similar import shall refer to this Agreement as a
whole and not to any provision of this Agreement, and the words "Article,"
"Section," "Annex," "Schedule" and "Exhibit" refer to Articles and Sections of,
and Annexes, Schedules and Exhibits to, this Agreement unless otherwise
specified.
(c) Whenever the context so requires, the singular number
includes the plural and vice versa, and a reference to one gender includes the
other gender and the neuter.
-14-
(d) The word "including" (and, with correlative meaning, the
word "include") means including, without limiting the generality of any
description preceding such word, and the words "shall" and "will" are used
interchangeably and have the same meaning.
Section 1.04 CAPTIONS. Captions to Articles, Sections and
subsections of, and Annexes, Schedules and Exhibits to, this Agreement or any
other Transaction Document are included for convenience of reference only, and
such captions shall not constitute a part of this Agreement or any other
Transaction Document for any other purpose or in any way affect the meaning or
construction of any provision of this Agreement or any other Transaction
Document.
-15-
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.02. OWNERSHIP AND STATUS OF COMPANY CAPITAL STOCK.
The Stockholder is the record and beneficial owner (or, if the Stockholder is a
trust or the estate of a deceased natural person, the legal owner) of the number
of shares of Company Capital Stock set forth, by each class, and by each series
in each class, thereof, opposite the Stockholder's name in Schedule 3.02, free
and clear of all Liens, except for the Liens accurately set forth in Schedule
3.02, all of which will be released at or before the Effective Time.
Section 3.03. POWER OF THE STOCKHOLDER; APPROVAL OF THE
MERGER. (a) The Stockholder has the full power, legal capacity and authority to
execute and deliver this Agreement and each other Transaction Document to which
the Stockholder is a party and to perform the Stockholder's obligations in this
Agreement and in all other Transaction Documents to which the Stockholder is a
party. This Agreement constitutes, and each such other Transaction Document,
when executed in the Stockholder's individual capacity and delivered by the
Stockholder, will constitute, the legal, valid and binding obligation of the
Stockholder, enforceable against the Stockholder in accordance with its terms,
except as that enforceability may be (i) limited by any applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and (ii) subject to general principles of equity
(regardless of whether that enforceability is considered in a proceeding in
equity or at law). If the Stockholder is an Entity, the Stockholder has
obtained, in accordance with all applicable Governmental Requirements and its
Charter Documents, all approvals and the taking of all actions necessary for the
authorization, execution, delivery and performance by the Stockholder of this
Agreement and the other Transaction Documents to which the Stockholder is a
party. If the Stockholder is acting otherwise than in his individual capacity
(whether as an executor or a guardian or in any other fiduciary or
representative capacity), all actions on the part of the Stockholder and all
other Persons (including any court) necessary for the authorization, execution,
delivery and performance by the Stockholder of this Agreement and the other
Transaction Documents to which the Stockholder is a party have been duly taken.
(b) The Stockholder, acting in each capacity in which he is
entitled, by reason of the Company's Charter Documents or the Governmental
Requirements of the Company's Organization State or for any other reason, to
vote to approve or disapprove the consummation of the Merger, has voted all the
shares of Company Capital Stock owned by him and entitled to a vote or votes on
that matter, in any one or more of the manners prescribed or permitted by the
Company's Charter Documents or the Governmental Requirements of the Company's
Organization State, whichever are controlling, to approve this Agreement and the
consummation of the Merger and the other transactions contemplated hereby.
Section 3.04. NO CONFLICTS OR LITIGATION. The execution,
delivery and performance in accordance with their respective terms by the
Stockholder of this Agreement and the other
-16-
Transaction Documents to which the Stockholder is a party do not and will not
(a) violate or conflict with any Governmental Requirement, (b) breach or
constitute a default under any agreement or instrument to which the Stockholder
is a party or by which the Stockholder or any of the shares of Company Capital
Stock owned by Stockholder is bound, (c) result in the creation or imposition
of, or afford any Person the right to obtain, any Lien upon any of the shares of
Company Capital Stock owned by the Stockholder (or upon any revenues, income or
profits of the Stockholder therefrom) or (d) if the Stockholder is an Entity,
violate the Stockholder's Charter Documents. No Litigation is pending or, to the
knowledge of the Stockholder, threatened to which the Stockholder is or may
become a party which (a) questions or involves the validity or enforceability of
any of the Stockholder's obligations under any Transaction Document or (b) seeks
(or reasonably may be expected to seek) (i) to prevent or delay the consummation
by the Stockholder of the transactions contemplated by this Agreement to be
consummated by the Stockholder or (ii) damages in connection with any
consummation by the Stockholder of the transactions contemplated by this
Agreement.
Section 3.05. NO BROKERS. The Stockholder has not, directly or
indirectly, in connection with this Agreement or the transactions contemplated
hereby (a) employed any broker, finder or agent (other than a Purchaser
Representative) or (b) agreed to pay or incurred any obligation to pay any
broker's or finder's fee, any sales commission or any similar form of
compensation.
Section 3.06. PREEMPTIVE AND OTHER RIGHTS; WAIVER. Except for
the right of the Stockholder to receive shares of ARS Common Stock as a result
of the Merger or to acquire ARS Common Stock pursuant to any written option
granted by ARS to the Stockholder, the Stockholder either (a) does not own or
otherwise have any statutory or contractual preemptive or other right of any
kind (including any right of first offer or refusal) to acquire any shares of
Company Capital Stock or ARS Common Stock or (b) hereby irrevocably waives each
right of that type the Stockholder does own or otherwise has.
Section 3.07. CONTROL OF RELATED BUSINESSES. Except as
accurately set forth in Schedule 3.07, the Stockholder is not, alone or with one
or more other Persons, the controlling Affiliate of any Entity, business or
trade (other than the Company and the Company Subsidiaries, if the Stockholder
is an Affiliate of the Company) that (a) is engaged in any line of business
which is the same as or similar to any line of business in which the Company or
any Company Subsidiary is engaged or (b) is, or has within the three-year period
ending on the date of this Agreement, engaged in any transaction with the
Company or any Company Subsidiary, except for transactions in the ordinary
course of business of the Company or that Company Subsidiary.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF
THE COMPANY AND THE STOCKHOLDERS
Section 4.02. QUALIFICATION. Section 4.02 of the Disclosure
Statement accurately lists all the jurisdictions in which each of the Company
and the Company Subsidiaries is authorized or qualified to own or lease and to
operate its properties or to carry on its business as now conducted, and neither
the Company nor any Company Subsidiary owns, leases or operates properties or
carries on its business in any jurisdiction not listed in that Section which is
Material to the Company.
Section 4.03. AUTHORIZATION; ENFORCEABILITY; ABSENCE OF
CONFLICTS; REQUIRED CONSENTS. (a) The execution, delivery and performance by the
Company of this Agreement and each other Transaction Document to which it is a
party, and the effectuation of the Merger and the other transactions
contemplated hereby and thereby, are within its corporate or other power under
its Charter Documents and the applicable Governmental Requirements of its
Organization State and have been duly authorized by all proceedings, including
actions permitted to be taken in lieu of proceedings, required under its Charter
Documents and those Governmental Requirements.
(b) This Agreement has been, and each of the other Transaction
Documents to which the Company is a party, when executed and delivered to ARS
(or, in the case of the Certificates of Merger, the applicable Governmental
Authorities) will have been, duly executed and delivered by the Company and is,
or when so executed and delivered will be, the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except as that enforceability may be (i) limited by any applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and (ii) subject to general
principles of equity (regardless of whether that enforceability is considered in
a proceeding in equity or at law).
(c) The execution, delivery and performance in accordance with
their respective terms by the Company of the Transaction Documents to which it
is a party have not and will not (i) violate, breach or constitute a default
under (A) the Charter Documents of any of the Company and the Company
Subsidiaries, (B) any Governmental Requirement applicable to any of the Company
and the Company Subsidiaries or (C) any Material Agreement of the Company, (ii)
result in the acceleration or mandatory prepayment of any Indebtedness, or any
Guaranty not constituting Indebtedness, of any of the Company and the Company
Subsidiaries or afford any holder of any of that Indebtedness, or any
beneficiary of any of those Guaranties, the right to require any of the Company
and the Company Subsidiaries to redeem, purchase or otherwise acquire, reacquire
or repay any of that Indebtedness, or to perform any of those Guaranties, (iii)
cause or result in the imposition of, or afford any Person the right to obtain,
any Lien upon any property or assets of any of the Company and the Company
Subsidiaries (or upon revenues, income or profits of any of the Company and the
Company Subsidiaries therefrom) or (iv) except as set forth in Section 4.03 of
the
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Disclosure Statement, result in the revocation, cancellation, suspension or
material modification, in any single case or in the aggregate, of any
Governmental Approval possessed by any of the Company and the Company
Subsidiaries at the date hereof and necessary for the ownership or lease or the
operation of its properties or the carrying on of its business as now conducted,
including any necessary Governmental Approval under each applicable
Environmental Law and Professional Code.
(d) Except for (i) the filing of the Certificates of Merger
with the applicable Governmental Authorities, (ii) filings of the Registration
Statement under the Securities Act and the SEC order declaring the Registration
Statement effective under the Securities Act and (iii) as may be required by the
HSR Act or the applicable state securities or blue sky laws, no Governmental
Approvals are required to be obtained, and no reports or notices to or filings
with any Governmental Authority are required to be made, by any of the Company
and the Company Subsidiaries for the execution, delivery or performance by the
Company of the Transaction Documents to which it is a party, the enforcement
against the Company of its obligations thereunder or the effectuation of the
Merger and the other transactions contemplated thereby.
Section 4.04. CHARTER DOCUMENTS AND RECORDS; NO VIOLATION. The
Company has caused true, complete and correct copies of the Charter Documents,
each as in effect on the date hereof, and the minute books and similar corporate
or other Entity records of each of the Company and the Company Subsidiaries to
be delivered or otherwise made available to ARS. No breach or violation of any
Charter Document of any of the Company and the Company Subsidiaries has occurred
and is continuing.
Section 4.05. NO DEFAULTS. No condition or state of facts
exists, or, with the giving of notice or the lapse of time or both, would exist,
which (a) entitles any holder of any outstanding Indebtedness, or any Guaranty
not constituting Indebtedness, of any of the Company and the Company
Subsidiaries, or a representative of that holder, to accelerate the maturity, or
require a mandatory prepayment, of that Indebtedness or Guaranty, or affords
that holder or its representative, or any beneficiary of that Guaranty, the
right to require any of the Company and the Company Subsidiaries to redeem,
purchase or otherwise acquire, reacquire or repay any of that Indebtedness, or
to perform that Guaranty in whole or in part, (b) entitles any Person to obtain
any Lien (other than a Permitted Lien) upon any properties or assets of any of
the Company and the Company Subsidiaries (or upon revenues, income or profits of
any of the Company and the Company Subsidiaries therefrom) or (c) constitutes a
violation or breach of, or a default under, any Material Agreement of the
Company by any of the Company and the Company Subsidiaries.
Section 4.06. COMPANY SUBSIDIARIES. Section 4.06 of the
Disclosure Statement either (a) accurately sets forth the form of organization,
legal name, each assumed name and Organization State of each Company Subsidiary
or (b) correctly states no Entity is a Company Subsidiary. Except as accurately
disclosed in Section 4.06 of the Disclosure Statement, each Company Subsidiary
is a Wholly Owned Subsidiary. In the case of any Company Subsidiary that is not
a Wholly Owned Subsidiary, Section 4.06 of the Disclosure Statement accurately
sets forth,
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by each class and each series within each class, the number of outstanding
shares of Capital Stock of the Company Subsidiary, (a) the Company's aggregate
direct and indirect ownership of those shares and (b) the name and address of
record and percentage ownership of those shares of each holder of record thereof
other than the Company or a Company Subsidiary. No Lien exists on any
outstanding share of Capital Stock of any Company Subsidiary which is owned
directly or indirectly by the Company other than (a) the Liens, if any,
described in Section 4.06 of the Disclosure Statement, all of which will be
released at or before the Effective Time, and (b) Permitted Liens. Except as
accurately set forth in Section 4.06 of the Disclosure Statement, the Company
does not own, of record or beneficially, directly or indirectly through any
Person, and does not control, directly or indirectly through any Person or
otherwise, any Capital Stock or Derivative Securities of any Entity other than a
Company Subsidiary.
Section 4.07. CAPITAL STOCK OF THE COMPANY AND THE COMPANY
SUBSIDIARIES. All the issued and outstanding shares of Capital Stock of each of
the Company and the Company Subsidiaries (a) have been duly authorized and
validly issued in accordance with the applicable Governmental Requirements of
their issuer's Organization State and Charter Documents and (b) are fully paid
and nonassessable. Neither the Company nor any Company Subsidiary has issued or
sold any shares of its outstanding Capital Stock in breach or violation of (a)
any applicable statutory or contractual preemptive rights, or any other rights
of any kind (including any rights of first offer or refusal), of any Person or
(b) the terms of any of its Derivative Securities which then were outstanding.
No Person has, otherwise than solely by reason of that Person's right, if any,
to vote shares of the Capital Stock of the Company or any Company Subsidiary it
holds (to the extent those shares afford the holder thereof any voting rights)
any right to vote on any matter with the holders of Capital Stock of the Company
or any Company Subsidiary.
Section 4.08. TRANSACTIONS IN CAPITAL STOCK. Except as
accurately set forth in Section 4.08 of the Disclosure Statement: (a) the
Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire or reacquire any of its equity securities or any interests
therein or to pay any dividend or make any distribution in respect thereof; and
(b) no transaction has been effected, and no action in contemplation of the
transactions described in this Agreement has been taken, respecting the equity
ownership of either the Company or any Company Subsidiary.
Section 4.09. NO BONUS SHARES. Except as accurately set forth
in Section 4.09 of the Disclosure Statement, no outstanding share of Capital
Stock of the Company was issued for less than the fair market value thereof at
the time of issuance or was issued in exchange for any consideration other than
cash.
Section 4.10. PREDECESSOR STATUS; ETC. Section 4.10 of the
Disclosure Statement accurately lists all the legal and assumed names of all
predecessor companies for the past five years of the Company, including the
names of any Entities from which the Company previously acquired material
assets. Except as accurately disclosed in Section 4.10 of the Disclosure
Statement, the
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Company has not been a Subsidiary or division of another corporation or a part
of an acquisition that later was rescinded.
Section 4.11. RELATED PARTY AGREEMENTS. Except as set forth in
Schedule 4.11, each Related Party Agreement in effect on the date hereof will
have been terminated as of the IPO Closing Date, and no Related Party Agreement
will exist then or thereafter to and including the Effective Time.
Section 4.12. LITIGATION. Except as accurately disclosed in
Section 4.12 of the Disclosure Statement, no Litigation is pending or, to the
knowledge of the Company or any Stockholder, threatened to which the Company or
any Company Subsidiary is or may become a party.
Section 4.13. FINANCIAL STATEMENTS; DISCLOSURE. (a) FINANCIAL
STATEMENTS. (i) The Financial Statements (including in each case the related
schedules and notes) delivered to ARS present fairly, in all material respects,
the consolidated financial position of the Company and the Company Subsidiaries
at the respective dates of the balance sheets included therein and the
consolidated results of their operations and their consolidated cash flows and
stockholders' or other owners' equity for the respective periods set forth
therein and have been prepared in accordance with GAAP. As of the date of any
balance sheet included in those Financial Statements, neither the Company nor
any Company Subsidiary then had any outstanding Indebtedness to any Person or
any liabilities of any kind (including contingent obligations, tax assessments
or unusual forward or long-term commitments), or any unrealized or anticipated
loss, which in the aggregate then were Material to the Company and required to
be reflected in those Financial Statements or in the notes related thereto in
accordance with GAAP which were not so reflected.
(ii) Since the Current Balance Sheet Date, no change has
occurred in the business, operations, properties or assets, liabilities,
condition (financial or other) or results of operations of the Company or any
Company Subsidiary that could reasonably be expected, either alone or together
with all other such changes, to have a Material Adverse Effect on the Company.
(b) DISCLOSURE. (i) As of the date hereof, all Information
that has been made available to ARS by or on behalf of the Company prior to the
date of this Agreement in connection with the transactions contemplated hereby
is, taken together, true and correct in all material respects (other than
financial budgets and projections) and does not contain any untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements contained therein not materially misleading in light of the
circumstances under which those statements were made.
(ii) All Information that is made available after the date
hereof from time to time prior to the Effective Time to ARS by or on behalf of
the Company in connection with or pursuant to this Agreement, any other
Transaction Document or the transactions contemplated hereby or thereby will be,
when made available and taken together, true and correct in all material
respects
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(other than financial budgets and projections) and will not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements contained therein not materially misleading in light of
the circumstances under which those statements are made.
(iii) All financial budgets and projections that have been or
are hereafter from time to time prepared by the Company or any of its
Representatives and made available prior to the Effective Time to ARS pursuant
to or in connection with this Agreement, any other Transaction Document or the
transactions contemplated hereby or thereby have been and will be prepared and
furnished to ARS in good faith and were and will be based on facts and
assumptions that are believed by the management of the Company to be reasonable
in light of the then current and foreseeable business conditions of the Company
and the Company Subsidiaries and represented and will represent that
management's good faith estimate of the consolidated projected financial
performance of the Company and the Company Subsidiaries based on the information
available to the Responsible Officer at the time so furnished.
Section 4.14. COMPLIANCE WITH LAWS. (a) Except as accurately
disclosed in Section 4.14 of the Disclosure Statement: (i) each of the Company
and the Company Subsidiaries possesses, or, if required by the applicable
Environmental Laws (including those relating to the maintenance, repair or
servicing of appliances, equipment or other products containing
chlorofluorocarbons or hydrochlorofluorocarbons) and Professional Codes, one or
more of its employees as required by those Environmental Laws and Professional
Codes possesses, all necessary master licenses and similar Governmental
Approvals required for the conduct of its business; and (ii) to the knowledge of
the Company, each of the Company and the Company Subsidiaries and such one or
more of its employees are in compliance in all material respects with the terms
and conditions of all Governmental Approvals necessary for the ownership or
lease and the operation of its properties (including all the facilities and
sites it owns or holds under any lease) and the carrying on of its business as
now conducted. The Company has provided ARS with an accurate, complete written
list of all the Governmental Approvals so possessed (other than permits for
particular jobs for customers as may be required under the applicable
Professional Codes). To the knowledge of the Company, all the Governmental
Approvals so listed are valid, and, except as accurately disclosed in Section
4.14 of the Disclosure Statement, neither the Company nor any Company Subsidiary
has received, nor to the knowledge of any Stockholder has any employee of either
received, any notice from any Governmental Authority of its intention to cancel,
terminate or not renew any of those Governmental Approvals.
(b) Except as accurately disclosed in Section 4.14 of the
Disclosure Statement, each of the Company and the Company Subsidiaries: (i) to
the knowledge of the Company, has been and continues to be in compliance with
all Governmental Requirements applicable to it or any of its presently or
previously owned or operated properties (including all the facilities and sites
now or previously owned or held by it under any lease), businesses or
operations, including all applicable Governmental Requirements under ERISA,
Environmental Laws and Professional Codes; and (ii)(A) neither the Company nor
any Company Subsidiary has received, nor to the knowledge of the Company has any
employee of either received, any notice from any Governmental Authority which
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asserts, or raises the possibility of assertion of, any noncompliance with any
of those Governmental Requirements and, to the knowledge of each of the Company,
the Company Subsidiaries and the Stockholders, (B) no condition or state of
facts exists which would provide a valid basis for any such assertion.
Section 4.15. CERTAIN ENVIRONMENTAL MATTERS. Except as
accurately disclosed in Section 4.15 of the Disclosure Statement: (a) to the
knowledge of the Company, the Company and each Company Subsidiary have complied,
and remain in compliance, to the knowledge of the Company, with the provisions
of all Environmental Laws applicable to any of them or any of their respective
presently owned or operated facilities, sites or other properties, businesses
and operations and which relate to the reporting by the Company and each Company
Subsidiary of all sites presently owned or operated by any of them where Solid
Wastes, Hazardous Wastes or Hazardous Substances have been treated, stored,
disposed of or otherwise handled; (b) no release (as defined in those
Environmental Laws) at, from, in or on any site owned or operated by the Company
or any Company Subsidiary has occurred which, if all relevant facts were known
to the relevant Governmental Authorities, reasonably could be expected to
require remediation to avoid deed record notices, restrictions, liabilities or
other consequences that would not be applicable if that release had not
occurred; (c) neither the Company nor any Company Subsidiary (or any agent or
contractor of either) has transported or arranged for the transportation of any
Solid Wastes, Hazardous Wastes or Hazardous Substances to, or disposed or
arranged for the disposition of any Solid Wastes, Hazardous Wastes or Hazardous
Substances at, any off-site location that could lead to any claim against the
Company, any Company Subsidiary, ARS or Newco, as a potentially responsible
party or otherwise, for any clean-up costs, remedial work, damage to natural
resources, personal injury or property damage, including any claim under CERCLA;
and (d) no storage tanks exist on or under any of the properties owned or
operated by the Company or any Company Subsidiary from which any Solid Wastes,
Hazardous Wastes or Hazardous Substances have been released into the surrounding
environment. The Company has provided ARS with copies (or if not available,
accurate written summaries) of all environmental investigations, studies,
audits, reviews and other analyses conducted by or on behalf, or which otherwise
are in the possession, of the Company or any Company Subsidiary respecting any
facility, site or other property presently owned or operated by the Company and
each Company Subsidiary.
Section 4.16. LIABILITIES AND OBLIGATIONS. Section 4.16 of the
Disclosure Statement accurately lists all present liabilities, of every kind,
character and description and whether accrued, absolute, fixed, contingent or
otherwise, of each of the Company and the Company Subsidiaries which (a) (i)
exceed or reasonably could be expected to exceed $10,000 and (ii) (A) had been
incurred prior to the Current Balance Sheet Date, but are not reflected on the
Current Balance Sheet, or (B) were incurred after the Current Balance Sheet
otherwise than in the ordinary course of business, and consistent with the past
practice, of that Entity. That Section also accurately lists and describes, for
each of the Company and the Company Subsidiaries: (a) each of its outstanding
secured and unsecured Guaranties not constituting its Indebtedness and, for each
of those Guaranties, whether any Stockholder or Related Person or Affiliate of
any Stockholder is a Person whose obligation is covered by that Guaranty, and
(b) for each of the items listed under clause (a)
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of this sentence, (i) if that item is secured by any property or asset of the
Company or any Company Subsidiary, the nature of that security, and (ii) if that
item is covered in whole or in part by a Guaranty of any Stockholder or any
Related Person or Affiliate of any Stockholder, the name of the guarantor.
Section 4.17. RECEIVABLES. Except as accurately set forth in
Section 4.17 of the Disclosure Statement; all the accounts and notes or other
advances receivable of the Company and the Company Subsidiaries reflected on the
Current Balance Sheet were collected, or are, in the good faith belief of the
Company's management, collectible, in the respective amounts so reflected, net
of the reserves, if any, reflected in the Current Balance Sheet.
Section 4.18. OWNED AND LEASED REAL PROPERTIES. (a) Section
4.18 of the Disclosure Statement accurately lists and correctly describes in all
material respects: (i) all real properties owned by any of the Company and the
Company Subsidiaries and, for each of those properties, the address thereof, the
type and square footage of each structure located thereon and the use thereof in
the business of the Company and the Company Subsidiaries; (ii) all real
properties of which any of the Company and the Company Subsidiaries is the
lessee and, for each of those properties, the address thereof, the type and
square footage of each structure located thereon the Company or a Company
Subsidiary is leasing and the expiration date of its lease and the use thereof
in the business of the Company and the Company Subsidiaries; and (iii) in the
case of each real property listed as being owned, whether it was previously
owned, and in the case of each real property listed as being leased, whether it
is presently owned, by any Stockholder or any of his Related Persons or
Affiliates (other than the Company and the Company Subsidiaries, if the
Stockholder is an Affiliate of the Company).
(b) The Company has provided ARS with true, complete and
correct copies of all title reports and insurance policies owned or in the
possession of any of the Company and the Company Subsidiaries and relating to
any of the real properties listed as being owned in Section 4.18 of the
Disclosure Statement. Except as accurately set forth in that Section or those
reports and policies, and except for Permitted Liens, the Company or a Company
Subsidiary owns in fee, and has good, valid and marketable title to, free and
clear of all Liens, each property listed in that Section as being owned.
(c) The Company has provided ARS with true, correct and
complete copies of all leases under which the Company or a Company Subsidiary is
leasing each of the properties listed in Section 4.18 of the Disclosure
Statement as being leased and, except as accurately set forth in Section 4.18 of
the Disclosure Statement, (i) each of those leases is, to the knowledge of the
Company, valid and binding on the lessor party thereto, and (ii) the lessee
party thereto has not sublet any of the leased space to any Person other than
the Company or a Company Subsidiary.
(d) The fixed assets of each of the Company and the Company
Subsidiaries are affixed only to one or more of the real properties listed in
Section 4.18 of the Disclosure Statement
-24-
and, except as accurately set forth in that Section, are well-maintained and
adequate for the purposes for which they presently are being used or held for
use, ordinary wear and tear excepted.
(e) The Company has accurately disclosed in all material
respects in writing to ARS all plans or projects involving the opening of new
operations, the expansion of any existing operations or the acquisition of any
real property or existing business, with respect to which management of the
Company or any Company Subsidiary has made any expenditure in the two-year
period prior to the date of the Agreement in excess of $25,000, or which if
pursued by the Company or any Company Subsidiary would require additional
capital expenditures in excess of $25,000.
Section 4.19. OWNED AND LEASED PROPERTY, PLANT AND EQUIPMENT
(a) The Company has provided ARS with a list accurate and complete in all
material respects of the Property, Plant and Equipment owned and leased by any
of the Company and the Company Subsidiaries, which list states, in the case of
each of those properties listed as being owned, whether it was previously owned,
and in the case of each of those properties listed as being leased, whether it
is presently owned, by any Stockholder or any of his Related Persons or
Affiliates (other than the Company and the Company Subsidiaries, if the
Stockholder is an Affiliate of the Company).
(b) Except as accurately set forth in Section 4.19 of the
Disclosure Statement and except for Permitted Liens, the Company or a Company
Subsidiary has good, valid and marketable title to, free and clear of all Liens,
each property listed in that Section as being owned.
(c) The Company has provided ARS with true, correct and
complete copies of all leases under which the Company or a Company Subsidiary is
leasing each of the properties listed in Section 4.19 of the Disclosure
Statement as being leased and all leases referred to in Section 4.21 and, except
as accurately set forth in Section 4.19 of the Disclosure Statement, (i) each of
those leases is, to the knowledge of the Company, valid and binding on the
lessor party thereto, and (ii) the lessee party thereto has not sublet any of
the leased property to any Person other than the Company or a Company
Subsidiary.
(d) Except as accurately set forth in Section 4.19 of the
Disclosure Statement, all the Property, Plant and Equipment listed therein are
in good working order and condition, ordinary wear and tear excepted, and
adequate for the purposes for which they presently are being used or held for
use.
Section 4.20. PROPRIETARY RIGHTS. Except as accurately set
forth in Section 4.20 of the Disclosure Statement, each of the Company and the
Company Subsidiaries owns or has the legal right to use all Proprietary Rights
that are necessary to the conduct of its business as now conducted, in each case
free of any claims or infringements known to the Company or any Stockholder.
Section 4.20 of the Disclosure Statement accurately (a) lists these Proprietary
Rights and (b) indicates those owned by the Company or any Company Subsidiary
and, for those not listed as so owned, the agreement or other arrangement
pursuant to which they are possessed. Except as accurately set forth in that
Section, (a) no consent of any Person will be required for the use of any
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of these Proprietary Rights by ARS or any Subsidiary of ARS following the
Effective Time and (b) no governmental registration of any of these Proprietary
Rights has lapsed or expired or been canceled, abandoned, opposed or the subject
of any reexamination request.
Section 4.21. TITLE TO OTHER PROPERTIES. In each case, free
and clear of all Liens except for Permitted Liens and as accurately set forth in
Section 4.21 of the Disclosure Statement, each of the Company and the Company
Subsidiaries has good and valid title to, or holds under a lease valid and
binding on the lessor party thereto, all its tangible personal properties and
assets (other than Property, Plant and Equipment) that individually is or in the
aggregate are Material to the Company.
Section 4.22. COMMITMENTS. (a) Except as accurately set forth
in Section 4.22(a) of the Disclosure Statement, the Company has provided ARS
with a complete, accurate list of each of the following (each a "Company
Commitment") to which any of the Company and the Company Subsidiaries is a party
or by which any of its properties is bound and which presently remains executory
in whole or in any part:
(i) each partnership, joint venture or cost-sharing agreement;
(ii) each guaranty or suretyship, indemnification or
contribution agreement or performance bond;
(iii) each instrument, agreement or other obligation
evidencing or relating to Indebtedness of any of the Company and the
Company Subsidiaries or to money lent or to be lent to another Person;
(iv) each contract to purchase or sell real property;
(v) each agreement with dealers or sales or commission agents,
public relations or advertising agencies, accountants or attorneys
(other than in connection with this Agreement and the transactions
contemplated hereby) involving total payments within any 12-month
period in excess of $10,000 and which is not terminable without penalty
and on no more than 30 days' prior notice;
(vi) each Related Party Agreement involving total payments
within any 12-month period in excess of $10,000 and which is not
terminable without penalty on no more than 30 days' prior notice;
(vii) each agreement for the acquisition or provision of
services, supplies, equipment, inventory, fixtures or other property
involving more than $10,000 in the aggregate;
-26-
(viii) each contract containing any noncompetition agreement,
covenant or undertaking;
(ix) each agreement providing for the purchase from a supplier
of all or substantially all the requirements of the Company or any
Company Subsidiary of a particular product or service; or
(x) each other agreement or commitment not made in the
ordinary course of business or that is Material to the Company.
True, correct and complete copies of all written Company Commitments, and true,
correct and complete written descriptions of all oral Company Commitments, have
heretofore been delivered or made available to ARS. Except as accurately set
forth in Section 4.22(a) of the Disclosure Statement: (i) there are no existing
or asserted defaults, events of default or events, occurrences, acts or
omissions that, with the giving of notice or lapse of time or both, would
constitute defaults or events of default under any Company Commitment Material
to the Company by any of the Company and the Company Subsidiaries or, to the
knowledge of the Company, any other party thereto; and (ii) no penalties have
been incurred, nor are amendments pending, with respect to the Company
Commitments Material to the Company. The Company Commitments are in full force
and effect and are valid and enforceable obligations of the Company or the
Company Subsidiaries parties thereto and, to the knowledge of the Company, the
other parties thereto in accordance with their respective terms, and no
defenses, off-sets or counterclaims have been asserted or, to the knowledge of
the Company, may be made by any party thereto (other than by the Company or a
Company Subsidiary), nor has the Company or a Company Subsidiary, as the case
may be, waived any rights thereunder, except as accurately described in Section
4.22 of the Disclosure Statement.
(b) Except as accurately disclosed in Section 4.22(b) of the
Disclosure Statement or contemplated hereby or by any other Transaction Document
to which the Company or any Company Subsidiary or Stockholder is a party: (i)
neither the Company nor any Company Subsidiary or Stockholder has received
notice of any plan or intention of any other party to any Company Commitment to
exercise any right to cancel or terminate any Company Commitment, and neither
the Company nor any Company Subsidiary or Stockholder knows of any condition or
state of facts which would justify the exercise of such a right; and (ii)
neither the Company nor any Company Subsidiary or Stockholder currently
contemplates, or has reason to believe any other Person currently contemplates,
any amendment or change to any Company Commitment.
Section 4.23. CAPITAL EXPENDITURES. Section 4.23 of the
Disclosure Statement accurately sets forth the total amount of capital
expenditures currently budgeted to be incurred by the Company and the Company
Subsidiaries during the balance of the Company's current fiscal year. Except as
accurately set forth in that Section, to the knowledge of the Company and the
Stockholders, no condition or state of facts exists which will cause the total
capital expenditures of the Company and the Company Subsidiaries which will be
required to replace worn-out Property, Plant and Equipment in any of the
Company's five fiscal years following that current fiscal year to
-27-
exceed by a material amount the amount budgeted for capital expenditures of that
type by the Company and the Company Subsidiaries for that current fiscal year in
order to maintain the types and levels of sales and services the Company and the
Company Subsidiaries presently provide.
Section 4.24. INVENTORIES. Except as accurately set forth in
Section 4.24 of the Disclosure Statement: (a) all inventories, net of reserves
determined in accordance with GAAP, of each of the Company and the Company
Subsidiaries which are classified as such on the Current Balance Sheet are, to
the knowledge of the Company, merchantable and salable or usable in the ordinary
course of business of the Company and the Company Subsidiaries; (b) the
inventories reflected in the Financial Statements, as at the Current Balance
Sheet Date, (i) were reasonable in relation to the then existing circumstances
of the Company and the Company Subsidiaries on a consolidated basis and
classified as current assets in accordance with GAAP, (ii) were consistent with
their past practices and (iii) fairly reflected the average inventory levels
maintained during the 12-month periods ended on that date; and (c) neither the
Company nor any Company Subsidiary depends on any single vendor for its
inventories the loss of which could have a Material Adverse Effect on the
Company or ever has sustained a difficulty Material to the Company in obtaining
its inventories.
Section 4.25. INSURANCE. Except as accurately set forth in
Section 4.25 of the Disclosure Statement: (a) the Company has provided ARS with:
(i) a list accurate as of the Current Balance Sheet Date of all insurance
policies then carried by each of the Company and the Company Subsidiaries; (ii)
an accurate list of all insurance loss runs and worker's compensation claims
received for the most recently ended three policy years; and (iii) true,
complete and correct copies of all insurance policies carried by each of the
Company and the Company Subsidiaries which are in effect, all of which (A) have
been issued by insurers of recognized responsibility and (B) currently are, and
will remain without interruption through the IPO Closing Date, in full force and
effect; (b) no insurance carried by the Company or any Company Subsidiary has
been canceled by the insurer during the past five years, and neither the Company
nor any Company Subsidiary has ever been denied coverage; and (c) neither the
Company nor any Company Subsidiary or Stockholder has received any notice or
other communication from any issuer of any such insurance policy of any material
increase in any deductibles, retained amounts or the premiums payable
thereunder, and, to the knowledge of the Company and the Stockholders, no such
increase in deductibles, retainages or premiums is threatened.
Section 4.26. EMPLOYEE MATTERS. (a) CASH COMPENSATION. The
Company has provided ARS with an accurate, complete written list of the names,
titles and rates of annual Cash Compensation, at the Current Balance Sheet Date
and at the date hereof (and the portions thereof attributable to salary or the
equivalent, fixed bonuses, discretionary bonuses and other Cash Compensation,
respectively) of all key employees (including all employees who are officers or
directors), nonemployee officers, nonemployee directors and key consultants and
independent contractors of each of the Company and the Company Subsidiaries.
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(b) EMPLOYMENT AGREEMENTS. Section 4.26(b) of the Disclosure
Statement accurately lists all Employment Agreements remaining executory in
whole or in part on the date hereof, and the Company has provided ARS with true,
complete and correct copies of all those Employment Agreements. Neither the
Company nor any Company Subsidiary is a party to any oral Employment Agreement.
(c) OTHER COMPENSATION PLANS. Section 4.26(c) of the
Disclosure Statement accurately lists all Other Compensation Plans either
remaining executory at the date hereof or to become effective after the date
hereof. The Company has provided ARS with a true, correct and complete copy of
each of those Other Compensation Plans that is in writing and an accurate
description of each of those Other Compensation Plans that is not written.
Except as accurately set forth in Section 4.26(c) of the Disclosure Statement,
each of the Other Compensation Plans, including each that is a Welfare Plan, may
be unilaterally amended or terminated by the Company or any Company Subsidiary
without liability to any of them, except as to benefits accrued thereunder prior
to that amendment or termination.
(d) ERISA BENEFIT PLANS. Section 4.26(d) of the Disclosure
Statement accurately (i) lists each ERISA Pension Benefit Plan (A)(1) the
funding requirements of which (under Section 301 of ERISA or Section 412 of the
Code) are, or at any time during the six-year period ending on the date hereof
were, in whole or in part, the responsibility of the Company or any Company
Subsidiary or (2) respecting which the Company or any Company Subsidiary is, or
at any time during that period was, a "contributing sponsor" or an "employer" as
defined in Sections 4001(a)(13) and 3(5), respectively, of ERISA (each plan
described in this clause (A) being a "Company ERISA Pension Plan"), (B) each
other ERISA Pension Benefit Plan respecting which an ERISA Affiliate is, or at
any time during that period was, such a "contributing sponsor" or "employer"
(each plan described in this clause (B) being an "ERISA Affiliate Pension Plan")
and (C) each other ERISA Employee Benefit Plan that is being, or at any time
during that period was, sponsored, maintained or contributed to by the Company
or any Company Subsidiary (each plan described in this clause (C) and each
Company ERISA Pension Plan being a "Company ERISA Benefit Plan"), (ii) states
the termination date of each Company ERISA Benefit Plan and ERISA Affiliate
Pension Plan that has been terminated and (iii) identifies for each ERISA
Affiliate Pension Plan the relevant ERISA Affiliates. The Company has provided
ARS with (i) true, complete and correct copies of (A) each Company ERISA Benefit
Plan and ERISA Affiliate Pension Plan, (B) each trust agreement related thereto
and (C) all amendments to those plans and trust agreements. Except as accurately
set forth in Section 4.26(d) of the Disclosure Statement, (i) neither the
Company nor any Company Subsidiary is, or at any time during the six-year period
ended on the date hereof was, a member of any ERISA Group that currently
includes, or included when the Company or a Company Subsidiary was a member,
among its members any Person other than the Company and the Company Subsidiaries
and (ii) no Person is an ERISA Affiliate of the Company or any Company
Subsidiary (other than the Company or any Company Subsidiary in the case of any
other Company Subsidiary or any Company Subsidiary in the case of the Company,
if the Company and the Company Subsidiaries comprise an ERISA Group).
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(e) EMPLOYEE POLICIES AND PROCEDURES. Section 4.26(e) of the
Disclosure Statement accurately lists all Employee Policies and Procedures. The
Company has provided ARS with a copy of all written Employee Policies and
Procedures and a written description of all material unwritten Employee Policies
and Procedures.
(f) UNWRITTEN AMENDMENTS. Except as accurately described in
Section 4.26(f) of the Disclosure Statement, no material unwritten amendments
have been made, whether by oral communication, pattern of conduct or otherwise,
with respect to any of the Employment Agreements, Other Compensation Plans or
Employee Policies and Procedures.
(g) LABOR COMPLIANCE. To the knowledge of the Company, each of
the Company and the Company Subsidiaries has been and is in compliance with all
applicable Governmental Requirements respecting employment and employment
practices, terms and conditions of employment and wages and hours, and neither
the Company nor any Company Subsidiary is liable for any arrears of wages or
penalties for failure to comply with any of the foregoing. Neither the Company
nor any Company Subsidiary has engaged in any unfair labor practice or
discriminated on the basis of race, color, religion, sex, national origin, age,
disability or handicap in its employment conditions or practices. Except as
accurately set forth in Section 4.26(g) of the Disclosure Statement, there are
no (i) unfair labor practice charges or complaints or racial, color, religious,
sex, national origin, age, disability or handicap discrimination charges or
complaints pending or, to the knowledge of the Company, threatened against the
Company or any of the Company Subsidiaries before any Governmental Authority
(nor, to the knowledge of the Company, does any valid basis therefor exist) or
(ii) existing or, to the knowledge of the Company, threatened labor strikes,
disputes, grievances, controversies or other labor troubles affecting the
Company or any of the Company Subsidiaries (nor, to the knowledge of the
Company, does any valid basis therefor exist).
(h) UNIONS. Neither the Company nor any Company Subsidiary or
ERISA Affiliate has ever been a party to any agreement with any union, labor
organization or collective bargaining unit. No employees of the Company and the
Company Subsidiaries are represented by any union, labor organization or
collective bargaining unit. Except as accurately set forth in Section 4.26(h) of
the Disclosure Statement, to the knowledge of the Company, none of the employees
of the Company and the Company Subsidiaries has threatened to organize or join a
union, labor organization or collective bargaining unit.
(i) NO ALIENS All employees of each of the Company and the
Company Subsidiaries are citizens of, or are authorized in accordance with
federal immigration laws to be employed in, the United States.
(j) CHANGE OF CONTROL BENEFITS. Except as accurately set forth
in Section 4.26(j) of the Disclosure Statement, neither the Company nor any of
the Company Subsidiaries is a party to any agreement, or has established any
policy, practice or program, requiring it to make a payment or provide any other
form of compensation or benefit or vesting rights to any person performing
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services for the Company or any of the Company Subsidiaries which would not be
payable or provided in the absence of this Agreement or the consummation of the
transactions contemplated by this Agreement, including any parachute payment
under Section 280G of the Code.
(k) RETIREES. Neither the Company nor any of the Company
Subsidiaries has any obligation or commitment to provide medical, dental or life
insurance benefits to or on behalf of any of its employees who may retire or any
of its former employees who have retired except as may be required pursuant to
the continuation of coverage provisions of Section 4980B of the Code and the
applicable parallel provisions of ERISA.
Section 4.27. COMPLIANCE WITH ERISA, ETC. (a) COMPLIANCE. Each
of the Company ERISA Benefit Plans and Other Compensation Plans (each, a "Plan")
(i) is in substantial compliance with all applicable provisions of ERISA, as
well as with all other applicable Governmental Requirements, and (ii) has been
administered, operated and managed in accordance with its governing documents.
(b) QUALIFICATION. All Plans that are intended to qualify
under Section 401(a) of the Code (the "Qualified Plans") are so qualified and
have been determined by the IRS to be so qualified (or application for
determination letters have been timely submitted to the IRS). The Company has
provided ARS with true, complete and correct copies of the current plan
determination letters, most recent actuarial valuation reports, if any, most
recent Form 5500, or, as applicable, Form 5500-C/R, filed with respect to each
such Qualified Plan and most recent trustee or custodian report. To the extent
that any Qualified Plans have not been amended to comply with applicable
Governmental Requirements, the remedial amendment period permitting retroactive
amendment of these Qualified Plans has not expired and will not expire within
120 days after the Effective Time. All reports and other documents required to
be filed with any governmental agency or distributed to plan participants or
beneficiaries (including annual reports, summary annual reports, actuarial
reports, PBGC-1 Forms, audits or Returns) have been timely filed or distributed.
(c) NO PROHIBITED TRANSACTIONS, ETC. None of the Stockholders,
any Plan or the Company or any Company Subsidiary has engaged in any Prohibited
Transaction. No Plan has incurred an accumulated funding deficiency, as defined
in Section 412(a) of the Code and Section 302(a) of ERISA, and no circumstances
exist pursuant to which the Company or any Company Subsidiary could have any
direct or indirect liability whatsoever (including being subject to any
statutory Lien to secure payment of any such liability), to the PBGC under Title
IV of ERISA or to the IRS for any excise tax or penalty with respect to any Plan
now or hereafter maintained or contributed to by the Company or any of its ERISA
Affiliates. Further:
(i) there have been no terminations, partial terminations or
discontinuances of contributions to any Qualified Plan without a
determination by the IRS that such action does not adversely affect the
tax-qualified status of that plan;
(ii) no Termination Event has occurred;
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(iii) no Reportable Event has occurred with respect to any
Plan which was not properly reported;
(iv) the valuation of assets of any Qualified Plan, as of the
Effective Time, shall equal or exceed the actuarial present value of
all "benefit liabilities" (within the meaning of Section 40001(a)(16)
of ERISA) under that plan in accordance with the assumptions contained
in the Regulations of the PBGC governing the funding of terminated
defined benefit plans;
(v) with respect to Plans qualifying as "group health plans"
under Section 4980B of the Code or Section 607(l) or 609 of ERISA and
related regulations (relating to the benefit continuation rights
imposed by "COBRA" or qualified medical child support orders), the
Company, each Company Subsidiary and the Stockholders have complied
(and at the Effective Time will have complied) in all material respects
with all reporting, disclosure, notice, election and other benefit
continuation and coverage requirements imposed thereunder as and when
applicable to those plans, and neither the Company nor any Company
Subsidiary has incurred (or will incur) any direct or indirect
liability or is (or will be) subject to any loss, assessment, excise
tax penalty, loss of federal income tax deduction or other sanction,
arising on account of or in respect of any direct or indirect failure
by the Company, any Company Subsidiary or any Stockholder, at any time
prior to the Effective Time, to comply with any such federal or state
benefit continuation or coverage requirement, which is capable of being
assessed or asserted before or after the Effective Time directly or
indirectly against the Company, any Company Subsidiary, any
Stockholder, the Surviving Corporation or ARS with respect to any of
those group health plans;
(vi) the Financial Statements as of the Current Balance Sheet
Date reflect the approximate total pension, medical and other benefit
liability for all Plans, and no material funding changes or
irregularities are reflected thereon which would cause those Financial
Statements to be not representative of prior periods; and
(vii) neither the Company nor any Company Subsidiary has
incurred liability under Section 4062 of ERISA.
(d) MULTIEMPLOYER PLANS. Except as set forth in Section
4.27(d) of the Disclosure Statement, neither the Company nor any Company
Subsidiary, and no ERISA Affiliate of any of them, is, or at any time during the
six-year period ended on the date hereof was, obligated to contribute to a
Multiemployer Plan. Neither the Company nor any Company Subsidiary, and no ERISA
Affiliate of any of them, has made a complete or partial withdrawal from a
Multiemployer Plan so as to incur withdrawal liability as defined in Section
4201 of ERISA.
(e) CLAIMS AND LITIGATION. Except as accurately set forth in
Section 4.27(e) of the Disclosure Statement, no Litigation or claims (other than
routine claims for benefits) are pending or, to the knowledge of the Company,
threatened against, or with respect to, any of the Plans or with
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respect to any fiduciary, administrator or sponsor thereof (in their capacities
as such), or any party-in-interest thereof.
(f) EXCISE TAXES, DAMAGES AND PENALTIES. No act, omission or
transaction has occurred which would result in the imposition on the Company or
any Company Subsidiary of (i) breach of fiduciary duty liability damages under
Section 409 of ERISA, (ii) a civil penalty assessed pursuant to subsection (c),
(i) or (l) of Section 502 of ERISA or (iii) any excise tax under applicable
provisions of the Code with respect to any Plan.
(g) VEBA WELFARE TRUST. Any trust funding a Plan, which is
intended to be exempt from federal income taxation pursuant to Section 501(c)(9)
of the Code, satisfies the requirements of that section and has received a
favorable determination letter from the IRS regarding that exempt status and has
not, since receipt of the most recent favorable determination letter, been
amended or operated in a way that would adversely affect that exempt status.
Section 4.28. TAXES. (a) Each of the following representations
and warranties in this Section 4.28 is qualified to the extent set forth in
Section 4.28 of the Disclosure Statement.
(b) All Returns required to be filed with respect to any Tax
for which any of the Company and the Company Subsidiaries is liable have been
duly and timely filed with the appropriate Taxing Authority, each Tax shown to
be payable on each such Return has been paid, each Tax payable by the Company or
a Company Subsidiary by assessment has been timely paid in the amount assessed
and adequate reserves have been established on the consolidated books of the
Company and the Company Subsidiaries for all Taxes for which any of the Company
and the Company Subsidiaries is liable, but the payment of which is not yet due.
Neither the Company nor any Company Subsidiary is, or ever has been, liable for
any Tax payable by reason of the income or property of a Person other than the
Company or a Company Subsidiary. Each of the Company and the Company
Subsidiaries has timely filed true, correct and complete declarations of
estimated Tax in each jurisdiction in which any such declaration is required to
be filed by it. No Liens for Taxes exist upon the assets of the Company or any
Company Subsidiary except Liens for Taxes which are not yet due. Neither the
Company nor any Company Subsidiary is, or ever has been, subject to Tax in any
jurisdiction outside of the United States. No Litigation with respect to any Tax
for which the Company or any Company Subsidiary is asserted to be liable is
pending or, to the knowledge of the Company or any Stockholder, threatened and
no basis which the Company or any Stockholder believes to be valid exists on
which any claim for any such Tax can be asserted against the Company or any
Company Subsidiary. There are no requests for rulings or determinations in
respect of any taxes pending between the Company or any Company Subsidiary and
any Taxing Authority. No extension of any period during which any Tax may be
assessed or collected and for which the Company or any Company Subsidiary is or
may be liable has been granted to any Taxing Authority. Neither the Company nor
any Company Subsidiary is or has been a party to any tax allocation or sharing
agreement. All amounts required to be withheld by any of the Company and the
Company Subsidiaries and paid to governmental agencies for income, social
security, unemployment insurance, sales, excise, use and other Taxes have been
collected or withheld and
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paid to the proper Taxing Authority. The Company and each Company Subsidiary
have made all deposits required by law to be made with respect to employees'
withholding and other employment taxes.
(c) Neither the Company nor any Stockholder is a "foreign
person," as that term is referred to in Section 1445(f)(3) of the Code.
(d) The Company has not filed a consent pursuant to Section
341(f) of the Code or any comparable provision of any other tax statute and has
not agreed to have Section 341(f)(2) of the Code or any comparable provision of
any other tax statute apply to any disposition of an asset. The Company has not
made, is not obligated to make and is not a party to any agreement that could
require it to make any payment that is not deductible under Section 280G of the
Code. No asset of the Company or of any Company Subsidiary is subject to any
provision of applicable law which eliminates or reduces the allowance for
depreciation or amortization in respect of that asset below the allowance
generally available to an asset of its type. No accounting method changes of the
Company or of any Company Subsidiary exist or are proposed or threatened which
could give rise to an adjustment under Section 481 of the Code.
Section 4.29. GOVERNMENT CONTRACTS. Except as accurately set
forth in Section 4.29 of the Disclosure Statement, neither the Company nor any
Company Subsidiary is a party to any governmental contract subject to price
redetermination or renegotiation.
Section 4.30. ABSENCE OF CHANGES. Since the Current Balance
Sheet Date, except as accurately set forth in Section 4.30 of the Disclosure
Statement, none of the following has occurred with respect to the Company or any
Company Subsidiary:
(a) any circumstance, condition, event or state of facts
(either singly or in the aggregate), other than conditions generally
affecting the Air Conditioning and Refrigeration Contracting or
Plumbing businesses, which has caused, is causing or will cause a
Material Adverse Effect on the Company;
(b) any change in its authorized Capital Stock or in any of
its outstanding Capital Stock or Derivative Securities;
(c) any Restricted Payment, except any declaration or payment
of dividends by any Company Subsidiary solely to the Company;
(d) any increase in, or any commitment or promise to increase,
the rates of Cash Compensation as of the date hereof, or the amounts or
other benefits paid or payable under any Company ERISA Pension Plan or
Other Compensation Plan, except for ordinary and customary bonuses and
salary increases for employees (other than the Stockholders or their
Immediate Family Members) at the times and in the amounts consistent
with its past practice;
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(e) any work interruptions, labor grievances or claims filed,
or any similar event or condition of any character, that will have a
Material Adverse Effect on the Surviving Corporation following the
Effective Time;
(f) any distribution, sale or transfer of, or any Company
Commitment to distribute, sell or transfer, any of its assets or
properties of any kind which singly is or in the aggregate are Material
to the Company, other than distributions, sales or transfers in the
ordinary course of its business and consistent with its past practices
to Persons other than the Stockholders and their Immediate Family
Members and Affiliates;
(g) any cancellation, or agreement to cancel, any
Indebtedness, obligation or other liability owing to it, including any
Indebtedness, obligation or other liability of any Stockholder or any
Related Person or Affiliate thereof, provided that it may negotiate and
adjust bills in the course of good faith disputes with customers in a
manner consistent with past practice, if all those adjustments are
included in the Supplemental Information provided ARS pursuant to
Section 6.08;
(h) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of its
assets, property or rights or requiring consent of any Person to the
transfer and assignment of any such assets, property or rights;
(i) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets
outside of the ordinary course of its business consistent with its past
practices;
(j) any waiver of any of its rights or claims that singly is
or in the aggregate are Material to the Company;
(k) any transaction by it outside the ordinary course of its
business or not consistent with its past practices;
(l) any incurrence by it of any Indebtedness or any Guaranty
not constituting its Indebtedness, or any Company Commitment to incur
any Indebtedness or any such Guaranty;
(m) any investment in the Capital Stock, Derivative Securities
or Indebtedness of any Person other than a Permitted Investment;
(n) except in accordance with the Company's consolidated
capital expenditure budget for the Company's current fiscal year, any
capital expenditure or series of related capital expenditures by the
Company and the Company Subsidiaries collectively in excess of $25,000,
or commitments by the Company and the Company Subsidiaries to make
capital expenditures totaling in excess of $25,000; or
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(o) any cancellation or termination of a Material Agreement of
the Company.
Section 4.31. BANK RELATIONS; POWERS OF ATTORNEY. The Company
has provided ARS with an accurate, complete written statement setting forth:
(a) the name of each financial institution in which the
Company or any Company Subsidiary has borrowing or investment
arrangements, deposit or checking accounts or safe deposit boxes;
(b) the types of those arrangements and accounts, including,
as applicable, names in which accounts or boxes are held, the account
or box numbers and the name of each Person authorized to draw thereon
or have access thereto; and
(c) the name of each Person holding a general or special power
of attorney from the Company or any Company Subsidiary and a
description of the terms of each such power.
Section 4.32. RELATIONS WITH GOVERNMENTS, ETC. Neither the
Company nor any Company Subsidiary has made, offered or agreed to offer anything
of value to any governmental official, political party or candidate for
government office which would cause the Company or any Company Subsidiary to be
in violation of the Foreign Corrupt Practices Act of 1977 or any Governmental
Requirement to a similar effect.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ARS AND NEWCO
Section 5.02. ORGANIZATION; POWER. ARS is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and each of ARS and Newco has all requisite corporate power and
authority under the laws of its Organization State and its Charter Documents to
own or lease and to operate its properties presently and following the Effective
Time and to carry on its business as now conducted and as proposed to be
conducted following the Effective Time. Neither ARS nor Newco has engaged in any
operations since its organization other than in connection with their formation
and capitalization and the transactions contemplated by this Agreement and the
Other Agreements.
Section 5.03. AUTHORIZATION; ENFORCEABILITY; ABSENCE OF
CONFLICTS; REQUIRED CONSENTS. (a) The execution, delivery and performance by
each of ARS and Newco of this Agreement and each other Transaction Document to
which it is a party, and the effectuation of the Merger and the other
transactions contemplated hereby and thereby, are within its corporate power
under its Charter Documents and the applicable Governmental Requirements of its
Organization State and have been duly authorized by all proceedings, including
actions permitted to be taken in lieu of proceedings, required under its Charter
Documents and the applicable Governmental Requirements of its Organization
State.
(b) This Agreement has been, and each of the other Transaction
Documents to which either of ARS or Newco is a party, when executed and
delivered to the other parties thereto (or, in the case of the Certificates of
Merger, the applicable Governmental Authorities), will have been, duly executed
and delivered by it and is, or when so executed and delivered will be, its
legal, valid and binding obligation, enforceable against it in accordance with
its terms, except as that enforceability may be (i) limited by any applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and (ii) subject to general
principles of equity (regardless of whether that enforceability is considered in
a proceeding in equity or at law).
(c) The execution, delivery and performance in accordance with
their respective terms by each of ARS and Newco of the Transaction Documents to
which it is a party have not and will not (i) violate, breach or constitute a
default under (A) the Charter Documents of ARS or Newco, (B) any Governmental
Requirement applicable to ARS or Newco or (C) any Material Agreement of ARS or
Newco, (ii) result in the acceleration or mandatory prepayment of any
Indebtedness, or any Guaranty not constituting Indebtedness, of ARS or Newco or
afford any holder of any of that Indebtedness, or any beneficiary of any of
those Guaranties, the right to require ARS or Newco to redeem, purchase or
otherwise acquire, reacquire or repay any of that Indebtedness, or to perform
any of those Guaranties, (iii) cause or result in the imposition of, or afford
any Person the right to obtain, any Lien upon any property or assets of ARS or
Newco (or upon any revenues, income or profits of either ARS or Newco therefrom)
or (iv) result in the revocation, cancellation,
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suspension or material modification, in any single case or in the aggregate, of
any Governmental Approval possessed by ARS or Newco at the date hereof and
necessary for the ownership or lease and the operation of its properties or the
carrying on of its business as now conducted, including any necessary
Governmental Approval under each applicable Environmental Law and Professional
Code.
(d) Except for (i) the filing of the Certificates of Merger
with the applicable Governmental Authorities, (ii) filings of the Registration
Statement under the Securities Act and the SEC order declaring the Registration
Statement effective under the Securities Act and (iii) as may be required by the
HSR Act or the applicable state securities or blue sky laws, no Governmental
Approvals are required to be obtained, and no reports or notices to or filings
with any Governmental Authority are required to be made, by ARS or Newco for the
execution, delivery or performance by ARS or Newco of the Transaction Documents
to which it is a party, the enforcement against ARS or Newco, as the case may
be, of its obligations thereunder or the effectuation of the Merger and the
other transactions contemplated thereby.
Section 5.04. CHARTER DOCUMENTS. ARS has delivered to the
Company true, complete and correct copies of the Charter Documents of each of
ARS and Newco. No breach or violation of any Charter Document of either ARS or
Newco has occurred and is continuing.
Section 5.05. CAPITAL STOCK OF ARS AND NEWCO. (a) Immediately
prior to the Effective Time, (i) the authorized Capital Stock of ARS will be
comprised of (A) 50,000,000 shares of ARS Common Stock and (B) 10,000,000 shares
of preferred stock, $.001 par value per share, (ii) before giving effect to the
Merger and the merger or other acquisition transactions contemplated by the
Other Agreements, (A) the number of shares of ARS Common Stock then issued and
outstanding will be as set forth in the Registration Statement when it becomes
effective under the Securities Act, (B) no shares of the ARS preferred stock
then will be issued or outstanding and (C) ARS will have reserved for issuance
pursuant to Other Compensation Plans or the exercise of Derivative Securities
the number of shares of ARS Common Stock set forth in the Registration Statement
when it becomes effective under the Securities Act.
(b) The authorized Capital Stock of Newco is comprised of
1,000 shares of Newco Common Stock, all of which shares are issued, outstanding
and owned, of record and beneficially, by ARS.
(c) All shares of ARS Common Stock and Newco Common Stock
outstanding immediately prior to the Effective Time, and all shares of ARS
Common Stock to be issued pursuant to Section 2.04, when issued, (i) will have
been duly authorized and validly issued in accordance with the DGCL and their
issuer's Charter Documents and (ii) will be fully paid and nonassessable. None
of the shares of ARS Common Stock to be issued pursuant to Section 2.04 will,
when issued, have been issued in breach or violation of (i) any applicable
statutory or contractual preemptive rights, or any other rights of any kind
(including any rights of first offer or refusal), of any Person or (ii) the
terms of any of its Derivative Securities then outstanding.
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Section 5.06. SUBSIDIARIES. Immediately prior to the IPO
Closing Date, (a) ARS will have no Subsidiaries other than Newco and each Entity
defined as "Newco" in each of the Other Agreements, (b) Newco will have no
Subsidiaries and (c) neither ARS nor Newco will own, of record or beneficially,
directly or indirectly through any Person or otherwise (except pursuant hereto
or to the Other Agreements), any Capital Stock or Derivative Securities of any
Entity not described in this Section 5.06 as a Subsidiary of ARS (in the case of
ARS) or any Entity (in the case of Newco).
Section 5.07. LIABILITIES. Except as disclosed in the Private
Placement Memorandum, neither ARS nor Newco has any material liabilities of any
kind other than those incurred in connection with this Agreement and the Other
Agreements and the transactions contemplated hereby and thereby, including the
IPO.
Section 5.08. COMPLIANCE WITH LAWS; NO LITIGATION. Each of ARS
and Newco is in compliance with all Governmental Requirements applicable to it,
and no Litigation is pending or, to the knowledge of ARS, threatened to which
ARS or Newco is or may become a party which (a) questions or involves the
validity or enforceability of any obligation of ARS or Newco under any
Transaction Document, (b) seeks (or reasonably may be expected to seek) (i) to
prevent or delay consummation by ARS or Newco of the transactions contemplated
by this Agreement to be consummated by ARS or Newco, as the case may be, or (ii)
damages from ARS or Newco in connection with any such consummation.
Section 5.09. NO BROKERS. ARS has not, directly or indirectly,
in connection with this Agreement or the transactions contemplated hereby (a)
employed any broker, finder or agent or (b) agreed to pay or incurred any
obligation to pay any broker's or finder's fee, any sales commission or any
similar form of compensation.
Section 5.10. PRIVATE PLACEMENT MEMORANDUM. At the date
hereof, the Private Placement Memorandum (other than the historical financial
statements, including the notes thereto, of the Founding Companies (other than
the Company) and the historical information contained therein respecting the
Company and the Stockholders, to which this Section 5.10 does not apply) does
not contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements contained therein not materially
misleading in the light of the circumstances under which those statements are
made.
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ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.02 ACCESS AND COOPERATION; DUE DILIGENCE. (a) From
the date hereof and until the IPO Closing Date, the Company will (i) afford to
the Representatives of ARS and each Other Founding Company reasonable access to
all the key employees, sites, properties, books and records of each of the
Company and the Company Subsidiaries, (ii) provide ARS with such additional
financial and operating data and other information relating to the business and
properties of each of the Company and the Company Subsidiaries as ARS or any
Other Founding Company may from time to time reasonably request and (iii)
cooperate with ARS and each Other Founding Company and their respective
Representatives in the preparation of any documents or other material which may
be required in connection with any Transaction Documents or any Other
Transaction Documents. Each Stockholder and the Company will treat all
Confidential Information obtained by them in connection with the negotiation and
performance of this Agreement or the due diligence investigations conducted with
respect to each Other Founding Company as confidential in accordance with the
provisions of Section 11.01. In addition, ARS will cause each Other Founding
Company to enter into a provision similar to this Section 6.02 in order to
require each Other Founding Company to keep confidential any Confidential
Information respecting any of the Company and the Company Subsidiaries obtained
by that Other Founding Company.
(b) Each of the Company and the Stockholders will use its best
efforts to secure, as soon as practicable after the date hereof, all approvals
or consents of third Persons as may be necessary to consummate the transactions
contemplated hereby.
(c) From the date hereof and until the IPO Closing Date, ARS
and Newco will (i) afford to the Representatives of the Company and the
Stockholders access to all sites, properties, books and records of ARS and
Newco, (ii) provide the Company with such additional financial and operating
data and other information relating to the business and properties of ARS and
Newco as the Company or any Stockholder may from time to time reasonably request
and (iii) cooperate with the Company and the Stockholders and their respective
Representatives in the preparation of any documents or other material which may
be required in connection with any Transaction Documents.
(d) If this Agreement is terminated pursuant to Section 12.1,
ARS promptly will return all written Confidential Information of the Company it
then possesses to the Company.
Section 6.03. CONDUCT OF BUSINESS PENDING CLOSING. From the
date hereof and until the Effective Time, the Company will, and will cause each
Company Subsidiary to, except as and only to the extent set forth in Section
6.03 of the Disclosure Statement:
(a) carry on its businesses in substantially the same manner
as it has heretofore and not introduce any material new method of
management, operation or accounting;
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(b) maintain its properties and facilities, including those
held under leases, in as good working order and condition as at
present, ordinary wear and tear excepted;
(c) perform all its obligations under agreements relating to
or affecting its assets, properties and other rights;
(d) keep in full force and effect without interruption all its
present insurance policies or other comparable insurance coverage;
(e) use reasonable commercial efforts to (i) maintain and
preserve its business organization intact, (ii) retain its present
employees and (iii) maintain its relationships with suppliers,
customers and others having business relations with it;
(f) comply with all applicable Governmental Requirements; and
(g) except as required or expressly permitted by this
Agreement, maintain the instruments and agreements governing its
outstanding Indebtedness and leases on their present terms and not
enter into new or amended Indebtedness or lease instruments or
agreements involving amounts over $5,000 in any case or $25,000 in the
aggregate, without the prior written consent of ARS (which consent will
not be unreasonably withheld).
Section 6.04. PROHIBITED ACTIVITIES. From the date hereof and
until the Effective Time, without the prior written consent of ARS or unless as
required or expressly permitted by this Agreement, the Company will not, and
will not permit any Company Subsidiary to:
(a) make any change in its Charter Documents;
(b) issue any of its Capital Stock or issue or otherwise
create any of its Derivative Securities;
(c) make any Restricted Payment (other than as provided in
Schedule 6.04);
(d) make any investments (other than Permitted Investments) in
the Capital Stock, Derivative Securities or Indebtedness of any Person;
(e) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures in a single
transaction or a series of related transactions involving an aggregate
amount of more than $25,000 otherwise than in the ordinary course of
its business and consistent with its past practice;
(f) increase or commit or promise to increase the Cash
Compensation payable or to become payable to any officer, director,
stockholder, employee or agent, consultant or independent contractor of
any of the Company and the Company Subsidiaries or make any
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discretionary bonus or management fee payment to any such Person,
except bonuses or salary increases to employees (other than the
Stockholders or their Immediate Family Members) at the times and in the
amounts consistent with its past practice;
(g) create, assume or permit to be created or imposed any
Liens (other than Permitted Liens) upon any of its assets or
properties, whether now owned or hereafter acquired, except for
purchase money Liens incurred in connection with the acquisition of
equipment with an aggregate cost not in excess of $10,000 and necessary
or desirable for the conduct of the business of any of the Company and
the Company Subsidiaries;
(h) (i) adopt, establish, amend or terminate any ERISA
Employee Benefit Plan, or any Other Compensation Plan or Employee
Policies and Procedures or (ii) take any discretionary action, or omit
to take any contractually required action, if that action or omission
could either (A) deplete the assets of any ERISA Employee Benefit Plan
or any Other Compensation Plan or (B) increase the liabilities or
obligations under any such plan;
(i) sell, assign, lease or otherwise transfer or dispose of
any of its owned or leased property or equipment otherwise than in the
ordinary course of its business and consistent with its past practice;
(j) negotiate for the acquisition of any business or the
start-up of any new business;
(k) merge, consolidate or effect a share exchange with, or
agree to merge, consolidate or effect a share exchange with, any other
Entity;
(l) waive any of its material rights or claims, provided that
it may negotiate and adjust bills in the course of good faith disputes
with customers in a manner consistent with past practice, but such
adjustments will not be deemed to be included in Section 4.17 of the
Disclosure Statement unless specifically listed in the Supplemental
Information;
(m) commit a material breach of or amend or terminate any
Material Agreement of the Company or any of its Governmental Approvals;
or
(n) enter into any other transaction (i) outside the ordinary
course of its business and consistent with its past practice or (ii)
prohibited hereby.
Section 6.05. NO SHOP; RELEASE OF DIRECTORS. (a) Each of the
Company and the Stockholders agrees that, from the date hereof and until the
first to occur of the Effective Time or the termination of this Agreement in
accordance with Article XII, neither the Company nor any Stockholder, nor any of
their respective officers and directors shall, and the Company and each
Stockholder will direct and use their best efforts to cause each of their
respective Representatives not to, initiate, solicit or encourage, directly or
indirectly, any inquiries or the making or
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implementation of any proposal or offer (including any proposal or offer to the
Stockholders) with respect to a merger, acquisition, consolidation or similar
transaction involving, or any purchase of all or any significant portion of the
assets or any equity securities of, the Company (any such proposal or offer
being an "Acquisition Proposal") or engage in any activities, discussions or
negotiations concerning, or provide any Confidential Information respecting, the
Company, any Other Founding Company or ARS to, or have any discussions with, any
Person relating to an Acquisition Proposal or otherwise facilitate any effort or
attempt to make or implement an Acquisition Proposal. The Company and each
Stockholder will: (i) immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any Persons conducted heretofore
with respect to any of the foregoing, and each will take the steps necessary to
inform the Persons referred to in the first sentence of this Section 6.05(a) of
the obligations undertaken in this Section 6.05(a); and (ii) notify ARS
immediately if any such inquiries or proposals are received by, any such
information is requested from or any such discussions or negotiations are sought
to be initiated or continued with the Company or any Stockholder.
(b) Each of the Company and the Stockholders hereby (i) waives
every right, if any, the Governmental Requirements of the Company's Organization
State afford the Company or Stockholders to require the Company's directors (or
their equivalents if the Company is not a corporation), in the exercise of their
fiduciary duties in their capacity as such, to engage in any of the activities
prohibited by this Section 6.05 and (ii) releases each such person from any and
all liability he might otherwise have to the Company or any Stockholders but for
this release.
Section 6.06. NOTICE TO BARGAINING AGENTS. Prior to the IPO
Closing Date, the Company will (a) satisfy any requirement for notice of the
transactions contemplated by this Agreement under applicable collective
bargaining agreements and (b) provide ARS with proof that any required notice
has been sent.
Section 6.07. NOTIFICATION OF CERTAIN MATTERS. The
Stockholders and the Company shall give prompt notice to ARS of (a) the
existence or occurrence of each condition or state of facts which will or
reasonably could be expected to cause any representation or warranty of the
Company or any Stockholder contained herein to be untrue or incorrect in any
material respect at or prior to the Closing or on the IPO Closing Date and (b)
any material failure of any Stockholder or the Company to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by that
Person hereunder, provided that no such notice shall be required until ARS shall
give notice to the Company and the Stockholders of the date scheduled for the
Closing with respect to the occurrence in the ordinary course of business and
consistent with past practice of the Company or any Company Subsidiary, as the
case may be, of any condition or state of facts which would cause any of
Sections 4.16, 4.17, 4.18, 4.19 and 4.21 of the Disclosure Statement to be
incorrect. ARS shall give prompt notice to the Company of (a) the existence or
occurrence of each condition or state of facts which will or reasonably could be
expected to cause any representation or warranty of ARS or Newco contained
herein to be untrue or inaccurate at or prior to the Closing or on the IPO
Closing Date and (b) any material failure of ARS or Newco to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder. The delivery
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of any notice pursuant to this Section 6.07 shall not be deemed to (a) modify
the representations or warranties herein of the party delivering that notice, or
any other party, which modification may be made only pursuant to Section 6.08,
(b) modify the conditions set forth in Article VII or (c) limit or otherwise
affect the remedies available hereunder to the party receiving that notice.
Section 6.08. SUPPLEMENTAL INFORMATION. Each of the Company
and the Stockholders agrees that, with respect to the representations and
warranties of that party contained in this Agreement, that party will have the
continuing obligation (except to the extent otherwise provided in Section 6.07)
until the Closing to provide ARS promptly with such additional supplemental
Information (collectively, the "Supplemental Information"), in the form of (a)
amendments to then existing Schedules or Sections of the Disclosure Statement or
(b) additional Schedules or Sections of the Disclosure Statement, as would be
necessary, in the light of the circumstances, conditions, events and states of
facts then known to the Company or any Stockholder, to make each of those
representations and warranties true and correct as of the Closing and on the IPO
Closing Date. For purposes only of determining whether the conditions to the
obligations of ARS and Newco which are specified in Sections 7.04(a)(ii)(A) and
7.04(b)(ii) have been satisfied, and not for any purpose under Article IX, the
Schedules and the Disclosure Statement as of the Closing and on the IPO Closing
Date shall be deemed to be the Schedules and the Disclosure Statement as of the
date hereof as amended or supplemented by the Supplemental Information provided
to ARS prior to the Closing pursuant to this Section 6.08; provided, however,
that if the Supplemental Information so provided discloses the existence of
circumstances, conditions, events or states of facts which, in any combination
thereof, (a) have had a Material Adverse Effect on the Company which was not
reflected in the determination of the Transaction Value or, in the sole judgment
of ARS (which shall be conclusive for purposes of this Section 6.08 and Article
XII, but not for any purpose of Article IX), (b) are having or will have a
Material Adverse Effect on the Company or the Surviving Corporation, as the case
may be, ARS will be entitled either (i) to terminate this Agreement pursuant to
Section 12.01(d) or (ii) to treat as ARS Indemnified Losses for all purposes of
Article IX (which treatment will not prejudice the right of any Stockholder
under Article IX to contest Damage Claims made by ARS in respect of those ARS
Indemnified Losses) all Damages to the Company or the Surviving Corporation
which are attributable to the circumstances, conditions, events and states of
facts first disclosed herein after the date hereof in the Supplemental
Information. ARS will provide the Company with copies of the Registration
Statement, including all pre-effective amendments thereto, promptly after the
filing thereof with the SEC under the Securities Act.
Section 6.09. COOPERATION IN CONNECTION WITH THE IPO. The
Company and the Stockholders will (a) provide ARS and the Underwriter with all
the Information concerning the Company or any of the Stockholders which is
reasonably requested by ARS and the Underwriter from time to time in connection
with effecting the IPO and (b) cooperate with ARS and the Underwriter and their
respective Representatives in the preparation and amendment of the Registration
Statement (including the Financial Statements) and in responding to the comments
of the SEC staff, if any, with respect thereto. The Company and each Stockholder
agree promptly to (a) advise ARS if, at any time during the period in which a
prospectus relating to the IPO is required
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to be delivered under the Securities Act, any information contained in the then
current Registration Statement prospectus concerning the Company or the
Stockholders becomes incorrect or incomplete in any material respect and (b)
provide ARS with the information needed to correct or complete that information.
Section 6.10. ADDITIONAL FINANCIAL STATEMENTS. The Company
will furnish to ARS:
(a) as soon as available and in any event within 30 days after
the end of each of the Company's fiscal quarters which ends prior to the IPO
Pricing Date, an unaudited consolidated balance sheet of the Company and the
Company Subsidiaries as of the end of that fiscal quarter and the related
consolidated statements of income or operations, cash flows and stockholders' or
other owners' equity for that fiscal quarter and for the period of the Company's
fiscal year ended with that quarter, in each case (i) setting forth in
comparative form the figures for the corresponding portion of the Company's
previous fiscal year and (ii) prepared in accordance with GAAP applied on basis
consistent (A) throughout the periods indicated (excepting footnotes) and (B)
with the basis on which the Initial Financial Statements including the Current
Balance Sheet were prepared; and
(b) if requested by ARS in connection with any amendment of
the Registration Statement and promptly following any such request, such summary
consolidated operating or other financial information of the Company and the
Company Subsidiaries as of the end of either the first or second fiscal month in
any of the Company's fiscal quarters as ARS may request.
Section 6.11. TERMINATION OF PLANS. If requested by ARS, the
Company will, or will cause the applicable Company Subsidiary to, if permitted
by all applicable Governmental Requirements to do so, terminate each Plan
identified in Section 4.26(c) or (d) of the Disclosure Statement as a "Plan To
Be Terminated" prior to the Effective Time.
Section 6.12. DISPOSITION OF UNWANTED ASSETS. At or prior to
the Closing, the Company will make all arrangements and take all such actions as
are necessary and satisfactory to ARS to dispose, prior to the Effective Time,
of those assets of it or of one or more of the Company Subsidiaries which are
listed in Schedule 6.12.
Section 6.13. HSR ACT MATTERS. If ARS shall determine that
filings pursuant to and under the HSR Act are necessary or appropriate in
connection with the effectuation of the Merger or the consummation of the
acquisitions contemplated by the Other Agreements, and advises the Company in
writing of that determination, the Company promptly will compile and file under
the HSR Act such information respecting it as the HSR Act requires of an Entity
to be acquired, and the expiration or termination of the applicable waiting
period and any extension thereof under the HSR Act shall be deemed a condition
precedent set forth in Section 7.02(b).
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ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.02. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. (a)
The obligation of each party hereto to take the actions contemplated to be taken
by that party at the Closing is subject to the satisfaction of each of the
following conditions on or before the date of the Closing:
(i) NO LITIGATION. No Litigation shall be pending on the date
of the Closing to restrain, prohibit or otherwise interfere with, or to
obtain material damages or other relief from ARS or the Surviving
Corporation in connection with, the consummation of the Merger or the
IPO;
(ii) GOVERNMENTAL APPROVALS. All Governmental Approvals (other
than the acceptance for filing of the Certificates of Merger) required
to be obtained by any of the Company, ARS and Newco in connection with
the consummation of the Merger and the IPO shall have been obtained;
and
(iii) THE REGISTRATION STATEMENT. (A) The Registration
Statement, as amended to cover the offering, issuance and sale by ARS
of such number of shares of ARS Common Stock at the IPO Price (which
need not be set forth in the Registration Statement when it becomes
effective under the Securities Act) as shall yield aggregate cash
proceeds to ARS from that sale (net of the Underwriter's discount or
commissions) in at least the amount (the "Minimum Cash Amount") that is
sufficient, when added to the funds, if any, available from other
sources (if any, and as set forth in the Registration Statement when it
becomes effective under the Securities Act) (the "Other Financing
Sources") to enable ARS to pay or otherwise deliver on the IPO Closing
Date (1) the total cash portion of the Merger Consideration then to be
delivered pursuant to Section 2.04, (2) the total cash portion of the
Merger or other acquisition consideration then to be delivered pursuant
to the Other Agreements as a result of the consummation of the Merger
or other acquisition transactions contemplated thereby and (3) the
total amount of Indebtedness of the Founding Companies and ARS which
the Registration Statement discloses at the time it becomes effective
under the Securities Act will be repaid on the IPO Closing Date with
proceeds received by ARS from the IPO and the Other Financing Sources,
shall have been declared effective under the Securities Act by the SEC;
(B) no stop order suspending the effectiveness of the Registration
Statement shall have been issued by the SEC, and the SEC shall not have
initiated or threatened to initiate Litigation for that purpose; and
(C) the Underwriter shall have agreed in writing (the "Underwriting
Agreement," which term includes the related pricing agreement, if any)
to purchase from ARS on a firm commitment basis for resale to the
public initially at the IPO Price, subject to the conditions set forth
in the Underwriting Agreement, such number of shares of ARS Common
Stock covered by the Registration Statement as, when multiplied by the
price per share of ARS Common Stock to be paid by
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the Underwriter to ARS pursuant to the Underwriting Agreement, shall
equal at least the Minimum Cash Amount.
(b) The obligation of each party hereto with respect to the
actions to be taken on the IPO Closing Date is subject to the satisfaction on
that date of each of the following conditions:
(i) NO LITIGATION. No Litigation shall be pending on the IPO
Closing Date to restrain, prohibit or otherwise interfere with, or to
obtain material damages or other relief from ARS or the Surviving
Corporation in connection with, the consummation of the Merger or the
IPO;
(ii) GOVERNMENTAL APPROVALS. All Governmental Approvals
required to be obtained by the Company, ARS and Newco in connection
with the consummation of the Merger and the IPO shall have been
obtained;
(iii) RECEIPT OF CERTAIN CERTIFICATES. Each party to the
Stockholders Agreement or his Representative shall receive the
certificates that such party is entitled to receive on the IPO Closing
Date pursuant to Section 3.5 of the Stockholders Agreement; and
(iv) CLOSING OF THE IPO. ARS shall have issued and sold shares
of ARS Common Stock to the Underwriter in accordance with the
Underwriting Agreement for initial resale at the IPO Price and received
payment therefor in an amount at least equal to the amount by which (A)
the Minimum Cash Amount exceeds (B) the aggregate amount of funds
actually received on the IPO Closing Date, if any, from any one or more
of the Other Financing Sources.
Section 7.03. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND
THE STOCKHOLDERS. The obligations of the Company and each Stockholder with
respect to actions to be taken by them at or before the Closing and the actions
to be taken on the IPO Closing Date are subject to the satisfaction, or the
written waiver by the Company on behalf of itself and each Stockholder pursuant
to Section 11.05 on or before the date of the Closing of, in addition to the
conditions specified in Section 7.02 (a) or 7.02 (b), as applicable, (i) all the
conditions set forth in Section 7.01(b), if any, and (ii) all the following
conditions:
(A) REPRESENTATIONS AND WARRANTIES. All the representations
and warranties of ARS and Newco in Article V shall be true and correct
as of the Closing as though made at that time;
(B) DELIVERY OF DOCUMENTS. ARS shall have delivered to the
Company, with copies for each Stockholder:
(1) an ARS officer's certificate respecting the
representations and warranties of ARS and Newco in Article V
and compliance with the covenants of
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ARS and Newco in Article VI and in the form thereof attached
as an exhibit to the Closing Memorandum;
(2) opinions dated the IPO Closing Date and addressed
to the Company and the Stockholders from Counsel for ARS and
Newco substantially in the forms thereof attached as exhibits
to the Closing Memorandum;
(3) a certificate of the secretary or any assistant
secretary of ARS in the form thereof (without attachments
thereto) attached as an exhibit to the Closing Memorandum and
respecting, and to which is attached, (a) the Charter
Documents of ARS and Newco (certified by the Secretary of
State of the State of Delaware in the case of the certificates
of incorporation included therein); (b) the resolutions of the
boards of directors of ARS and Newco respecting the
Transaction Documents and the transactions contemplated
thereby; (c) a certificate respecting the incumbency and true
signatures of the ARS and Newco officers who execute the
Transaction Documents on behalf of ARS and Newco,
respectively; (d) a specimen certificate evidencing shares of
ARS Common Stock; (e) the prospectus included in the
Registration Statement when it became effective; and (f) a
facsimile copy of the Underwriting Agreement as executed and
delivered by ARS and the Underwriter;
(4) the Registration Rights Agreement duly executed
and delivered by ARS; and
(5) a certificate, dated as of a Current Date, duly
issued by the Secretary of State of the State of Delaware,
showing ARS to be in good standing and authorized to do
business in that State.
Section 7.04. CONDITIONS TO THE OBLIGATIONS OF ARS AND NEWCO.
(a) The obligations of ARS and Newco with respect to actions to be taken by them
at or before the Closing are subject to the satisfaction on or before the date
of the Closing of, in addition to the conditions specified in Section 7.02 (a),
(i) all the conditions set forth in Section 7.01(c), if any, and (ii) all the
following conditions:
(A) REPRESENTATIONS AND WARRANTIES. All the representations
and warranties of the Stockholders and the Company in Articles III and
IV shall be true and correct as of the Closing as though made at that
time;
(B) DELIVERY OF DOCUMENTS. The Stockholders and the Company
shall have delivered to ARS:
(1) a Company officer's certificate, signed by a
Responsible Officer, respecting the representations and
warranties of the Stockholders and the Company in Articles III
and IV and compliance with the covenants of the Stockholders
and the
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Company in Article VI and in the form thereof attached as an
exhibit to the Closing Memorandum;
(2) opinions dated the IPO Closing Date and addressed
to ARS from Counsel for the Company and the Stockholders
substantially in the form thereof attached as exhibits to the
Closing Memorandum;
(3) a certificate of the secretary or any assistant
secretary of the Company in the form thereof (without
attachments thereto) attached as an exhibit to the Closing
Memorandum and respecting, and to which is attached, (a) the
Charter Documents of the Company; (b) the resolutions of the
board of directors of the Company respecting the Transaction
Documents and the transactions contemplated thereby; and (c) a
certificate respecting the incumbency and true signatures of
the Responsible Officers who execute the Transaction Documents
on behalf of the Company;
(4) from each Stockholder, a General Release duly
executed and delivered by that Stockholder;
(5) from each Stockholder, an executed certificate to
the effect that no withholding is required under Section 1445
of the Code, in the form of Exhibit 7.04, with the blanks
appropriate filled; and
(6) for each of the Company and the Company
Subsidiaries, a certificate, dated as of a Current Date, duly
issued by the appropriate Governmental Authorities in its
Organization State and, unless waived by ARS, in each other
jurisdiction listed for it in Section 4.02 of the Disclosure
Statement, showing it to be in good standing and authorized to
do business in its Organization State and those other
jurisdictions and that all state franchise and/or income tax
returns and taxes due by it in its Organization State and
those other jurisdictions for all periods prior to the Closing
have been filed and paid.
(b) The obligations of ARS and Newco with respect to the
actions to be taken on the IPO Closing Date are subject to the satisfaction on
that date of (i) all the conditions set forth in Section 7.01(d), if any, and
(ii) the condition that all the representations and warranties of the
Stockholders and the Company in Articles III and IV shall be true and correct as
of the IPO Closing Date as though made on that date.
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ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.02. DISCLOSURE. If, subsequent to the IPO Pricing
Date and prior to the 25th day after the date of the Final Prospectus, any
Stockholder becomes aware of any fact or circumstance which would change (or, if
after the Effective Time, would have changed) a representation or warranty of
the Company or any Stockholder in this Agreement or would affect any document
delivered pursuant hereto in any material respect, that Stockholder will
promptly give notice of that fact or circumstance to ARS.
Section 8.03. PREPARATION AND FILING OF TAX RETURNS. Each
party hereto will, and will cause its Affiliates to, provide to each of the
other parties hereto such cooperation and information as any of them reasonably
may request in filing any Return, amended Return or claim for refund,
determining a liability for Taxes or a right to refund of Taxes or in conducting
any audit or other proceeding in respect of Taxes. This cooperation and
information shall include providing copies of all relevant portions of the
relevant Returns, together with such accompanying schedules and work papers,
documents relating to rulings or other determinations by Taxing Authorities and
records concerning the ownership and Tax bases of property as are relevant which
a party possesses. Each party will make its employees, if any, reasonably
available on a mutually convenient basis at its cost to provide an explanation
of any documents or information so provided. Subject to the preceding sentence,
each party required to file Returns pursuant to this Agreement shall bear all
costs attributable to the preparation and filing of those Returns.
Section 8.04. DIRECTORS. ARS will cause such corporate
proceedings as on its part will be necessary to cause each of the persons, if
any, who are named in the Final Prospectus as persons who will become members of
the board of directors of ARS following the Effective Time to be appointed to
that board when that prospectus so provides.
Section 8.05. REMOVAL OF GUARANTIES. At or within 60 days
following the Effective Time, ARS will cause the Stockholder Guaranties listed
in Schedule 8.05 to be terminated.
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ARTICLE IX
INDEMNIFICATION
Section 9.02. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
the provisions of this Agreement will survive the Closing and the Effective Time
indefinitely notwithstanding any investigation at any time made by or on behalf
of any party hereto or the provision of any Supplemental Information pursuant to
Section 6.08, provided that the representations and warranties set forth in
Articles IV, V and VI and in any certificate delivered in connection herewith
with respect to any of those representations and warranties will terminate and
expire on June 12, 1998, except as follows: (a) the representations and
warranties of the Stockholders which relate expressly or by necessary
implication to Taxes, ERISA or other employment or labor matters or the
Governmental Requirements referred to in clause (iii) of Section 9.03(a) will
survive until the expiration of the applicable statutes of limitations
(including all periods of extension and tolling); (b) the representations and
warranties of the Stockholders which relate expressly or by necessary
implication to the environment or Environmental Laws will survive for a period
of three years from the Effective Time; and (c) the representations and
warranties of the Company will terminate and expire at the Effective Time. After
a representation and warranty has terminated and expired, no indemnification
will or may be sought pursuant to this Article IX on the basis of that
representation and warranty by any Person who would have been entitled pursuant
to this Article IX to indemnification on the basis of that representation and
warranty prior to its termination and expiration, provided that, in the case of
each representation and warranty that will terminate and expire as provided in
this Section 9.02, no claim presented in writing for indemnification pursuant to
this Article IX on the basis of that representation and warranty prior to its
termination and expiration will be affected in any way by that termination and
expiration.
Section 9.03. INDEMNIFICATION OF ARS INDEMNIFIED PARTIES. (a)
Subject to the applicable provisions of Sections 9.02 and 9.07, the Stockholders
covenant and agree that they, jointly and severally, will indemnify each ARS
Indemnified Party against, and hold each ARS Indemnified Party harmless from and
in respect of, all Damage Claims that arise from, are based on or relate or
otherwise are attributable to (i) any breach of the representations and
warranties of the Stockholders or the Company set forth herein (other than in
Article III) or in certificates delivered in connection herewith (other than in
respect of certificates relating only to the representations and warranties in
Article III), (ii) any nonfulfillment of any covenant or agreement on the part
of the Stockholders or the Company under this Agreement, (iii) any liability
under the Securities Act, the Exchange Act or other applicable Governmental
Requirement which arises out of or is based on (A) any untrue statement or
alleged untrue statement of a material fact relating to the Company and the
Company Subsidiaries, or any of them, which is (1) provided to ARS or its
counsel by the Company or the Stockholders and (2) contained in any preliminary
prospectus relating to the IPO, the Registration Statement or any prospectus
forming a part thereof, or any amendment thereof or supplement thereto, or (B)
any omission or alleged omission to state therein a material fact relating to
the Company and the Company Subsidiaries, or any of them, required to be stated
therein or necessary to make the statements therein not misleading, and not
provided to
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ARS or its counsel by the Company or the Stockholders (each such Damage Claim
and each Damage Claim described in Section 9.03(b) being an "ARS Indemnified
Loss"); provided, however, that no Stockholder shall be obligated to indemnify
any ARS Indemnified Party against any ARS Indemnified Loss to the extent that
such untrue statement (or alleged untrue statement) was made in, or such
omission (or alleged omission) occurred in, any preliminary prospectus and the
Stockholder timely provided, in writing, corrected or the necessary additional
information to ARS and its counsel for inclusion in the Final Prospectus.
(b) Each Stockholder, severally and not jointly with any other
Person, covenants and agrees that he will indemnify each ARS Indemnified Party
against, and hold each ARS Indemnified Party harmless from and in respect of,
all Damage Claims that arise from, are based on or relate or otherwise are
attributable to (i) any breach of the representations and warranties of that
Stockholder solely as to that Stockholder set forth in Article III or in
certificates delivered by that Stockholder and relating to those representations
and warranties, (ii) any nonfulfillment of any several, and not joint and
several, agreement on the part of that Stockholder under this Agreement or (iii)
any liability under the Securities Act, the Exchange Act or other applicable
Governmental Requirement which arises out of or is based on (A) any untrue
statement or alleged untrue statement of a material fact relating solely to that
Stockholder which is (1) provided to ARS or its counsel by that Stockholder and
(2) contained in any preliminary prospectus relating to the IPO, the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or (B) any omission or alleged omission
to state therein a material fact relating solely to that Stockholder required to
be stated therein or necessary to make the statements therein not misleading,
and not provided to ARS or its counsel by that Stockholder; provided, however,
that no Stockholder shall be obligated to indemnify any ARS Indemnified Party
against any ARS Indemnified Loss to the extent that such untrue statement (or
alleged untrue statement) was made in, or such omission (or alleged omission)
occurred in, any preliminary prospectus and the Stockholder timely provided, in
writing, corrected or the necessary additional information to ARS and its
counsel for inclusion in the Final Prospectus.
Section 9.04. INDEMNIFICATION OF STOCKHOLDER INDEMNIFIED
PARTIES. ARS covenants and agrees that it will indemnify each Stockholder
Indemnified Party against, and hold each Stockholder Indemnified Party harmless
from and in respect of, all Damage Claims (that arise from, are based on or
relate or otherwise are attributable to (i) any breach by ARS or Newco of their
representations and warranties set forth herein or in their certificates
delivered to the Company or the Stockholders in connection herewith, (ii) any
nonfulfillment of any covenant or agreement on the part of ARS or Newco under
this Agreement (each such Damage Claim being a "Stockholder Indemnified Loss");
or (iii) any liability under the Securities Act, the Exchange Act or other
applicable Governmental Requirement which arises out of or is based on (A) any
untrue statement or alleged untrue statement of a material fact relating to ARS,
Newco or any of the Other Founding Companies contained in any preliminary
prospectus relating to the IPO, the Registration Statement or any prospectus
forming a part thereof, or any amendment thereof or supplement thereto, or (B)
any omission or alleged omission to state therein a material fact relating to
ARS, Newco or any of
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the Other Founding Companies, or any of them, required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made.
Section 9.05. CONDITIONS OF INDEMNIFICATION. (a) All claims
for indemnification under this Agreement shall be asserted and resolved as
follows in this Section 9.05.
(b) A party claiming indemnification under this Agreement (an
"Indemnified Party") shall promptly (i) notify the party from whom
indemnification is sought (the "Indemnifying Party") of any third-party claim or
claims asserted against the Indemnified Party ("Third Party Claim") that could
give rise to a right of indemnification under this Agreement and (ii) transmit
to the Indemnifying Party a written notice ("Claim Notice") describing in
reasonable detail the nature of the Third Party Claim, a copy of all papers
served with respect to that claim (if any), an estimate of the amount of damages
attributable to the Third Party Claim to the extent feasible (which estimate
shall not be conclusive of the final amount of such claim) and the basis for the
Indemnified Party's request for indemnification under this Agreement. Except as
set forth in Section 9.02, the failure to promptly deliver a Claim Notice shall
not relieve the Indemnifying Party of its obligations to the Indemnified Party
with respect to the related Third Party Claim except to the extent that the
resulting delay is materially prejudicial to the defense of that claim. Within
15 days after receipt of any Claim Notice (the "Election Period"), the
Indemnifying Party shall notify the Indemnified Party (i) whether the
Indemnifying Party disputes its potential liability to the Indemnified Party
under this Article IX with respect to that Third Party Claim and (ii) if the
Indemnifying Party does not dispute its potential liability to the Indemnified
Party with respect to that Third Party Claim, whether the Indemnifying Party
desires, at the sole cost and expense of the Indemnifying Party, to defend the
Indemnified Party against that Third Party Claim.
(c) If the Indemnifying Party does not dispute its potential
liability to the Indemnified Party and notifies the Indemnified Party within the
Election Period that the Indemnifying Party elects to assume the defense of the
Third Party Claim, then the Indemnifying Party shall have the right to defend,
at its sole cost and expense, that Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this Section 9.05(c) and the Indemnified
Party will furnish the Indemnifying Party with all information in its possession
with respect to that Third Party Claim and otherwise cooperate with the
Indemnifying Party in the defense of that Third Party Claim; provided, however,
that the Indemnifying Party shall not enter into any settlement with respect to
any Third Party Claim that purports to limit the activities of, or otherwise
restrict in any way, any Indemnified Party or any Affiliate of any Indemnified
Party without the prior consent of that Indemnified Party (which consent may be
withheld in the sole discretion of that Indemnified Party). The Indemnified
Party is hereby authorized, at the sole cost and expense of the Indemnifying
Party, to file, during the Election Period, any motion, answer or other
pleadings that the Indemnified Party shall deem necessary or appropriate to
protect its interests or those of the Indemnifying Party. The Indemnified Party
may participate in, but not control, any defense or settlement of any Third
Party Claim controlled by the Indemnifying Party pursuant to this Section
9.05(c) and will bear its own costs and
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expenses with respect to that participation; provided, however, that if the
named parties to any such action (including any impleaded parties) include both
the Indemnifying Party and the Indemnified Party, and the Indemnified Party has
been advised by counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
Indemnifying Party, then the Indemnified Party may employ separate counsel at
the expense of the Indemnifying Party, and, on its written notification of that
employment, the Indemnifying Party shall not have the right to assume or
continue the defense of such action on behalf of the Indemnified Party.
(d) If the Indemnifying Party (i) within the Election Period
(A) disputes its potential liability to the Indemnified Party under this Article
IX, (B) elects not to defend the Indemnified Party pursuant to Section 9.05(c)
or (C) fails to notify the Indemnified Party that the Indemnifying Party elects
to defend the Indemnified Party pursuant to Section 9.05(c) or (ii) elects to
defend the Indemnified Party pursuant to Section 9.05(c) but fails diligently
and promptly to prosecute or settle the Third Party Claim, then the Indemnified
Party shall have the right to defend, at the sole cost and expense of the
Indemnifying Party (if the Indemnified Party is entitled to indemnification
hereunder), the Third Party Claim by all appropriate proceedings, which
proceedings shall be promptly and vigorously prosecuted by the Indemnified Party
to a final conclusion or settled. The Indemnified Party shall have full control
of such defense and proceedings. Notwithstanding the foregoing, if the
Indemnifying Party has delivered a written notice to the Indemnified Party to
the effect that the Indemnifying Party disputes its potential liability to the
Indemnified Party under this Article IX and if such dispute is resolved in favor
of the Indemnifying Party, the Indemnifying Party shall not be required to bear
the costs and expenses of the Indemnified Party's defense pursuant to this
Section 9.05 or of the Indemnifying Party's participation therein at the
Indemnified Party's request, and the Indemnified Party shall reimburse the
Indemnifying Party in full for all reasonable costs and expenses of such
litigation. The Indemnifying Party may participate in, but not control, any
defense or settlement controlled by the Indemnified Party pursuant to this
Section 9.05(d), and the Indemnifying Party shall bear its own costs and
expenses with respect to such participation.
(e) In the event any Indemnified Party should have a claim
against any Indemnifying Party hereunder that does not involve a Third Party
Claim, the Indemnified Party shall transmit to the Indemnifying Party a written
notice (the "Indemnity Notice") describing in reasonable detail the nature of
the claim, an estimate of the amount of Damages attributable to that claim to
the extent feasible (which estimate shall not be conclusive of the final amount
of such claim) and the basis of the Indemnified Party's request for
indemnification under this Agreement. If the Indemnifying Party does not notify
the Indemnified Party within 15 days from its receipt of the Indemnity Notice
that the Indemnifying Party disputes such claim, the claim specified by the
Indemnified Party in the Indemnity Notice shall be deemed a liability of the
Indemnifying Party hereunder. If the Indemnifying Party has timely disputed such
claim, as provided above, such dispute shall be resolved by proceedings in an
appropriate court of competent jurisdiction if the parties do not reach a
settlement of such dispute within 30 days after notice of a dispute is given.
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(f) Payments of all amounts owing by an Indemnifying Party
pursuant to this Article IX relating to a Third Party Claim shall be made within
30 days after the latest of (i) the settlement of that Third Party Claim, (ii)
the expiration of the period for appeal of a final adjudication of that Third
Party Claim or (iii) the expiration of the period for appeal of a final
adjudication of the Indemnifying Party's liability to the Indemnified Party
under this Agreement. Payments of all amounts owing by an Indemnifying Party
pursuant to Section 9.05(e) shall be made within 30 days after the later of (i)
the expiration of the 30-day Indemnity Notice period or (ii) the expiration of
the period for appeal of a final adjudication of the Indemnifying Party's
liability to the Indemnified Party under this Agreement.
Section 9.06. REMEDIES NOT EXCLUSIVE. The remedies provided in
this Agreement shall not be exclusive of any other rights or remedies available
to one party against the other, either at law or in equity.
Section 9.07. LIMITATIONS ON INDEMNIFICATION. (a)
Notwithstanding the provisions of Section 9.03(a), neither the Company nor any
of the Stockholders shall be required to indemnify or hold harmless any of the
ARS Indemnified Parties on account of any ARS Indemnified Loss under Section
9.03(a) unless the liability of the Company and the Stockholders in respect of
that ARS Indemnified Loss, when aggregated with the liability of the Company and
the Stockholders in respect of all ARS Indemnified Losses under Section 9.03(a),
exceeds, and only to the extent the aggregate amount of all those ARS
Indemnified Losses does exceed, the Threshold Amount. In no event shall (i) the
aggregate joint and several liability of the Company and the Stockholders under
this Agreement, including Section 9.03(a), exceed the Transaction Value or (ii)
the aggregate liability of each Stockholder under this Agreement, including
Sections 9.03(a) and 9.03(b), exceed that Stockholder's Pro Rata Share of the
Transaction Value. For purposes of determining the amount of ARS Indemnified
Losses, no effect will be given to any resulting Tax benefit to any ARS
Indemnified Party.
(b) Notwithstanding the provisions of Section 9.04, ARS shall
not be required to indemnify or hold harmless any of the Stockholder Indemnified
Parties on account of any Stockholder Indemnified Loss unless the liability of
ARS in respect of that Stockholder Indemnified Loss, when aggregated with the
liability of ARS in respect of all Stockholder Indemnified Losses, exceeds, and
only to the extent the aggregate amount of all those Stockholder Indemnified
Losses does exceed, the Threshold Amount. In no event shall ARS be liable under
this Agreement, including Section 9.04, for any amount in excess of the
Transaction Value. For purposes of determining the amount of Stockholder
Indemnified Losses, no effect will be given to any resulting Tax benefit to any
Stockholder Indemnified Party.
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ARTICLE XI
GENERAL PROVISIONS
Section 11.01. TREATMENT OF CONFIDENTIAL INFORMATION. (a) Each
of the Company and the Stockholders, severally and not jointly with any other
Person, acknowledges that it has or may have had in the past, currently has and
in the future may have access to Confidential Information of the Company and the
Company Subsidiaries, the Other Founding Companies and their Subsidiaries and
ARS and its Subsidiaries. Each of the Company and the Stockholders, severally
and not jointly with any other Person, agrees that it will keep confidential all
such Confidential Information furnished to it and, except with the specific
prior written consent of ARS will not disclose such Confidential Information to
any Person except (a) Representatives of ARS, (b) its own Representatives,
provided that these Representatives (other than counsel) agree to the
confidentiality provisions of this Section 11.01; and provided, further, that
Confidential Information shall not include (i) such information which becomes
known to the public generally through no fault of any Stockholder, (ii)
information required to be disclosed by law or the order of any governmental
authority under color of law, provided, that prior to disclosing any information
pursuant to this clause (ii), each Stockholder shall, if possible, give prior
written notice thereof to ARS and provide ARS with the opportunity to contest
such disclosure, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party. In the event of a breach or threatened breach by any
Stockholder of the provisions of this Section 11.01 with respect to any
Confidential Information, ARS shall be entitled to an injunction restraining
such Stockholder from disclosing, in whole or in part, that Confidential
Information. Nothing herein shall be construed as prohibiting ARS from pursuing
any other available remedy for such breach or threatened breach, including the
recovery of damages.
(b) Because of the difficulty of measuring economic losses as
a result of the breach of the foregoing covenants in Section 11.01(a), and
because of the immediate and irreparable damage that would be caused to ARS for
which it would have no other adequate remedy, each of the Company and the
Stockholders agrees that ARS may enforce the provisions of Section 11.01(a) by
injunctions and restraining orders against each of them who breaches any of
those provisions.
(c) The obligations of ARS set forth in Section 6.02(d) are
incorporated in this Section 11.01 by this reference.
(d) The obligations of the parties under this Section 11.01
shall survive the termination of this Agreement.
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EXHIBIT 4.3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of ____________, 1996, by and among American Residential
Services, Inc., a Delaware corporation ("ARS"), and each person listed on the
signature pages hereto under the caption "Stockholders" (each a "Stockholder"
and, collectively, the "Stockholders").
WHEREAS, pursuant to various acquisition agreements entered into with
ARS (collectively, the "Acquisition Agreements"), each of the Stockholders has
received on the date hereof shares of common stock, par value $.001 per share,
of ARS ("Common Stock"); and
WHEREAS, in order to induce the Stockholders to enter into their
respective Acquisition Agreements, ARS has agreed to provide registration rights
on the terms set forth in this Agreement for the benefit of the Stockholders;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
1. DEFINITIONS. The following capitalized terms shall have the meanings assigned
to them in this SECTION 1 or in the parts of this Agreement referred to below:
ANNUAL DEMAND PERIOD: the period in any year while this Agreement is in
effect which follows the date that is 91 days after the end of ARS's immediately
preceding fiscal year.
CODE: the Internal Revenue Code of 1986, as amended, and any successor
thereto.
COMMISSION: the Securities and Exchange Commission, and any successor
thereto.
DEMAND REGISTRATION: as defined in SECTION 3.
EFFECTIVE TIME: as defined in SECTION 3.
EXCHANGE ACT: the Securities Exchange Act of 1934, as amended, and any
successor thereto, and the rules and regulations thereunder.
EXEMPT OFFERING: as defined in SECTION 2.
REGISTRABLE COMMON: shares of Common Stock that were issued to the
Stockholders pursuant to the Acquisition Agreements, and any additional shares
of Common Stock issued or
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distributed in respect of any other shares of Registrable Common by way of a
stock dividend or distribution or stock split or in connection with a
combination of shares, recapitalization, reorganization, merger, consolidation
or otherwise. For purposes of this Agreement, shares of Registrable Common will
cease to be Registrable Common when and to the extent that (i) a registration
statement covering such shares has been declared effective under the Securities
Act and such shares have been disposed of pursuant to such effective
registration statement, (ii) such shares are sold pursuant to Rule 144 or (iii)
such shares have been otherwise transferred to a person or entity that is not a
Stockholder, other than pursuant to SECTION 11 hereof.
REGISTRATION NOTICE: as defined in SECTION 2.
REQUESTING HOLDERS: as defined in SECTION 3.
RESTRICTED PERIOD: as defined in SECTION 3.
RULE 144: Securities Act Rule 144 (or any similar or successor
provision under the Securities Act).
SECURITIES ACT: the Securities Act of 1933, as amended, and any
successor thereto, and the rules and regulations thereunder.
SELLING STOCKHOLDER: as defined in SECTION 12.
2. PIGGYBACK REGISTRATION RIGHTS. At any time before December 31, 2000, whenever
ARS proposes to register any Common Stock for its own account under the
Securities Act for a public offering for cash, other than a registration
relating to the offering or issuance of shares in connection with (i) employee
compensation or benefit plans or (ii) one or more acquisition transactions under
a Registration Statement on Form S-4 under the Securities Act (or a successor to
Form S-4) (any such offering or issuance being an "Exempt Offering"), ARS will
give each Stockholder written notice of its intent to do so (a "Registration
Notice") at least 20 days prior to the filing of the related registration
statement with the Commission. Such notice shall specify the approximate date on
which ARS proposes to file such registration statement and shall contain a
statement that the Stockholders are entitled to participate in such offering and
shall set forth the number of shares of Registrable Common (as hereinafter
defined) that represents the best estimate of the lead managing underwriter (or
if not known or applicable, ARS) that will be available for sale by the holders
of Registrable Common in the proposed offering. If ARS shall have delivered a
Registration Notice, each Stockholder shall be entitled to participate on the
same terms and conditions as ARS in the public offering to which such
Registration Notice relates and to offer and sell shares of Registrable Common
therein only to the extent provided in this SECTION 2. Each Stockholder desiring
to participate in such offering shall notify ARS no later than ten days
following receipt of the Registration Notice of the aggregate number of shares
of Registrable Common that such Stockholder then desires to sell in the
offering. Each Stockholder desiring to participate in such public offering may
include shares of Registrable Common in the registration statement relating to
the offering to
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the extent that the inclusion of such shares shall not reduce the number of
shares of Common Stock to be offered and sold by ARS to be included therein. If
the lead managing underwriter selected by ARS for a public offering (or, if the
offering is not underwritten, a financial advisor to ARS) determines that
marketing factors require a limitation on the number of shares of Registrable
Common to be offered and sold in such offering, there shall be included in the
offering only that number of shares of Registrable Common, if any, that such
lead managing underwriter or financial advisor, as the case may be, reasonably
and in good faith believes will not jeopardize the success of the offering,
PROVIDED that if the lead managing underwriter or financial advisor, as the case
may be, determines that marketing factors require a limitation on the number of
shares of Registrable Common to be offered and sold as aforesaid and so notifies
ARS in writing, the number of shares of Registrable Common to be offered and
sold by holders desiring to participate in the offering, shall be allocated
among such holders on a pro rata basis based on their holdings of Registrable
Common. ARS shall have the right at any time to reduce the number of shares
requested by any Stockholder to be included in such registration to the extent
that ARS reasonably concludes that inclusion of such shares is likely to
jeopardize the non-recognition status under the Code of any acquisition
transaction consummated pursuant to any of the Acquisition Agreements; PROVIDED
that any determination to exclude shares from any such registration pursuant to
this provision shall be based on advice of tax counsel to ARS or its independent
accountants.
3. DEMAND REGISTRATION RIGHTS. At any time after the period ending on the second
anniversary of the date of this Agreement (the "Restricted Period") (or if the
two-year "holding" period for restricted securities under Rule 144 is reduced by
the Commission, the Restricted Period will be correspondingly reduced) and
before December 31, 2000, the holders of at least 51% of the shares of
Registrable Common then outstanding may request (the Stockholders making such
request are herein referred to as the "Requesting Holders") in writing that ARS
file a registration statement under the Securities Act covering the registration
of all or a part of the shares of Registrable Common then held by such
Stockholders (a "Demand Registration"). Within ten days of the receipt of such
request, ARS shall give written notice of such request to all other Stockholders
and shall use its best efforts to effect as soon as practicable the registration
under the Securities Act in accordance with SECTION 4 hereof (including without
limitation, the execution of an undertaking to file post-effective amendments)
of all shares of Registrable Common which the Stockholders request be registered
within 30 days after the mailing of such notice; PROVIDED, HOWEVER, that (i) ARS
shall not be obligated to cause a registration statement respecting a Demand
Registration to be filed initially more than ten days prior to, or to become
effective under the Securities Act as of any time that is not within, an Annual
Demand Period, (ii) ARS shall not be obligated to effect a Demand Registration
if it is not eligible to use Form S-3 under the Securities Act, and (iii) ARS
shall be obligated to effect only one Demand Registration pursuant to this
SECTION 3. In connection with a Demand Registration, the holders of a majority
of shares of Registrable Common included in such Demand Registration, in their
sole discretion, shall determine whether (a) to proceed with, withdraw from or
terminate such offering, (b) to select, subject to the approval of ARS (which
approval shall not be unreasonably withheld), a managing underwriter or
underwriters to administer such offering, (c) to enter into an underwriting
agreement for such offering and (d) to take such actions as may be necessary to
close the sale of Registrable Common contemplated by such offering, including,
without limitation,
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waiving any conditions to closing such sale that may not have been fulfilled. In
the event such holders exercise their discretion under this paragraph to
terminate a proposed Demand Registration, the terminated Demand Registration
shall not constitute the Demand Registration under this SECTION 3, if the
determination to terminate such Demand Registration (i) follows the exercise by
ARS of any of its rights provided by the last two paragraphs of this SECTION 3
or (ii) results from a material adverse change in the condition (financial or
other), results of operations or business of the Company. Notwithstanding the
foregoing, a registration will not count as the Demand Registration under this
Section 3 until such registration has become effective and unless the Requesting
Holders are able to register and sell at least 50% of the shares of Registrable
Common requested by them to be included in such registration.
Notwithstanding the preceding paragraph, if ARS shall furnish to the
Requesting Holders a certificate signed by the President of ARS stating that, in
the good faith judgment of the Board of Directors of ARS, it would be
detrimental to ARS and its stockholders if such registration statement were to
be filed and it is therefore beneficial to defer the filing of such registration
statement, ARS shall have the right to defer such filing for a period of not
more than 90 days after receipt of the request of the Requesting Holders. ARS
shall promptly give notice to the holders of Registrable Common at the end of
any delay period under this paragraph.
Notwithstanding the preceding two paragraphs, if at the time of any
request by the Requesting Holders for a Demand Registration, ARS has fixed plans
to file within 90 days after such request for the sale of any of its securities
in a public offering under the Securities Act (other than an Exempt Offering),
no Demand Registration shall be initiated under this SECTION 3 until 90 days
after the effective date of such registration unless ARS is no longer proceeding
diligently to effect such registration; PROVIDED that ARS shall provide the
holders of Registrable Common the right to participate in such public offering
pursuant to, and subject to, SECTION 2 hereof.
4. REGISTRATION PROCEDURES. In connection with registrations under SECTIONS 2
and 3 hereof, and subject to the terms and conditions contained therein, ARS
shall (a) use its best efforts to prepare and file with the Commission as soon
as reasonably practicable, a registration statement with respect to the
Registrable Common and use its best efforts to cause such registration to
promptly become and remain effective for a period of at least 120 days (or such
shorter period during which holders shall have sold all Registrable Common which
they requested to be registered); PROVIDED, HOWEVER, that such 120-day period
shall be extended for a period equal to the period that a Stockholder agrees to
refrain from selling any securities included in such registration in accordance
with SECTION 8 hereof; (b) prepare and file with the Commission such amendments
(including post-effective amendments) to such registration statement and
supplements to the related prospectus to appropriately reflect the plan of
distribution of the securities registered thereunder until the completion of the
distribution contemplated by such registration statement or for so long
thereafter as a dealer is required by law to deliver a prospectus in connection
with the offer and sale of the shares of Registrable Common covered by such
registration statement and/or as shall be necessary so that neither such
registration statement nor the related prospectus shall contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
-4-
misleading and so that such registration statement and the related prospectus
will otherwise comply with applicable legal requirements; (c) provide to any
Stockholder requesting to include shares of Registrable Common in such
registration statement and a single counsel for all holders of Registrable
Common requesting to include shares of Registrable Common in such registration
statement, which counsel shall be selected by the holders of a majority of
shares of Registrable Common requested to be included in such registration
statement and shall be reasonably satisfactory to ARS, an opportunity to review
and provide comments with respect to such registration statement (and any
post-effective amendment thereto) prior to such registration statement (or
post-effective amendment) becoming effective; (d) use its best efforts to
register and qualify the Registrable Common covered by such registration
statement under applicable securities or "Blue Sky" laws of such jurisdictions
as the holders shall reasonably request for the distribution of the Registrable
Common; (e) take such other actions as are reasonable and necessary to comply
with the requirements of the Securities Act; (f) furnish such number of
prospectuses (including preliminary prospectuses) and documents incident thereto
as a Stockholder from time to time may reasonably request; (g) provide to any
Stockholder requesting to include Registrable Common in such registration
statement and any managing underwriter participating in any distribution
thereof, and to any attorney, accountant or other agent retained by such
Stockholder or managing underwriter, reasonable access to appropriate officers
and directors of ARS to ask questions and to obtain information reasonably
requested by any such Stockholder, managing underwriter, attorney, accountant or
other agent in connection with such registration statement or any amendment
thereto; PROVIDED, HOWEVER, that (i) in connection with any such access or
request, any such requesting persons shall cooperate to the extent reasonably
practicable to minimize any disruption to the operation by ARS of its business
and (ii) any records, information or documents shall be kept confidential by
such requesting persons, unless (A) such records, information or documents are
in the public domain or otherwise publicly available or (B) disclosure of such
records, information or documents is required by court or administrative order
or by applicable law (including, without limitation, the Securities Act); (h)
notify each Stockholder and the managing underwriters participating in the
distribution pursuant to such registration statement promptly (i) when ARS is
informed that such registration statement or any post-effective amendment to
such registration statement becomes effective, (ii) of any request by the
Commission for an amendment or any supplement to such registration statement or
any related prospectus, (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of such registration statement or of any
order preventing or suspending the use of any related prospectus or the
initiation or threat of any proceeding for that purpose, (iv) of the suspension
of the qualification of any shares of Registrable Common included in such
registration statement for sale in any jurisdiction or the initiation or threat
of a proceeding for that purpose, (v) of any determination by ARS that any event
has occurred which makes untrue any statement of a material fact made in such
registration statement or any related prospectus or which requires the making of
a change in such registration statement or any related prospectus in order that
the same will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading and (vi) of the completion of the distribution
contemplated by such registration statement if it relates to an offering by ARS;
(i) in the event of the issuance of any stop order suspending the effectiveness
of such registration statement or of any order suspending or preventing the use
of any
-5-
related prospectus or suspending the qualification of any shares of Registrable
Common included in such registration statement for sale in any jurisdiction, use
its best efforts to obtain its withdrawal; (j) otherwise use its best efforts to
comply with all applicable rules and regulations of the Commission, and make
available to its security holders, as soon as reasonably practicable, but not
later than fifteen months after the effective date of such registration
statement, an earnings statement covering the period of at least twelve months
beginning with the first full fiscal quarter after the effective date of such
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act; (k) use reasonable diligence to cause all
shares of Registrable Common included in such registration statement to be
listed on any securities exchange (including, for this purpose, the Nasdaq
National Market) on which the Common Stock is then listed at the initiation of
ARS; (l) use reasonable diligence to obtain an opinion from legal counsel (which
may include the General Counsel of ARS) in customary form and covering such
matters of the type customarily covered by opinions as the underwriters, if any,
may reasonably request; (m) provide a transfer agent and registrar for all such
Registrable Common not later than the effective date of such registration
statement; (n) enter into such customary agreements (including an underwriting
agreement in customary form) as the underwriters, if any, may reasonably request
in order to expedite or facilitate the disposition of such shares of Registrable
Common; and (o) use reasonable diligence to obtain a "comfort letter" from ARS's
independent public accountants in customary form and covering such matters of
the type customarily covered by comfort letters as the underwriters, if any, may
reasonably request. As used in this SECTION 4 and elsewhere herein, the term
"underwriters" does not include any Stockholder.
5. UNDERWRITING AGREEMENT. In connection with each registration pursuant to
SECTIONS 2 and 3 covering an underwritten registered public offering, ARS and
each participating Stockholder agree to enter into a written agreement with the
managing underwriter in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of ARS's size and investment stature, including
provisions for indemnification by ARS and each Selling Stockholder as more fully
described in SECTION 12 hereof.
6. AVAILABILITY OF RULE 144. Notwithstanding anything contained herein to the
contrary, (including SECTIONS 2 and 3 hereof), ARS shall not be obligated to
register shares of Registrable Common held by any Stockholder when the resale
provisions of Rule 144(k) are available to such Stockholder or such Stockholder
is otherwise entitled to sell the shares of Registrable Common held by him or
her in a brokerage transaction without registration under the Securities Act and
without limitation as to volume or manner of sale or both.
7. RULE 144 REPORTING. With a view to making available the benefits of certain
rules and regulations of the Commission which may permit the sale of the shares
of Registrable Common held by the Stockholders to the public without
registration, ARS agrees to:
(a) make and keep public information available (as those terms are
understood and defined in Rule 144) at all times from and after 90 days
following the effective date of the registration statement;
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(b) use its best efforts to file with the Commission in a timely manner
all reports and other documents required of ARS under the Securities Act and the
Exchange Act at any time that it is subject to such reporting requirements; and
(c) so long as a Stockholder owns any shares of Registrable Common,
furnish to the Stockholder forthwith upon request a written statement by ARS as
to its compliance with the reporting requirements of Rule 144, the Securities
Act and the Exchange Act (at any time that it is subject to such reporting
requirements), a copy of the most recent annual or quarterly report of ARS, and
such other reports and documents filed in accordance with such reporting
requirements as a Stockholder may reasonably request in availing itself of any
rule or regulation of the Commission allowing a Stockholder to sell any such
securities without registration; and
(d) if required by the transfer agent and registrar for the Common
Stock, use reasonable diligence to obtain an opinion from legal counsel (which
may include the General Counsel of ARS) addressed to such transfer agent and
registrar, with respect to any sale of shares of Registerable Common pursuant to
Rule 144 (or, at the option of ARS, pay the reasonable fees and expenses of
legal counsel retained by a Stockholder to provide such an opinion).
8. MARKET STANDOFF.
(a) In consideration of the granting to Stockholders of the
registration rights pursuant to this Agreement, each Stockholder agrees that,
for so long as such Stockholder holds shares of Registrable Common, except as
permitted by SECTIONS 2 and 3 hereof, such Stockholder will not sell, transfer
or otherwise dispose of, including without limitation through put or short sale
arrangements, shares of Common Stock in the ten days prior to the effectiveness
of any registration (other than relating to an Exempt Offering) of Common Stock
for sale to the public and for up to 90 days following the effectiveness of such
registration.
(b) Except for Exempt Offerings or in connection with the acquisition
by ARS of another company or business, ARS shall not offer to sell or sell any
shares of capital stock of ARS during the 90-day period immediately following
the commencement of an underwritten public offering of shares of Registrable
Common pursuant to a Demand Registration.
9. REGISTRATION EXPENSES. All expenses incurred in connection with any
registration, qualification and compliance under this Agreement (including,
without limitation, all registration, filing, qualification, legal, printing and
accounting fees) shall be borne by ARS. All underwriting commissions and
discounts applicable to shares of Registrable Common included in the
registrations under this Agreement shall be borne by the holders of the
securities so registered pro rata on the basis of the number of shares so
registered. Subject to the foregoing, all expenses incident to ARS's performance
of or compliance with this Agreement, including, without limitation, all filing
fees, fees and expenses of compliance with securities or Blue Sky laws
(including, without limitation, fees and disbursements of counsel in connection
with Blue Sky qualifications of the Registrable Common), printing expenses,
messenger and delivery expenses, internal expenses (including, without
limitation,
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all salaries and expenses of ARS's officers and employees performing legal or
accounting duties), the fees and expenses applicable to shares of Registrable
Common included in connection with the listing of the securities to be
registered on each securities exchange (including, for this purpose, the Nasdaq
National Market) on which similar securities issued by ARS are then listed at
the initiation of ARS, registrar and transfer agents' fees and fees and
disbursements of counsel for ARS and its independent certified public
accountants, securities act liability insurance of ARS and its officers and
directors (if ARS elects to obtain such insurance), the fees and expenses of any
special experts retained by ARS in connection with such registration and fees
and expenses of other persons retained by ARS and incurred in connection with
each registration hereunder (but not including, without limitation, any
underwriting fees, discounts or commissions attributable to the sale of
Registrable Common, fees and expenses of counsel and any other special experts
retained by the holders of Registrable Common in connection with a registration
required hereunder, and transfer taxes, if any), will be borne by ARS.
10. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No holder of Registrable Common
may participate in any underwritten registration hereunder unless such holder
(a) agrees to sell such holder's securities on the basis provided in any
underwriting arrangements approved by the persons entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires, powers of
attorney, custody agreements, indemnities, underwriting agreements and other
documents reasonably required under the terms of such underwriting arrangements.
11. TRANSFER OF REGISTRATION RIGHTS; ADDITIONAL GRANTS OF REGISTRATION RIGHTS.
The registration rights provided to the holders of Registrable Common under
SECTIONS 2 and 3 hereof may not be transferred to any other person or entity,
except to another Stockholder or pursuant to the laws of descent and
distribution; PROVIDED that such transferees are bound by and subject to the
terms and conditions contained herein. The Company may, without the prior
consent of the Stockholders, extend the registration rights provided for in this
Agreement to additional persons or entities who become holders of Common Stock
subsequent to the date of this Agreement by entering into one or more addenda to
this Agreement with any such stockholders, and, upon execution of any such
addenda, any stockholder that is a party thereto shall thereafter be a
"Stockholder" for purposes of this Agreement and any shares of Common Stock
referred to therein as such shall be shares of "Registrable Common" for purposes
of this Agreement. Nothing herein shall limit the ability of ARS to grant to any
person or entity any registration or similar rights in the future with respect
to Common Stock or other securities of ARS (whether pursuant to the foregoing
provision or otherwise).
12. INDEMNIFICATION AND CONTRIBUTION.
(a) INDEMNIFICATION BY THE COMPANY. To the extent permitted by
law, ARS agrees to indemnify and hold harmless each Stockholder who sells shares
of Registrable Common in a registered offering pursuant to either SECTION 2 or
SECTION 3 hereof (a "Selling Stockholder"), from and against any and all losses,
claims, damages, liabilities and expenses (including reasonable legal expenses)
arising out of or based upon any untrue statement or alleged untrue statement of
a material
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fact contained in any registration statement or prospectus relating to the
Registrable Common or in any amendment or supplement thereto or in any related
preliminary prospectus, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses arise out of, or are based
upon, any such untrue statement or omission or allegation thereof based upon
information furnished in writing to ARS by such Selling Stockholder or on such
Selling Stockholder's behalf expressly for use therein. In connection with an
underwritten offering of shares of Registrable Common, ARS will indemnify any
underwriters of the Registrable Common, their partners, officers and directors
and each person who controls such underwriters (within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act) on
substantially the same basis as that of the indemnification of the Selling
Stockholders provided in this SECTION 12(A). Notwithstanding the foregoing,
ARS's indemnification obligations with respect to any preliminary prospectus
shall not inure to the benefit of any Selling Stockholder or underwriter with
respect to any loss, claim, damage, liability (or actions in respect thereof) or
expense arising out of or based on any untrue statement or alleged untrue
statement or omission or alleged omission to state a material fact in such
preliminary prospectus, in any case where (i) a copy of the prospectus used to
confirm sales of shares of Registrable Common was not sent or given to the
person asserting such loss, claim, damage or liability at or prior to the
written confirmation of the sale to such person and (ii) such untrue statement
or alleged untrue statement or omission or alleged omission was corrected in
such prospectus.
(b) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Promptly after
receipt by a Selling Stockholder of notice of any claim or the commencement of
any action or proceeding brought or asserted against such Selling Stockholder in
respect of which indemnity may be sought from ARS, such Selling Stockholder
shall notify ARS in writing of the claim or the commencement of that action or
proceeding; PROVIDED, HOWEVER, that the failure to so notify ARS shall not
relieve ARS from any liability that it may have to the Selling Stockholder
otherwise than pursuant to the indemnification provisions of this Agreement. If
any such claim or action or proceeding shall be brought against a Selling
Stockholder and such Selling Stockholder shall have duly notified ARS thereof,
ARS shall have the right to assume the defense thereof, including the employment
of counsel. Such Selling Stockholder shall have the right to employ separate
counsel in any such action and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such Selling
Stockholder unless (i) ARS has agreed to pay such fees and expenses or (ii) the
named parties to any such action or proceeding include both such Selling
Stockholder and ARS, and such Selling Stockholder shall have been advised by
counsel that there may be one or more legal defenses available to such Selling
Stockholder which are different from or additional to those available to ARS, in
which case, if such Selling Stockholder notifies ARS in writing that it elects
to employ separate counsel at the expense of ARS, ARS shall not have the right
to assume the defense of such action or proceeding on behalf of such Selling
Stockholder; it being understood, however, that ARS shall not, in connection
with any one such action or proceeding or separate but substantially similar or
related actions or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (together with appropriate local
counsel) at any time for all Selling Stockholders.
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ARS shall not be liable for any settlement of any such action or proceeding
effected without ARS's written consent.
(c) INDEMNIFICATION BY HOLDERS OF REGISTRABLE COMMON. In
connection with any registration in which a Selling Stockholder is
participating, such Selling Stockholder will furnish to ARS in writing such
information and affidavits as ARS reasonably requests for use in connection with
any related registration statement or prospectus. To the extent permitted by
law, each Selling Stockholder agrees to indemnify and hold harmless ARS, its
directors and officers who sign the registration statement relating to shares of
Registrable Common offered by such Selling Stockholder and each person, if any,
who controls ARS within the meaning of either Section 15 of the Securities Act
or Section 20 of the Exchange Act to the same extent as the foregoing indemnity
from ARS to such Selling Stockholder, but only with respect to information
concerning such Selling Stockholder furnished in writing by such Selling
Stockholder or on such Selling Stockholder's behalf expressly for use in any
registration statement or prospectus relating to shares of Registrable Common
offered by such Selling Stockholder, or any amendment or supplement thereto, or
any related preliminary prospectus. In case any action or proceeding shall be
brought against ARS or its directors or officers, or any such controlling
person, in respect of which indemnity may be sought against such Selling
Stockholder, such Selling Stockholder shall have the rights and duties given to
ARS, and ARS or its directors or officers or such controlling persons shall have
the rights and duties given to such Selling Stockholder, by the preceding
paragraph. Each Selling Stockholder also agrees to indemnify and hold harmless
any underwriters of the Registrable Common, their partners, officers and
directors and each person who controls such underwriters (within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act) on
substantially the same basis as that of the indemnification of ARS provided in
this SECTION 12(C). Notwithstanding anything to the contrary herein, in no event
shall the amount paid or payable by any Selling Stockholder under this SECTION
12(C) exceed the amount of proceeds received by such Selling Stockholder from
the offering of the Registrable Common.
(d) CONTRIBUTION. If the indemnification provided for in this
SECTION 12 is unavailable to any indemnified party in respect of any losses,
claims, damages, liabilities or expenses referred to herein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and expenses in such proportion as
is appropriate to reflect the relative fault of the indemnifying party and the
indemnified parties in connection with the actions that resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of such indemnifying party and
indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact
relates to information supplied by such indemnified party or indemnified parties
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action. ARS and the Selling Stockholders
agree that it would not be just and equitable if contribution pursuant to this
SECTION 12(D) were determined by pro rata allocation or by any other method of
allocation that does not take account of the equitable considerations referred
to in this
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SECTION 12(D). No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. If indemnification is available under this SECTION 12, the
indemnifying parties shall indemnify each indemnified party to the full extent
provided in SECTIONS 12(A) and (C) without regard to the relative fault of said
indemnifying party or indemnified party or any other equitable consideration
provided for in this SECTION 12(D)
13. MISCELLANEOUS.
(a) AMENDMENTS AND WAIVERS. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless ARS has obtained the written consent of holders of at least 51% of the
shares of Registrable Common then outstanding.
(b) NOTICES. All notices and other communications provided for or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if delivered personally or sent by telex or telecopy, or registered or
certified mail (return receipt requested), postage prepaid, or courier to the
parties at the following addresses (or at such other address for any party as
shall be specified by like notice), PROVIDED that notices of a change of address
shall be effective only upon receipt thereof. Notices sent by mail shall be
effective when answered back, notices sent by telecopier shall be effective when
receipt is acknowledged, and notices sent by courier guaranteeing next day
delivery shall be effective on the next business day after timely delivery by
the courier. Notices shall be sent to the following addresses:
(i) if to a Stockholder, at the most current address given by
such Stockholder to ARS in a writing making specific reference to this
Agreement;
(ii) if to ARS, at the following address:
American Residential Services, Inc.
5850 San Felipe
Suite 500
Houston, Texas 77057
Attn: C. Clifford Wright, Jr.
Telecopy: (713) 706-6178
with copies to: Baker & Botts, L.L.P.
3000 One Shell Plaza
Houston, Texas 77002-4995
Attn: James L. Leader, Esq.
Telecopy: (713) 229-1522
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(c) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the heirs, executors, administrators, successors and
assigns of each of the parties.
(d) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(e) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(f) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS APPLICABLE TO CONTRACTS MADE AND
TO BE PERFORMED WHOLLY WITHIN THAT STATE.
(g) SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all the rights and privileges of the
Stockholders shall be enforceable to the fullest extent permitted by law.
(h) ENTIRE AGREEMENT; TERMINATION. This Agreement is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter. This Agreement, except the provisions of SECTION 12 (which shall
survive until the expiration of the applicable statutes of limitations) and this
SECTION 13, shall terminate and be of no further force or effect on December 31,
2000.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
ARS:
AMERICAN RESIDENTIAL SERVICES, INC.
By: /s/ ______________________
John D. Held
Senior Vice President
STOCKHOLDERS:
/s/ ______________________
Gorden H. Timmons
/s/ ______________________
Gorden H. Timmons, as trustee
Under Gorden H. Timmons
Retained Annuity Trust
/s/ ______________________
William Quick
/s/ ______________________
Mark Strong
/s/ ______________________
George Walker
/s/ ______________________
John Lee
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/s/ ______________________
David Bowey
/s/ ______________________
Jeff Long
/s/ ______________________
Wyatt Hammack
/s/ ______________________
Amanda Fogarty
/s/ ______________________
Amy Timmons Mahoney
/s/ ______________________
Melanie Berg Dehaven
/s/ ______________________
Marc Fogarty
/s/ ______________________
Robert Childers
/s/ ______________________
Elton Starling
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/s/ ______________________
Scott Stepp
/s/ ______________________
Timothy Jay Browder
/s/ ______________________
Victor Musmanno
/s/ ______________________
William Strickland
/s/ ______________________
Al Lewis
/s/ ______________________
Ron Washington
*By: /s/ ______________________
Gorden H. Timmons
Attorney-in-Fact
/s/ ______________________
Howard Hauser
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/s/ ______________________
Patricia Hauser
/s/ ______________________
Gary Daymon
/s/ ______________________
C. Clifford Wright, Jr.
/s/ ______________________
Howard S. Hoover, Jr.
/s/ ______________________
William P. McCaughey
/s/ ______________________
Elizabeth England (Hoover) Rotan
As Co-Turstee for the benefit of the
Elizabeth England (Hoover) Rotan 1996
Family Trust
/s/ ______________________
Elizabeth England (Hoover) Rotan
As Co-Trustee of the Edward McCall
Rotan II 1996 Family Trust
/s/ ______________________
J. Barrett Rouse
As Co-Trustee for the benefit of the
Elizabeth England (Hoover) Rotan 1996
Family Trust
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/s/ ______________________
J. Barrett Rouse
As Co-Trustee for the benefit of the
Elizabeth England (Hoover) Rotan 1996
Family Trust
EQUUS II INCORPORATED
By: ______________________
Name:
Title:
/s/ ______________________
Robert J. Rogoff
/s/ ______________________
Elliott Sokolow
/s/ ______________________
Bruce L. Menditch
/s/ ______________________
Frank N. Menditch
/s/ ______________________
Howard C. Menditch
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EXHIBIT 4.4
STOCK REGISTRATION AGREEMENT
This agreement dated as of March 6, 1996, between American Residential
Services, Inc., a Delaware corporation (the "Company"), and Equus II
Incorporated, a Delaware corporation ("Equus"),
WITNESSETH:
WHEREAS, Equus is this date:
(i) accepting from the Company a warrant (the "Warrant")
entitling Equus to purchase shares of the Company's Common Stock, $.01
par value (the "Common Stock");
(ii) accepting from the Company its Convertible Promissory Note
in a principal amount of up to $1.6 million (the "Convertible Note"), a
portion of which is convertible into shares of Common Stock under
certain circumstances; and
(iii) purchasing from Enterprises Holding Company, an affiliate
of the Company ("EHC"), shares of Series A and Series B Preferred
Stock, $100 par value per share ("EHC Preferred Stock"), of EHC which,
under certain circumstances, may be redeemable, in whole or in part,
with shares of Common Stock; and
WHEREAS, as a condition to its purchase or acceptance of the Warrant, the
Convertible Note, and the EHC Preferred Stock, Equus is requiring the Company to
enter into this Agreement relating to the registration of shares of Common Stock
which may be issued upon exercise of the Warrant or conversion of the
Convertible Note or which Equus may acquire as redemption proceeds of any EHC
Preferred Stock;
NOW, THEREFORE, the Company and Equus agree that:
I
Registration Rights
1.1 INCIDENTAL RIGHTS. If at any time or from time to time after the date of
the Company's initial public offering of shares of Common Stock, the Company
proposes to file with the
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Securities and Exchange Commission a registration statement (whether on From
S-1, S-2, or S-3, or any equivalent form then in effect) for the registration
under the Securities Act of 1933, as amended (the "Act), of any shares of Common
Stock for sale, for cash, to the public by the Company or on behalf of a
shareholder of the Company (excluding any shares of Common Stock issuable by the
Company upon the exercise of employee stock options, or to any employee stock
ownership plan, or in connection with the merger of consolidation of the Company
with one or more other corporations if the Company is the surviving
corporation), the Company shall give Equus at least 30 days prior written notice
of the proposed filing. The notice shall include a list of the states and
foreign jurisdictions, if any, in which the Company intends to qualify such
shares for sale. On Equus' written request received by the Company within 15
days after the date of the Company's posting to Equus of the notice of intended
registration, the Company shall, under the terms and subject to the conditions
of this Article I, and at its own expense as provided in Section 3.1, include in
the coverage of such registration statement and qualify for sale under the blue
sky or securities laws of the various states, the number of shares of Common
Stock (herein called the "Specified Shares") held by Equus and which Equus
requests to be registered.
If the managing underwriter for the Company indicates in writing its
reasonable belief that including all or part of the Specified Shares in the
coverage of such registration statement will materially and adversely affect the
sale of shares of Common Stock proposed to be sold by the Company (which
statement of the managing underwriter shall also state the maximum number of
shares, if any, which the managing underwriter believes can be sold by Equus
without materially adversely affecting the sale of the shares proposed to be
sold by the Company), then the number of Specified Shares which Equus shall have
the right to include in such registration statement shall be reduced to a PRO
RATA portion of the maximum number of Specified Shares bears to all shares of
Common Stock proposed to be included in such registration statement by all
persons other than the Company.
Subject to the foregoing, and without in any way limiting the types of
registration to which this Section 1.1 applies, if the Company effects any
"shelf registrations" under Rule 415 promulgated under the Act, or any other
similar rule or regulation, on Forms S-1, S-2, or S-3, or any equivalent form
then in effect, covering shares of Common Stock, then for each shelf
registration effected by the Company, the Company shall take all necessary
action, including, without limitation, the filing of post-effective amendments,
to permit Equus to include shares of its Common Stock or conversion of the
Convertible Note or in respect of the redemption of the EHC Preferred Stock, or
upon exercise or conversion of any other securities of the Company or EHC, in
such registration in accordance with this Section 1.1. The inclusion of such
shares and the continued effectiveness of such registration shall be subject in
all respects to applicable securities laws. The Company shall not, however, be
required to include any shares in such registration by post-effective amendment
to the extent that the number of such shares, when added
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to the number of shares of Common Stock previously sold to be contemporaneously
sold by the Company under such registration statement, would exceed the total
number of shares of Common Stock registered thereunder.
The Company shall have the right to select any underwriters, including
the managing underwriter, of any public offering of shares of Common Stock
subject to this Section 1.1. Nothing in this Section 1.1 shall create any
liability or obligation on the part of the Company to Equus if the Company for
any reason decides not to file a registration statement.
Equus may request to have Common Stock included in an unlimited number
of registrations under this Section 1.1.
For purposes of this Agreement, "Common Stock" (including Common Stock
"held by Equus") refers to any shares of Common Stock of the Company, and
includes Common Stock issuable upon exercise of any options or warrants held by
Equus and any conversion by Equus of any securities which are convertible or
exerciseable into or exchangeable for or evidence a right to receive Common
Stock (including the Warrant, the Convertible Note, and the EHC Preferred
Stock).
Not withstanding any other provision of this agreement, the Company
shall not be required to effect a registration of any Common Stock under this
Article I, or file any post-effective amendment to it:
(i) unless Equus agrees to (x) sell and distribute a portion
of all of its Common Stock in accordance with the plan or plans of
distribution adopted by and through underwriters, if any, acting for
the Company, and (y) pay all underwriter's discounts and commissions
with respect to shares of Common Stock sold by Equus in such
registration;
(ii) if in the opinion of counsel for the Company and counsel
for Equus (x) the shares of Common Stock for which registration has
been requested may be disposed of within a comparable time frame
without registration under the Act and (y) upon such disposition all
legends on certificates representing such shares which restrict their
transfer under the Act and applicable state securities laws may be
removed; or
(iii) unless the Company has received from Equus all
information, the Company has reasonably requested concerning Equus and
its method of distribution of its shares, so as to enable the Company
to include in the registration statement all material facts required to
be disclosed in it.
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1.2 COVENANTS AND PROCEDURES. If the Company becomes obligated under this
Article I to effect a registration of shares of Common Stock on behalf of Equus,
then:
(a) The Company, at its expense as provided in Section 3.1, shall
prepare and file with the Commission a registration statement covering such
shares of Common Stock and shall use all commercially reasonable efforts to
cause the registration statement to become effective. The Company will also
file such post-effective amendments to the registration statement (and use
its best efforts to cause them to become effective) and such supplements as
are necessary so that current prospectuses are at all times available for a
period of at least 90 days after the effective date of the registration
statement or for such longer period, not to exceed 180 days, as may be
required under the plan or plans of distribution set forth in the
registration statement. Equus shall promptly provide the Company with such
information with respect to Equus' shares of Common Stock to be so
registered and, if applicable, the proposed terms of their offering and
their plan of distribution, as is required for the registration. If the
shares of Common Stock to be covered by the registration statement are not
to be sold to or through underwriters acting for the Company, the Company
shall:
(i) deliver to Equus as promptly as practicable as many copies
of preliminary prospectuses as Equus may reasonably request (in which
case Equus shall keep a written record of the distribution of the
preliminary prospectuses and shall refrain from delivery of the
preliminary prospectuses in any manner or under any circumstances which
would violate the Act or the securities laws of any other jurisdiction,
including the various states of the United States);
(ii) deliver to Equus, as soon as practicable after the
effective date of the registration statement, and from time to time
thereafter during such 90-day or longer period, as many copies of the
relevant prospectuses as Equus may reasonably request; and
(iii) in case of the happening, after the effective date of
the registration statement and during such 90-day or longer period, of
any event or occurrence which would be set forth in an amendment of or
supplement to the prospectus in order to make any statements in it not
misleading, give Equus written notice of the event or occurrence and
prepare and furnish to Equus, in such quantities as it may reasonably
request, copies of the amended prospectus or supplement to be attached
to the prospectus in order that the prospectus, as so amended or
supplemented, will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of circumstances
under which they were made, not misleading.
-4-
(b) On or before the date on which the registration statement is
declared effective, the Company shall use all commercially reasonable
efforts to:
(i) register or qualify (and cooperate with Equus, the
underwriter or underwriters, if any, and their counsel, in connection
with the registration or qualification of) the Common Stock covered by
the registration statement for offer and sale under the securities or
blue sky laws of each state and other jurisdiction of the United States
as Equus or underwriter reasonably requests, provided that the Company
will not be required to submit to jurisdiction or qualify generally to
do business in any jurisdiction where it is not then so subject or
qualified;
(ii) use all commercially reasonable efforts to keep each such
registration or qualification effective, including through new filings,
or amendments or renewals, during the period the registration statement
is required to be kept effective; and
(iii) do any and all other acts or things necessary or
advisable to enable the disposition in all such jurisdictions of the
Common Stock covered by the applicable registration statement, provided
that the Company will not be required to submit to jurisdiction or
qualify generally to do business in any jurisdiction where it is not
then so subject or qualified.
(c) The Company shall use all commercially reasonable efforts to cause
all of Equus' Common Stock included in the registration statement to be
listed, by the date of the first sale of such Common Stock pursuant to such
registration statement, on each securities exchange on which the Common
Stock of the Company is then listed or proposed to be listed, if any.
(d) The Company shall make generally available to Equus and any
underwriter participating in the offering conducted pursuant to the
registration statement an earnings statement satisfying Section 11(a) of the
Act no later than 45 days after the end of the 12-month period beginning
with the first day of the Company's first fiscal quarter commencing after
the effective date of the registration statement. The earnings statement
shall cover such 12-month period. This requirement will be deemed to be
satisfied if the Company timely files complete and accurate information on
Forms 10-Q, 10-K, and 8-K under the Securities Exchange Act of 1934, as
amended, and otherwise complies with Rule 158 under the Act as soon as
feasible.
(e) The Company shall cooperate with Equus and the managing underwriter
or underwriters, if any, to facilitate the timely preparation and delivery
of certificates (not
-5-
bearing any restrictive legends) representing Common Stock to be sold under
the registration statement, and to enable such securities to be in such
denominations and registered in such names as the managing underwriter or
underwriters, if any, or Equus may request, subject to the underwriters'
obligation to return any certificates representing unsold securities.
(f) The Company shall use all commercially reasonable efforts to cause
Equus' Common Stock covered by the registration statement to be registered
with or approved by such other governmental agencies or authorities within
the United States as may be necessary to enable Equus or the underwriter or
underwriters, if any, to consummate the disposition of such Common Stock.
(g) The Company shall, during normal business hours and upon reasonable
notice, make available for inspection by Equus, any underwriter
participating in any offering pursuant to the registration statement, and
any attorney, accountant or other agent retained by Equus or any such
underwriter (collectively, the "Inspectors"), all nonconfidential financial
and other records, pertinent corporate documents, and properties of the
Company, as shall be reasonably necessary to enable the Inspectors to
exercise their due diligence responsibilities. The Company shall also cause
its officers, directors, and employees to supply all nonconfidential
information reasonably requested by any Inspector in connection with the
registration statement.
(h) The Company shall use all commercially reasonable efforts to obtain
"cold comfort" letter from the Company's independent public accountants, and
an opinion of counsel for the Company, each in customary form and covering
such matters of the type customarily covered by cold comfort letters and
legal opinions in connection with public offerings of securities, as Equus
reasonably requests.
II
Indemnification
2.1 INDEMNIFICATION BY THE COMPANY. In the event of any registration under
the Act and this Agreement of shares of Common Stock held by Equus, the Company
will hold harmless Equus and each underwriter of such securities and each other
person, if any, who controls Equus or such underwriter within the meaning of the
Act, against any losses, claims, damages, or liabilities (including legal fees
and costs of court), joint or several, to which Equus or such underwriter or
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages, or liabilities (or any actions in respect thereof)
arise out of or are based
-6-
upon any untrue statement or alleged untrue statement of any material fact
contained, on its effective date, in any registration statement under which such
securities were registered under the Act, any related preliminary or final
prospectus, or any amendment or supplement to it, or which arise out of or are
based upon the omission or alleged omission to state a material fact required to
be stated therein or necessary to make the statements therein not misleading;
and will reimburse Equus and each such underwriter and each such controlling
person for any legal or any other expenses reasonably incurred by them in
connection with investigating or defending such loss, claim, damage, or
liability; provided, however, that the Company shall not be liable to Equus or
its underwriters or controlling persons in any such case to the extent that any
such loss, claim, damage, or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
such registration statement, preliminary or final prospectus, or such amendment
or supplement, in reliance upon and in conformity with information furnished to
the Company in writing by Equus or such underwriter specifically for use in the
preparation thereof.
2.2 INDEMNIFICATION BY EQUUS. Equus will indemnify and hold harmless (in the
same manner and to the same extent as set forth in Section 2.1) the Company,
each director of the Company, each officer of the Company who shall sign the
registration statement, and any person who controls the Company within the
meaning of the Act, (i) with respect to any statement or omission from such
registration statement, any related preliminary or final prospectus, or any
amendment or supplement to it, if such statement or omission was made in
reliance upon and in conformity with information furnished to the Company in
writing by Equus specifically for use in the preparation of such registration
statement, preliminary or final prospectus, or amendment or supplement, and (ii)
with respect to compliance by Equus with applicable laws in effecting the sale
or other disposition of the shares of Common Stock covered by such registration
statement.
2.3 INDEMNIFICATION PROCEDURES. Promptly after receipt by an indemnified
party of notice of the commencement of any action involving a claim referred to
in the preceding Sections of this Article II, the indemnified party will, if a
resulting claim is to be made or may be made against an indemnifying party, give
written notice to the indemnifying party of the commencement of the action. If
any such action is brought against an indemnified party, the indemnifying party
will be entitled to participate in and to assume the defense of the action with
counsel reasonably satisfactory to the indemnified party, and after notice from
the indemnifying party to such indemnified party of its election to assume
defense of the action, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses incurred by the latter in
connection with the action's defense. Whether or not a defense is assumed by the
indemnifying party, the indemnifying party will not be subject to any liability
for any settlement made without its consent. No indemnifying party will consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term the giving by the claimant or plaintiff, to the
indemnified party, of a release from all liability in respect of such claim or
litigation.
-7-
2.4 CONTRIBUTION. If the indemnification required by this Article II from
the indemnifying party is unavailable to an indemnified party in respect of any
indemnifiable losses, claims, damages, liabilities, or expenses, then the
indemnifying party, in lieu of indemnifying the indemnified party, shall
contribute to the amount paid or payable by the indemnified party as a result of
such losses, claims, damages, liabilities, or expenses in such proportion as is
appropriate to reflect the relative fault of the indmenifying and indemnified
parties in connection with the actions which resulted in such losses, claims,
damages, liabilities, or expenses, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and the indemnified
party shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact, has been made by, or relates to information supplied by, such
indemnifying party or parties, and the parties' relative intent, knowledge,
access to information, and opportunity to correct or prevent such action. The
amount paid or payable by a party as a result of the losses, claims, damage,
liabilities, and expenses referred to above shall be deemed to include any legal
or other fees or expenses reasonably incurred by such party in connection with
any investigation or proceeding. The Company and Equus agree that it would not
be just and equitable if contribution pursuant to this Section 2.4 were
determined by PRO RATA allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in the prior
provisions of this Section 2.4.
Notwithstanding the provisions of this Section 2.4, no indemnifying party
shall be required to contribute any amount in excess of the amount by which the
total price at which the Common Stock was offered to the public by the
indemnifying party exceeds the amount of any damages which the indemnifying
party has otherwise been required to pay by reason of such untrue statement or
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
III
Other Agreements
3.1 EXPENSES. All expenses incurred by the Company in connection with any
registration statement covering shares of Common Stock offered by Equus,
including, without limitation, all registration and filing fees (including all
expenses incident to filing with the National Association of Securities Dealers,
Inc.), printing expenses, fees and disbursements of counsel (including the
reasonable fees and disbursements of counsel for Equus) and of the independent
certified public accountants (except, in the case of any special audits, if
required in connection with any such registration, Equus' expenses as provided
in Section 1.1), and the
-8-
expense of qualifying such shares under state blue sky laws, shall be borne by
the Company. However, all underwriting expenses incurred by Equus, including
underwriter's discounts and commissions, shall be borne by Equus.
3.2 DISPOSITIONS DURING REGISTRATION. Upon written request by the Company,
Equus will agree, upon the registration of any of its shares of Common Stock or
any Common Stock issued by the Company at any time during the period to which
this Agreement applies, not to sell or otherwise dispose of any shares of Common
Stock (other than Common Stock covered by the registration, which may be sold
only in accordance with the plan or plans of distribution described in the
registration statement) owned by Equus for a period of 90 days following the
effective date of the registration statement, or for such longer period as may
be required under the plan or plans of distribution set forth in the
registration statement. Equus agrees that if by resolution of its Board of
Directors the Company declares its intent to file a registration statement
covering shares of Common Stock, then from the date Equus receives notice of
such declaration of intent until the earliest to occur of (i) the filing of such
registration statement and (ii) the lapse of 60 days from the date Equus
receives such notice, Equus will not sell or otherwise dispose of any shares of
Common Stock owned by Equus. Equus agrees to comply with all of these
requirements even if its Common Stock is not being included in such
registration, if (i) Equus then owns more than five percent of the outstanding
Common Stock (determined on a full-diluted basis) and (ii) other holders in
excess of five percent of the outstanding Common Stock (again determined on a
fully diluted basis) are similarly bound by contract.
3.3 RIGHTS TRANSFERABLE. All registration rights and benefits of this
Agreement, including indemnification by the Company, shall be transferable by
Equus in connection with a transfer of the Warrant, the Convertible Promissory
Note, the EHC Preferred Stock or shares of Common Stock issued to Equus under
any of the foregoing.
3.4 GRANTING OF REGISTATION RIGHTS. The Company shall not, without the prior
written consent of Equus, grant any right to any other person to register any
shares of capital stock or other securities of the Company if such right could
reasonably be expected to conflict with, or be superior to the rights of Equus
under, this Agreement, unless Equus is granted the same right as is granted to
such other person.
IV
Miscellaneous
4.1 NOTICES. All notices, requests, demands, waivers, and other
communications under this Agreement shall be in writing and shall be deemed to
have been duly given if personally
-9-
delivered, delivered by courier, or sent by first class registered or certified
mail (return receipt requested), postage prepaid, to the respective addresses of
the Company and Equus set forth below, unless subsequentially changed by written
notice:
(i) if to the Company, to:
American Residential Services, Inc.
5850 San Felipe, Suite 500
Houston, Texas 77056
Attn: Mr. C. Clifford Wright, Jr., President
(ii) if to Equus, to:
c/o Equus Capital Corporation
2929 Allen Parkway, Suite 2500
Houston, Texas 77019
Attn: Mr. Randall B. Hale, Vice President
Any notice shall be deemed to be effective when it is received.
4.2 SECTION HEADINGS. The article and section headings in this Agreement are
for reference purposes only and shall not affect the meaning or interpretation
of this Agreement. References in this Agreement to a designated "Article" or
"Section" refer to an Article or Section of this Agreement unless otherwise
specifically indicated.
4.3 GOVERNING LAW. This Agreement shall be constructed and enforced in
accordance with and governed by the law of Texas.
4.4 AMENDMENTS. This Agreement may be amended only by an instrument in
writing executed by both its parties.
4.5 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between its parties concerning its subject matter.
4.6 SEVERABILITY. The invalidity or unenforceability of any specific
provision of this Agreement shall not invalidate or render unenforceable any of
its other provisions. Any provision of this Agreement held invalid or
unenforceable shall be deemed reformed, if practicable, to the extent necessary
to render it valid and enforceable and to the extent permitted by law and
consistent with the intent of the parties to this Agreement.
-10-
4.7 COUNTERPARTS. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original, but all of which together shall
constitute the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
AMERICAN RESIDENTIAL SERVICES, INC.
By: /s/ C. CLIFFORD WRIGHT, JR.,
C. Clifford Wright, Jr.,
President and Chief Executive Officer
EQUUS II INCORPORATED
By: /s/ RANDALL B. HALE
Randall B. Hale,
Vice President
-11-
EXHIBIT 4.5
STOCK PIGGYBACK REGISTRATION AGREEMENT
THIS AGREEMENT dated as of March 19, 1996, between ENTERPRISES HOLDING
COMPANY (the Company"), and NATIONSBANK OF TEXAS, N.A., a National Banking
Association ("NationsBank"),
WITNESSETH
WHEREAS, NationsBank is this date accepting from the Company a warrant
(the "Warrant") entitling NationsBank to purchase certain shares of the
Company's Common Stock, $.01 par value (the "Common Stock");
WHEREAS as a condition to its acceptance of the Warrant, NationsBank is
requiring the Company to enter into this Agreement relating to the registration
of shares of Common Stock which may be issued upon exercise of the Warrant;
NOW, THEREFORE, the Company and NationsBank agree that:
I
Piggyback Registration Right
1.1 REGISTRATION RIGHT. If at anytime or from time to time after an initial
public offering of the Company's Common Stock the Company proposes to file with
the Securities and Exchange Commission a registration statement (whether on Form
S-1, S-2 or S-3, or any equivalent form then in effect) for the registration
under the Securities Act of 1933, as amended (the "Act"), of any shares of
common stock for sale, for cash, to the public by the Company or on behalf of a
shareholder of the Company (excluding any shares of Common Stock issuable by the
Company upon the exercise of employee stock options, or to any employee stock
ownership plan, or in connection with the merger or consolidation of the Company
with one or more other corporations if the Company is the surviving
corporation), the Company shall give NationsBank at least 30 days' prior written
notice of the proposed filing. The notice shall include a list of the states and
foreign jurisdictions, if any, in which the Company intends to qualify such
shares for sale. On NationsBank's written request received by the Company within
15 days after the date of the Company's posting NationsBank of the notice of
intended registration, the Company shall, under the terms and subject to the
conditions of this Article I, and at its own expense as provided in Section 3.1,
include in the coverage of such registration statement and qualify for sale
under the blue sky or securities laws of the various states, the number of
shares of Common Stock issuable upon exercise of the Company's Warrant dated of
even date herewith (herein called the "Specified Shares") held by NationsBank
and which NationsBank requests to be registered.
If the managing underwriter for the Company indicates in writing its
reasonable belief that including all or part of the Specified Shares in the
coverage of such registration statement will materially and adversely affect the
sale of shares Common Stock proposed to be sold by the Company (which statement
of the managing underwriter shall also state the maximum number of shares, if
any, which the managing underwriter believes can be sold by NationsBank without
materially adversely affecting the sale of shares proposed to be sold by the
Company), then the number of Specified Shares which NationsBank shall have the
right to include in such registration statement shall be reduced to a PRO RATA
portion of the maximum number of shares specified by the managing underwriter
based on the ratio which the number of Specified Shares bears to all shaes of
Common Stock proposed to be included in such registration statement by all
persons other than the Company.
The Company shall have the right to select any underwriters, including the
managing underwriter, of any public offering of shares of Common Stock subject
to this Section 1.1. Nothing in this Section 1.1 shall create any liability or
obligation on the part of the Company to NationsBank if the Company for any
reason decides not to file a registration statement.
NationsBank may request to have Common Stock included in one registration
under this Section 1.1; however, if the managing underwriter excludes any
Specified Shares from a proposed registration as provided above, such
registration shall not count against the number of requests NationsBank may make
under this Section 1.1.
For purposes of this Agreement, "Common Stock" refers to shares of Common
Stock of the Company issuable upon exercise of the Warrant.
Notwithstanding any other provision of this Agreement, the Company shall
not be required to effect a registration of any Common Stock under this Article
I, or file post-effective amendment to it:
(i) unless NationsBank agrees to (x) sell and distribute a portion of
all of its Common Stock in accordance with the plan or plans of
distribution adopted by and through underwriter's discounts and commissions
with respect to shares of Common Stock sold by NationsBank in such
registration;
(ii) if, in the case of a request for registration under Section 1.1,
in the opinion of counsel for the Company and counsel for NationsBank (x)
the shares of Common Stock for which registration has been requested may be
disposed of whithin a comparable time frame without registration under the
Act and (y) upon such disposition all legends on certificates representing
such shares which restrict their transfer under the Act and applicable
state securities laws may be removed;
(iii) unless the Company has received from NationsBank all information
the Company has reasonably requested concerning NationsBank and its method
of distribution of its shares, so as to enable the Company to include the
registration statement all material facts required to be disclosed in it.
2
1.5 COVENANTS AND PROCEDURES. If the Company becomes obligated under this
Article I to effect a registration of shares of Common Stock on behalf of
NationsBank, then;
(a) The Company, at its expense as provided in Section 3.1, shall
prepare and file with the Commission a registration statement covering such
shares of Common Stock and shall use its reasonable efforts to cause the
registration statement to become effective. The Company will also file such
post-effective amendments to the registration statement (and use its
reasonable efforts to cause them to become effective) and such supplements
as are necessary so that current prospectuses are at all times available
for a period as may be required under the plan or plans of distribution set
forth in the registration statement. NationsBank shall promptly provide the
Company with such information with respect to NationsBank's shares of
Common Stock to be so registered and, if applicable, the proposed terms of
their offering and the plan of distribution , as is required for the
registration. If the shares of Common Stock to be covered by the
registration statement are not to be sold to or through underwriters acting
for the Company, the Company shall:
(i) deliver to NationsBank as promptly as practicable as many
copies of preliminary prospectuses as NationsBank may reasonably
request (in which case NationsBank shall keep a written record of the
distribution of the preliminary prospectuses and shall refrain from
delivery of the preliminary prospectuses in any manner or under any
circumstances which would violate the Act or the securities laws of
any other jurisdiction, including the various states of the United
States);
(ii) deliver to NationsBank, as soon as practicable after
the effective date of the registration statement, and from time
to time thereafter during such 90-day or longer period; as many
copies of the relevant prospectuses as NationsBank may reasonably
request; and
(iii) in case of the happening, after the effective date of
the registration statement and during such 90-day or longer
period, of any event or occurrence which would be set forth in an
amendment of or supplement to the prospectus in order to make any
statements in it not misleading, give NationsBank written notice
of the event or occurrence and prepare and furnish to
NationsBank, in such quantities as it may reasonably request,
copies of the amended prospectus or supplement to be attached to
the prospectus in order that the prospectus, as so amended or
supplemented, will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
3
(b) On or before the date on which the registration statement is declared
effective, the Company shall use its reasonable efforts to:
(i) register or qualify (and cooperate with NationsBank, the
underwriter or underwriters, if any, and their counsel, in
connection with the registration or qualification of) the Common
Stock covered by the registration statement for offer and sale
under the securities or blue sky laws of each state and other
jurisdiction of the United States as NationsBank or underwriter
reasonably requests, provided that the Company will not be
required to qualify generally to do business in any jurisdiction
where it is not then so qualified;
(ii) use its reasonable efforts to keep each such
registration or qualification effective, including through new
filings, or amendments or renewals, during the period the
registration statement is required to be kept effective; and
(iii) do any and all other acts or things necessary or
advisable to enable the disposition in all such jurisdictions of
the Common Stock covered by the applicable registration
statement, provided that the Company will not be required to
qualify generally to do business in any jurisdiction where it is
not then so qualified.
(c) The Company shall cause all of NationsBank's Common Stock included
in the registration statement to be listed, by the date of the first sale
of such Common Stock pursuant to such registration statement, on each
securities exchange on which the Common Stock of the Company is then listed
or proposed to be listed, if any.
(d) The Company shall make generally available to NationsBank and any
underwriter participating in the offering conducted pursuant to the
registration statement an earnings statement satisfying Section 11(a) of
the Act no later than 45 days after the end of the 12-month period
beginning with the first day of the Company's first fiscal quarter
commencing after the effective date of the registration statement. The
earnings statement shall cover such 12-month period. This requirement will
be deemed to be satisfied if the Company timely files complete and accurate
information on Forms 10-Q, 10-K and 8-K under the Securities Exchange Act
of 1934, as amended, and otherwise complies with Rule 158 under the Act as
soon as feasible.
(e) The Company shall cooperate with NationsBank and the managing
underwriter or underwriters, if any, to facilitate the timely preparation
and delivery of certificates (not bearing any restrictive legends)
representing Common Stock to be sold under the registration statement, and
to enable such securities to be in such denominations and registered in
such names as the managing underwriter or underwriters, if any, or
NationsBank may request, subject to the underwriters' obligation to return
any certificates representing unsold securities.
4
(f) The Company shall use its reasonable efforts to cause NationsBank
Common Stock covered by the registration statement to be registered with or
approved by such other governmental agencies or authorities within the
United States as may be necessary to enable NationsBank or the underwriter
or underwriters, if any, to consummate the disposition of such Common
Stock.
(g) The Company shall, during normal business hours and upon
reasonable notice, make available for inspection by NationsBank, any
underwriter participating in any offering pursuant to the registration
statement, and any attorney, accountant or other agent retained by
NationsBank or any such underwriter (collectively, the "Inspectors"), all
nonconfidential financial and other records, pertinent corporate documents,
and properties of the Company, as shall be reasonably necessary to enable
the Inspectors to exercise their due diligence responsibilities. The
Company shall also cause its officers, directors and employees to supply
all nonconfidential information reasonably requested by any Inspector in
connection with the registration statement.
(h) The Company shall obtain a "cold comfort" letter from the
Company's independent public accountants, and an opinion of counsel for the
Company, each in customary form and covering such matters of the type
customarily covered by cold comfort letters and legal opinions in
connection with public offerings of securities, as NationsBank reasonably
requests.
II
Indemnification
2.1 INDMENIFICATION BY THE COMPANY. In the event of any registration under
the Act and this Agreement of shares of Common Stock held by NationsBank, the
Company will hold harmless NationsBank and each underwriter of such securities
and each other person, if any, who controls NationsBank or such underwriter
within the meaning of the Act, against any losses, claims, damages, or
liabilities (including legal fees and costs of court), joint or several, to
which NationsBank or such underwriter or controlling person may become subject
under the Act or otherwise, insofar as such losses, claims, damages, or
liabilities (or any actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained,
on its affective date, in any registration statement under which such securities
were registered under the Act, any related preliminary or final prospectus, or
any amendment or supplement to it, or which arise out of are based upon the
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and will
reimburse NationsBank and each such underwriter and each such controlling person
for any legal or any other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, or liability;
provided, however, that the Company shall not be liable to NationsBank or its
underwriters or controlling persons in any such case to the extent than any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission
5
made in such registration statement, preliminary or final prospectus, or such
amendment or supplement, in reliance upon and in conformity with information
furnished to the Company in writing by NationsBank or such underwriter
specifically for use in the preparation thereof.
2.2 INDEMNIFICATION BY NATIONSBANK. NationsBank will indemnify and hold
harmless (in the same manner and to the same extent as set forth in Section 2.1)
the Company, each director of the Company, each officer of the Company who shall
sign the registration statement, and any person who controls the Company within
the meaning of the Act, (i) with respect to any statement or omission from such
registration statement, any related preliminary or final prospectus, or any
amendment or supplement to it, if such statement or omission was made in
reliance upon and in conformity with information furnished to the Comapny in
writing by NationsBank specifically for use in the preparation of such
registration statement, preliminary or final prospectus, or amendment or
supplement, and (ii) with respect to compliance by NationsBank with applicable
laws in effecting the sale or other disposition of the shares of Common Stock
covered by such registration statement.
2.3 INDEMNIFICATION PROCEDURES. Promptly after receipt by an indemnified
party of notice of the commencement of any action involving a claim referred to
in the preceding Sections of this Article II, the indemnified party will, if a
resulting claim is to be made or may be made against an indemnifying party, give
written notice to the indemnifying party of the commencement of the action. If
any such action is brought against an indemnified party, the indemnifying party
will be entitled to participate in and to assume defense of the action with
counsel reasonably satisfactory to the indemnified party, and after notice from
the indemnifying party to such indemnified party of its election to assume
defense of the action, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses incurred by the latter in
connection with the action's defense. Whether or not a defense is assumed by the
indemnifying party, the indemnifying party will not be subject to any liability
for any settlement made without its consent. No indemnifying party will consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term the giving by the claimant or plaintiff, to the
indemnified party, of a release from all liability in respect of such claim or
litigation.
2.4 CONTRIBUTION. If the indemnification required by this Article II from
the indemnifying party is unavailable to an indemnified party in respect of any
indemnifiable losses, claims damages, liabilities or expenses, then the
indemnifying party, in lieu of indemnifying the indemnified party, shall
contribute to the amount paid or payable by the indemnified party as a result of
such losses, claims, damages, liabilities or expenses in such proportion as is
appropriate to reflect the relative fault of the indemnifying and indemnified
parties in connection with the actions which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and the indemnified
party shall be determined by reference to, among other things, whether any
action in questions, including any untrue or alleged untrue statement of a
material fact, has been made by, or related to information supplied by, such
indemnifying party or parties, and the parties' realative intent, knowledge,
access to information and opportunity to correct or prevent
6
such action. The amount paid or payable by a party as a result of the losses,
claims damages, liabilities and expenses referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such party in
connection with any investigation or proceeding. The Company and NationsBank
agree that it would not be just and equitable if contribution pursuant to this
Section 2.4 were determined by PRO RATA allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in the prior provisions of this Section 2.4.
Notwithstanding the provisions of this Section 2.4, no indemnifying party
shall be required to contribute any amount in excess of the amount by which the
total price at which the Common Stock was offered to the public by the
indemnifying party exceeds the amount of any damages which the indemnifying
party has otherwise been required to pay by reason of such untrue statement or
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
III
Other Agreements
3.1 EXPENSES. All expenses incurred by the Company in connection with any
registration statement covering shares of Common Stock offered by NationsBank,
including, without limitation, all registration and filing fees (including all
expenses incident to filing with the National Association of Securities Dealers,
Inc.), printing expenses, fees and disbursements of counsel (including the
reasonable fees and reasonable disbursements of counsel for NationsBank) and of
the independent certified public accountants, and the expense of qualifing such
shares under state blue sky laws, shall be borne by the Company. However, all
underwriting expenses incurred by NationsBank, including underwriter's discounts
and commissions, shall be borne by NationsBank.
3.2 DISPOSITIONS DURING REGISTRATION. Upon written request by the Company,
NationsBank will agree, upon the registration of any of its shares of Common
Stock or any Common Stock issued by the Company at any time during its period to
which this Agreement applies, not to sell or otherwise dispose of any shares of
Common Stock (other than Common Stock covered by the registration, which may be
sold only in accordance with the plan or plans of distribution described in the
registration statement) owned by NationsBank for a period of 90 days following
the effective date of the registration statement, or for such longer period as
may be required under the plan or plans of distribution set forth in the
registration statement. NationsBank agrees that if by resolution of its Board of
Directors the Company declares its intent to file a registration statement
covering shares of Common Stock and NationsBank elects to have Specified Shares
sold pursuant to such registration statement, then from the date NationsBank
receives notice of such declaration of intent until the earliest to occur of (i)
the filing of such registration statement and (ii) the lapse of 60 days from the
date NationsBank
7
receives such notice, NationsBank will not sell or otherwise dispose of any
shares of Common Stock owned by NationsBank.
3.3 MERGER OF CONSOLIDATION OF THE COMPANY. So long as this Agreement
remains in effect, the Company will not merge or consolidate with or into, or
sell, transfer or lease all or substantially all of its property to, any other
corporation unless the successor or purchasing corporation, as the case may be
(if not the Company), shall expressly assume, by supplemental agreement executed
and delivered to NationsBank, the performance and observance of each and every
covenant and condition of this Agreement to be performed and observed by the
Company under this Agreement.
3.4 RIGHTS TRANFERABLE. All registration rights and benefits of this
Agreement, including indemnification by the Company, shall be transferable by
NationsBank in connection with a transfer of the Warrant or shares of Common
Stock issuable thereunder. In the case of any partial assignment, the parties
who have the rights and benefits of NationsBank under this Agreement shall not,
as a group, have the right to any greater number of registrations than
NationsBank would have had if no assignment had occured.
IV
Miscellaneous
4.1 NOTICES. All notices, requests, demands, waivers and other
communications under this Agreement shall be in writing and shall be deemed to
have been duly given if personally delivered, delivered by courier, or sent by
first class registered or certified mail (return receipt requested), postage
prepaid, to the respective addresses of the Company and NationsBank set forth
below, unless subsequently changed by written notice:
(i) if to the Company, to:
Enterprises Holding Company
5850 San Felipe, Suite 500
Houston, Texas 77056
Attn: Mr. C. Clifford Wright, Jr., President
8
(ii) if to NationsBank, to:
NationsBank of Texas, N.A.
P.O. Box 2518
Houston, Texas 77252-2518
Attn: Mr. Albert Welch
Vice President
Commercial Lending
Any notice shall be deemed to be effective when it is received.
4.2 SECTION HEADINGS. The article and section headings in this Agreement
are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement. References in this Agreement to a designated
"Article" or "Section" refer to an Article or Section of this Agreement unless
otherwise specifically indicated.
4.3 GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with and governed by the law of Texas.
4.4 AMENDMENTS. This Agreement may be amended only by an instrument in
writing executed by both its parties.
4.5 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between its parties concerning its subject matter.
4.6 SEVERABILITY. The invailidity or unenforceability of any specific
provision of this Agreement shall not invalidate or render unenforceable any of
its other provisions. Any provision of this Agreement held invalid or
unenforceable shall be deemed reformed, if practicable, to the extent necessary
to render it valid and enforceable and to the extent permitted by law and
consistent with the intent of the parties to this Agreement.
4.7 COUNTERPARTS. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original, but all of which together shall
constitute the same instrument.
9
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
ENTERPRISES HOLDING COMPANY
By: /s/ C. CLIFFORD WRIGHT, JR.
C. Clifford Wright, Jr.,
President and Chief Executive Officer
NATIONSBANK OF TEXAS, N.A.
By: /s/ ALBERT WELCH
Albert Welch,
Vice President
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
This Employment Agreement dated as of March 6, 1996, but effective as of
April 1, 1996 (this "AGREEMENT") is entered into by and between American
Residential Services, Inc., a Delaware corporation (the "CORPORATION"), and A.
Jefferson Walker III (the "EMPLOYEE").
1. EMPLOYMENT. The Corporation hereby employs the Employee
and the Employee hereby accepts employment with the Corporation
upon the terms and subject to the conditions set forth herein.
2. DUTIES AND RESPONSIBILITIES.
Subject to the power of the board of directors of the Corporation to
manage the business and affairs of the Corporation and to elect and remove
officers, the Employee shall serve the Corporation as Treasurer of the
Corporation and shall perform the services and functions relating to such office
or otherwise reasonably incident to such office. The Employee shall report
directly to the chief executive officer of the Corporation, or such other
officer of the Corporation as the board of directors of the Corporation may
determine.
3. COMPENSATION AND OTHER EMPLOYEE BENEFITS.
As compensation for his services under the terms of this Agreement:
(a) the Employee shall be paid an annual salary of $70,000, payable
in accordance with the then-current payroll policies of the Corporation
(such annual salary is herein referred to as the "BASE SALARY"); the Base
Salary shall be subject to increase (but not decrease) at the discretion
of the Corporation; and
(b) subject to the right of the Corporation to amend or terminate any
employee and/or group or senior executive benefit, bonus and/or stock
option plan, the Employee shall be entitled to receive the following
employee benefits:
(1) the Employee shall have the right to participate in such medical
and dental plans as are adopted by the Corporation, as well as any or
future employee and/or group benefit plans of the Corporation that
are available to its exempt salaried employees generally (including,
without limitation, disability, accident, medical, life insurance and
hospitalization plans which are normal and customary);
(2) the Employee shall have the right to participate in all future
senior executive benefit, bonus and/or stock option plans of the
Corporation, all in accordance with the Corporation's regular
practices with respect to senior executive officers; and
(3) the Employee shall be entitled to reimbursement from the
Corporation for reasonable out-of-pocket expenses incurred by him in
the course of the performance of his duties hereunder.
4. TERM.
(a) The term of the Employee's employment under this Agreement shall
be for a continually renewing term of one (1) year commencing on the date
of this Agreement without any further action by either the Corporation or
the Employee, it being the intention of the parties that there shall be
continuously a term of one (1) year duration of the Employee's employment
under the Agreement until an event has occurred as described in, or one of
the parties shall have made an appropriate election pursuant to, the
provisions of Section 6 of this Agreement. Such one-year term is referred
to herein as the "EMPLOYMENT TERM".
(b) The term of this Agreement may be extended for additional periods
by mutual consent of the Employee and the Corporation.
5. COMPETITION AND CONFIDENTIALITY.
(a) If, during the Employment Term (or any extension thereof), the
employment of the Employee is terminated pursuant to Section 6(a) or
Section 6(e), or if the Employee voluntarily terminates his employment
pursuant to Section 6(d), or if this Agreement expires pursuant to its
terms, then for two years from the date of such termination or expiration,
the Employee shall not (i) accept employment with or render service to,
within Harris County, Texas, any person, firm or corporation that is
engaged in a business directly competitive with the plumbing, heating, air
conditioning or electrical business, (ii) directly or indirectly own
manage, operate, finance or control or participate in the ownership,
management, operation or control of, or be connected as a principal,
agent, representative, consultant, advisor, investor, owner, partner,
financier, manager or joint venturer with, or permit his name to be used
by or in connection with, any business or enterprise engaged anywhere in
Harris County, Texas in the plumbing, heating, air conditioning or
electrical business (provided, however, that the Employee may invest as an
investor in the voting securities of any person that is a reporting
company under the Securities Exchange Act of 1934, as amended, so long as
(A) the aggregate amount of such securities that the Employee owns
directly or indirectly is less than five percent of the total outstanding
voting securities of such person and (B) the Employee has no other
affiliation with such person), or (iii) solicit the employment of any
person who, within six months before or after the date of the Employee's
termination, is employed by the Corporation on a full or part-time basis.
For the purposes of this Section 5, the Corporation shall be deemed to
include all of the subsidiaries of the Corporation.
(b) It is the desire and intent of each of the parties that the
provisions of Section 5(a) shall be enforced to the fullest extent
permissible under the laws and public policies applied in the State of
Texas. Accordingly, if any particular portion of Section 5(a) shall be
adjudicated to be invalid or unenforceable, Section 5(a) shall be deemed
amended to (i) reform the particular portion to provide for such maximum
restrictions as will be valid and enforceable, or if that is not possible,
then (ii) delete therefrom the portion thus adjudicated to be invalid or
unenforceable. Section 5(a) shall inure to the benefit of any successor to
the Corporation.
(c) During the Employment Term and for a period of two years after
termination of the Employment Term, the Employee will not divulge or
appropriate to his own use or to the use of others any secret or
confidential information pertaining to the business of the Corporation
obtained by the Employee in his capacity as an employee of the
Corporation. For purposes of this Agreement, the term secret and
confidential information does not include any information that is or
becomes generally available to and known by the public (other than as a
result of an unpermitted disclosure directly or indirectly by the
Employee).
(d) The Employee acknowledges that Sections 5(a) and (c) are
expressly for the benefit of the Corporation, that the Corporation would
be irreparably injured by a violation of Section 5(a) or (c), and that the
Corporation would have no adequate remedy at law in the event of such
violation. Therefore, the Employee acknowledges and agrees that injunctive
relief, specific performance or any other appropriate equitable remedy
(without any bond or other security being required) are appropriate
remedies to enforce compliance by the Corporation with Sections 5(a) and
(c).
6. TERMINATION OF EMPLOYMENT.
(a) FOR DUE CAUSE. Nothing herein shall prevent the Corporation from
terminating, without prior notice, the Employee for "Due Cause" (as
hereinafter defined), in which event the Employee shall be entitled to
receive his Base Salary on a pro rata basis to the date of termination. In
the event of such termination for Due Cause, all other rights and benefits
the Employee may have under the employee and/or group or senior executive
benefit, bonus and/or stock option plans and programs of the Corporation,
generally, shall be determined in accordance with the terms and conditions
of such plans and programs. The term "DUE CAUSE" shall mean (i) the
Employee has committed a willful serious act, such as fraud, embezzlement
or theft, against the Corporation intending to enrich himself at the
expense of the Corporation, (ii) the Employee has been convicted of a
felony, (iii) the Employee has engaged in conduct which has caused
demonstrable and serious injury, monetary or otherwise, to the
Corporation, (iv) the Employee, in carrying out his duties hereunder, has
been guilty of willful gross neglect or willful gross misconduct, (v) the
Employee has refused to carry out his duties in gross dereliction of duty
and, after receiving written notice to such effect from the Corporation,
the Employee fails to cure the existing problem within five days, or (vi)
the Employee has materially breached this Agreement and has not remedied
such breach within five days after receipt of written notice from the
Corporation that a breach of this Agreement has occurred.
(b) DUE TO DEATH. In the event of the death of the Employee, this
Agreement shall terminate on the date of death and the estate of the
Employee shall be entitled to the Employee's Base Salary through the end
of the month in which he died. In the event of such termination due to
death, all other rights and benefits the Employee (or his estate) may have
under the employee and/or group or senior executive benefit, bonus and/or
stock option plans and programs of the Corporation, generally, shall be
determined in accordance with the terms and conditions of such plans and
programs.
(c) DISABILITY. In the event the Employee suffers a "Disability" (as
hereinafter defined), this Agreement shall terminate on the date on which
the Disability occurs and the Employee shall be entitled to his Base
Salary through the end of the month in which his employment is terminated
due to the Disability. In the event of such termination due to Disability,
all other rights and benefits the Employee may have under the employee
and/or group or senior executive benefit, bonus and/or stock option plans
and programs of the Corporation, generally, shall be determined in
accordance with the terms and conditions of such plans and programs. For
purposes of this Agreement, "DISABILITY" shall mean the inability or
incapacity (by reason of a medically determinable physical or mental
impairment) of the Employee to perform the duties and responsibilities
related to the job or position with the Corporation described in Section 2
for a period that can be reasonably expected to last more than 180 days.
Such inability or incapacity shall be documented to the reasonable
satisfaction of the Corporation by appropriate correspondence from
registered physicians reasonably satisfactory to the Corporation.
(d) VOLUNTARY TERMINATION. The Employee may voluntarily terminate his
employment under this Agreement at any time by providing at least 21 days'
prior written notice to the Corporation. In such event, the Employee shall
be entitled to receive his Base Salary until the date his employment
terminates and all other benefits the Employee may have under the employee
and/or group or senior executive benefit, bonus and/or stock option plans
and programs of the Corporation, generally, shall be determined in
accordance with the terms and conditions of such plans and programs.
(e) CONSTRUCTIVE TERMINATION.
(i) If the Corporation (i) terminates the employment of the Employee
other than for Due Cause or because of a Disability, (ii) demotes the
Employee to a lesser position than as provided in Section 2, or (iii)
decreases the Employee's Base Salary below the level provided for by
the terms of Section 3(a) or reduces the employee benefits and
perquisites below the level provided for by the terms of Section 3(b)
(other than as a result of any amendment or termination of any
employee and/or group or senior executive benefit, bonus and/or stock
option plan, which amendment or termination is applicable to all
employees or executives of the Corporation, as the case may be,
eligible to participate in such plan prior to its termination), then
such action by the Corporation, unless consented to in writing by the
Employee, shall be deemed to be a constructive termination by the
Corporation of the Employee's employment ("CONSTRUCTIVE
TERMINATION").
(ii) In the event of a Constructive Termination, the Employee shall
be entitled to receive, from the date of Constructive Termination,
his Base Salary (as provided in Section 3(a)) for a period equal to
one year, payable in accordance with the then-current payroll
policies of the Corporation. In the event of such Constructive
Termination, all other rights and benefits the Employee may have
under the employee and/or group or senior executive benefit, bonus
and/or stock option plans and programs of the Corporation, generally,
shall be determined in accordance with the terms and conditions of
such plans and programs.
(iii) In the event of the death or Disability of the Employee
following Constructive Termination, the amounts set forth in Section
6(e)(ii) shall continue to be owing and shall be paid to the estate
of the Employee or the Employee, as applicable.
7. NOTICES. All notices, requests, demands and other communications given
under or by reason of this Agreement shall be in writing and shall be deemed
given when delivered in person or when mailed, by certified mail (return receipt
requested), postage prepaid, addressed as follows (or to such other address as a
party may specify by notice pursuant to this provision):
(a) If to the Corporation:
American Residential Services, Inc.
5850 San Felipe, Suite 500
Houston, Texas 77057
Attn:Chief Executive Officer
(b) If to the Employee:
A. Jefferson Walker III
16103 Jast Drive
Cypress, Texas 77429
8. CONTROLLING LAW. The execution, validity, interpretation and
performance of this Agreement shall be governed by and construed in accordance
with the law of the State of Texas.
9. ADDITIONAL INSTRUMENTS. The Employee and the Corporation shall execute
and deliver any and all additional instruments and agreements that may be
necessary or proper to carry out the purposes of this Agreement.
10. ENTIRE AGREEMENT AND AMENDMENTS. This Agreement contains the entire
agreement of the Employee and the Corporation relating to the matters contained
herein and supersedes all prior agreements and understandings, oral or written,
between the Employee and the Corporation with respect to the subject matter
hereof. This Agreement may be changed only by an agreement in writing signed by
the party against whom enforcement of any waiver, change, modification,
extension or discharge is sought.
11. SEPARABILITY. If any provision of this Agreement is rendered or
declared illegal or unenforceable by reason of any existing or subsequently
enacted legislation or by the decision of any arbitrator or by decree of a court
of last resort, the Employee and the Corporation shall promptly meet and
negotiate substitute provisions for those rendered or declared illegal or
unenforceable to preserve the original intent of this Agreement to the extent
legally possible, but all other provisions of this Agreement shall remain in
full force and effect.
12. ASSIGNMENTS. The Corporation may assign this Agreement to any person
or entity succeeding to all or substantially all of the business interests of
the Corporation by merger or otherwise. The rights and obligations of the
Employee under this Agreement are personal to him, and no such rights, benefits
or obligations shall be subject to voluntary or involuntary alienation,
assignment or transfer, except as otherwise contemplated hereby.
13. EFFECT OF AGREEMENT. Subject to the provisions of Section 12 with
respect to assignments, this Agreement shall be binding upon the Employee and
his heirs, executors, administrators, legal representatives and assigns and upon
the Corporation and its respective successors and assigns, except as otherwise
contemplated hereby.
14. EXECUTION. This Agreement may be executed in multiple counterparts
each of which shall be deemed an original and all of which shall constitute one
and the same instrument.
15. WAIVER OF BREACH. The waiver by either party to this Agreement of a
breach of any provision of the Agreement by the other party shall not operate or
be construed as a waiver by such party of any subsequent breach by such other
party.
IN WITNESS WHEREOF, the Employee and the Corporation have executed this
Agreement effective as of the date first above written.
AMERICAN RESIDENTIAL SERVICES, INC. A. JEFFERSON WALKER III
/s/ C. Clifford Wright, Jr. /s/ A. Jefferson Walker III
Chief Executive Officer
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
This Employment Agreement dated as of April 15, 1996 (this "AGREEMENT") is
entered into by and between American Residential Services, Inc., a Delaware
corporation (the "CORPORATION"), and Michael Mamaux (the "EMPLOYEE").
1. EMPLOYMENT. Subject to section 4(a) hereof, the Corporation hereby
employs the Employee and the Employee hereby accepts employment with the
Corporation upon the terms and subject to the conditions set forth herein.
2. DUTIES AND RESPONSIBILITIES.
Subject to the power of the board of directors of the Corporation to
manage the business and affairs of the Corporation and to elect and remove
officers, the Employee shall serve the Corporation as Controller of the
Corporation and shall perform the services and functions relating to such office
or otherwise reasonably incident to such office. The Employee shall report
directly to the chief executive officer of the Corporation, or such other
officer of the Corporation as the board of directors of the Corporation may
determine.
3. COMPENSATION AND OTHER EMPLOYEE BENEFITS.
As compensation for his services under the terms of this Agreement:
(a) Subject to section 4(a) hereof, the Employee shall be paid an
annual salary of $70,000, payable in accordance with the then-current
payroll policies of the Corporation (such annual salary is herein referred
to as the "BASE Salary"); the Base Salary shall be subject to increase
(but not decrease) at the discretion of the Corporation; provided however,
that such annual salary shall increase to $80,000 upon the Company's
closing of an underwritten public offering of its common stock (the "IPO")
from and after the date of such closing; and
(b) subject to the right of the Corporation to amend or terminate any
employee and/or group or senior executive benefit, bonus and/or stock
option plan, the Employee shall be entitled to receive the following
employee benefits:
(1) the Employee shall have the right to participate in such medical
and dental plans as are adopted by the Corporation, as well as any
or future employee and/or group benefit plans of the Corporation
that are available to its exempt salaried employees generally
(including, without limitation, disability, accident, medical, life
insurance and hospitalization plans which are normal and
customary);
(2) the Employee shall have the right to participate, at levels
determined by the board of directors (or the compensation committee
thereof), in such executive benefit, bonus and/or stock option plans
of the Corporation as shall be determined by the board of directors
(or the compensation committee thereof); and
(3) the Employee shall be entitled to reimbursement from the
Corporation for reasonable out-of-pocket expenses incurred by him in
the course of the performance of his duties hereunder.
4. TERM.
(a) This Agreement shall become effective only in the event that the
Company completes an IPO. Neither the Company nor the Employee shall have
any rights or obligations under this Agreement unless the IPO shall be
completed. Prior to the closing date of the IPO, this Agreement may be
terminated without liability or cost by either party upon written notice
to the other party.
(b) The term of the Employee's employment under this Agreement shall
be for a continually renewing term of one (1) year commencing on the date
of the closing of the IPO without any further action by either the
Corporation or the Employee, it being the intention of the parties that
there shall be continuously a term of one (1) year duration of the
Employee's employment under the Agreement until an event has occurred as
described in, or one of the parties shall have made an appropriate
election pursuant to, the provisions of Section 6 of this Agreement. Such
one-year term is referred to herein as the "EMPLOYMENT TERM".
(c) The term of this Agreement may be extended for additional periods
by mutual consent of the Employee and the Corporation.
5. COMPETITION AND CONFIDENTIALITY.
(a) If, during the Employment Term (or any extension thereof), the
employment of the Employee is terminated pursuant to Section 6(a) or
Section 6(e), or if the Employee voluntarily terminates his employment
pursuant to Section 6(d), or if this Agreement expires pursuant to its
terms, then for two years from the date of such termination or expiration,
the Employee shall not (i) accept employment with or render service to,
within Harris County, Texas, any person, firm or corporation that is
engaged in a business directly competitive with the plumbing, heating, air
conditioning or electrical business, (ii) directly or indirectly own
manage, operate, finance or control or participate in the ownership,
management, operation or control of, or be connected as a principal,
agent, representative, consultant, advisor, investor, owner, partner,
financier, manager or joint venturer with, or permit his name to be used
by or in connection with, any business or enterprise engaged anywhere in
Harris County, Texas in the plumbing, heating, air conditioning or
electrical business (provided, however, that the Employee may invest as an
investor in the voting securities of any person that is a reporting
company under the Securities Exchange Act of 1934, as amended, so long as
(A) the aggregate amount of such securities that the Employee owns
directly or indirectly is less than five percent of the total outstanding
voting securities of such person and (B) the Employee has no other
affiliation with such person), or (iii) solicit the employment of any
person who, within six months before or after the date of the Employee's
termination, is employed by the Corporation on a full or part-time basis.
For the purposes of this Section 5, the Corporation shall be deemed to
include all of the subsidiaries of the Corporation.
(b) It is the desire and intent of each of the parties that the
provisions of Section 5(a) shall be enforced to the fullest extent
permissible under the laws and public policies applied in the State of
Texas. Accordingly, if any particular portion of Section 5(a) shall be
adjudicated to be invalid or unenforceable, Section 5(a) shall be deemed
amended to (i) reform the particular portion to provide for such maximum
restrictions as will be valid and enforceable, or if that is not possible,
then (ii) delete therefrom the portion thus adjudicated to be invalid or
unenforceable. Section 5(a) shall inure to the benefit of any successor to
the Corporation.
(c) During the Employment Term and for a period of two years after
termination of the Employment Term, the Employee will not divulge or
appropriate to his own use or to the use of others any secret or
confidential information pertaining to the business of the Corporation
obtained by the Employee in his capacity as an employee of the
Corporation. For purposes of this Agreement, the term secret and
confidential information does not include any information that is or
becomes generally available to and known by the public (other than as a
result of an unpermitted disclosure directly or indirectly by the
Employee).
(d) The Employee acknowledges that Sections 5(a) and (c) are
expressly for the benefit of the Corporation, that the Corporation would
be irreparably injured by a violation of Section 5(a) or (c), and that the
Corporation would have no adequate remedy at law in the event of such
violation. Therefore, the Employee acknowledges and agrees that injunctive
relief, specific performance or any other appropriate equitable remedy
(without any bond or other security being required) are appropriate
remedies to enforce compliance by the Corporation with Sections 5(a) and
(c).
6. TERMINATION OF EMPLOYMENT.
(a) FOR DUE CAUSE. Nothing herein shall prevent the Corporation from
terminating, without prior notice, the Employee for "Due Cause" (as
hereinafter defined), in which event the Employee shall be entitled to
receive his Base Salary on a pro rata basis to the date of termination. In
the event of such termination for Due Cause, all other rights and benefits
the Employee may have under the employee and/or group or senior executive
benefit, bonus and/or stock option plans and programs of the Corporation,
generally, shall be determined in accordance with the terms and conditions
of such plans and programs. The term "DUE CAUSE" shall mean (i) the
Employee has committed a willful serious act, such as fraud, embezzlement
or theft, against the Corporation intending to enrich himself at the
expense of the Corporation, (ii) the Employee has been convicted of a
felony, (iii) the Employee has engaged in conduct which has caused
demonstrable and serious injury, monetary or otherwise, to the
Corporation, (iv) the Employee, in carrying out his duties hereunder, has
been guilty of willful gross neglect or willful gross misconduct, (v) the
Employee has refused to carry out his duties in gross dereliction of duty
and, after receiving written notice to such effect from the Corporation,
the Employee fails to cure the existing problem within five days, or (vi)
the Employee has materially breached this Agreement and has not remedied
such breach within five days after receipt of written notice from the
Corporation that a breach of this Agreement has occurred.
(b) DUE TO DEATH. In the event of the death of the Employee, this
Agreement shall terminate on the date of death and the estate of the
Employee shall be entitled to the Employee's Base Salary through the end
of the month in which he died. In the event of such termination due to
death, all other rights and benefits the Employee (or his estate) may have
under the employee and/or group or senior executive benefit, bonus and/or
stock option plans and programs of the Corporation, generally, shall be
determined in accordance with the terms and conditions of such plans and
programs.
(c) DISABILITY. In the event the Employee suffers a "Disability" (as
hereinafter defined), this Agreement shall terminate on the date on which
the Disability occurs and the Employee shall be entitled to his Base
Salary through the end of the month in which his employment is terminated
due to the Disability. In the event of such termination due to Disability,
all other rights and benefits the Employee may have under the employee
and/or group or senior executive benefit, bonus and/or stock option plans
and programs of the Corporation, generally, shall be determined in
accordance with the terms and conditions of such plans and programs. For
purposes of this Agreement, "DISABILITY" shall mean the inability or
incapacity (by reason of a medically determinable physical or mental
impairment) of the Employee to perform the duties and responsibilities
related to the job or position with the Corporation described in Section 2
for a period that can be reasonably expected to last more than 180 days.
Such inability or incapacity shall be documented to the reasonable
satisfaction of the Corporation by appropriate correspondence from
registered physicians reasonably satisfactory to the Corporation.
(d) VOLUNTARY TERMINATION. The Employee may voluntarily terminate his
employment under this Agreement at any time by providing at least 21 days'
prior written notice to the Corporation. In such event, the Employee shall
be entitled to receive his Base Salary until the date his employment
terminates and all other benefits the Employee may have under the employee
and/or group or senior executive benefit, bonus and/or stock option plans
and programs of the Corporation, generally, shall be determined in
accordance with the terms and conditions of such plans and programs.
(e) CONSTRUCTIVE TERMINATION.
(i) If the Corporation (i) terminates the employment of the Employee
other than for Due Cause or because of a Disability, (ii) demotes the
Employee to a lesser position than as provided in Section 2, (iii)
decreases the Employee's Base Salary below the level provided for by
the terms of Section 3(a), or (iv) requires the Employee to move his
principal residence from the Houston, Texas area, then such action by
the Corporation, unless consented to in writing by the Employee,
shall be deemed to be a constructive termination by the Corporation
of the Employee's employment ("CONSTRUCTIVE TERMINATION").
(ii) In the event of a Constructive Termination, the Employee shall
be entitled to receive, from the date of Constructive Termination,
his Base Salary (as provided in Section 3(a)) for a period equal to
one year, payable in accordance with the then-current payroll
policies of the Corporation. In the event of such Constructive
Termination, all other rights and benefits the Employee may have
under the employee and/or group or senior executive benefit, bonus
and/or stock option plans and programs of the Corporation, generally,
shall be determined in accordance with the terms and conditions of
such plans and programs.
(iii) In the event of the death or Disability of the Employee
following Constructive Termination, the amounts set forth in Section
6(e)(ii) shall continue to be owing and shall be paid to the estate
of the Employee or the Employee, as applicable.
7. NOTICES. All notices, requests, demands and other communications given
under or by reason of this Agreement shall be in writing and shall be deemed
given when delivered in person or when mailed, by certified mail (return receipt
requested), postage prepaid, addressed as follows (or to such other address as a
party may specify by notice pursuant to this provision):
(a) If to the Corporation:
American Residential Services, Inc.
5850 San Felipe, Suite 500
Houston, Texas 77057
Attn:Chief Executive Officer
(b) If to the Employee:
Michael Mamaux
3330 Kings Mountain Drive
Kingswood, Texas 77345
8. CONTROLLING LAW. The execution, validity, interpretation and
performance of this Agreement shall be governed by and construed in accordance
with the law of the State of Texas.
9. ADDITIONAL INSTRUMENTS. The Employee and the Corporation shall execute
and deliver any and all additional instruments and agreements that may be
necessary or proper to carry out the purposes of this Agreement.
10. ENTIRE AGREEMENT AND AMENDMENTS. This Agreement contains the entire
agreement of the Employee and the Corporation relating to the matters contained
herein and supersedes all prior agreements and understandings, oral or written,
between the Employee and the Corporation with respect to the subject matter
hereof. This Agreement may be changed only by an agreement in writing signed by
the party against whom enforcement of any waiver, change, modification,
extension or discharge is sought.
11. SEPARABILITY. If any provision of this Agreement is rendered or
declared illegal or unenforceable by reason of any existing or subsequently
enacted legislation or by the decision of any arbitrator or by decree of a court
of last resort, the Employee and the Corporation shall promptly meet and
negotiate substitute provisions for those rendered or declared illegal or
unenforceable to preserve the original intent of this Agreement to the extent
legally possible, but all other provisions of this Agreement shall remain in
full force and effect.
12. ASSIGNMENTS. The Corporation may assign this Agreement to any person
or entity succeeding to all or substantially all of the business interests of
the Corporation by merger or otherwise. The rights and obligations of the
Employee under this Agreement are personal to him, and no such rights, benefits
or obligations shall be subject to voluntary or involuntary alienation,
assignment or transfer, except as otherwise contemplated hereby.
13. EFFECT OF AGREEMENT. Subject to the provisions of Section 12 with
respect to assignments, this Agreement shall be binding upon the Employee and
his heirs, executors, administrators, legal representatives and assigns and upon
the Corporation and its respective successors and assigns, except as otherwise
contemplated hereby.
14. EXECUTION. This Agreement may be executed in multiple
counterparts each of which shall be deemed an original and all of
which shall constitute one and the same instrument.
15. WAIVER OF BREACH. The waiver by either party to this Agreement of a
breach of any provision of the Agreement by the other party shall not operate or
be construed as a waiver by such party of any subsequent breach by such other
party.
IN WITNESS WHEREOF, the Employee and the Corporation have executed this
Agreement effective as of the date first above written.
AMERICAN RESIDENTIAL SERVICES, INC. MICHAEL MAMAUX
/s/ C. Clifford Wright, Jr. Michael Mamaux
Chief Executive Officer
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Houston, Texas
June 17, 1996
EXHIBIT 23.3
CONSENT OF PERSON NAMED TO BECOME A DIRECTOR
Pursuant to Rulle 428 under the Securiities Act of 1933, as amended
(the "Act"), I hereby consent to the use of my name and any references to me as
a person nominated to become a director of American Residential Services, Inc.
("ARS") in the Prospectus constituting a part of ARS's Registration Statement on
Form S-1 to be filed with the Securities and Exchange Commision pursuant to the
Act.
Dated:
/s/ GORDEN H. TIMMONS
Name: Gorden H. Timmons
EXHIBIT 23.4
CONSENT OF PERSON NAMED TO BECOME A DIRECTOR
Pursuant to Rule 428 under the Securities Act of 1933, as amended
(the "Act"), I hereby consent to the use of my name and any references to me as
a person nominated to become a director of American Residential Services, Inc.
("ARS") in the Prospectus constituting a part of ARS's Registration Statement on
Form S-1 to be filed with the Securities and Exchange Commission pursuant to the
Act.
Dated: 6-11-96
/s/ ELLIOT SOKOLOW
Name: Elliot Sokolow
EXHIBIT 23.5
CONSENT OF PERSON NAMED TO BECOME A DIRECTOR
Pursuant to Rule 428 under the Securities Act of 1933, as amended
(the "Act"), I hereby consent to the use of my name and any references to me as
a person nominated to become a director of American Residential Services, Inc.
("ARS") in the Prospectus constituting a part of ARS's Registration Statement on
Form S-1 to be filed with the Securities and Exchange Commission pursuant to the
Act.
Dated: May 24, 1996
/s/ NOLAN LEHMANN
Name: Nolan Lehmann
EXHIBIT 23.6
CONSENT OF PERSON NAMED TO BECOME A DIRECTOR
Pursuant to Rule 428 under the Securities Act of 1933, as amended
(the "Act"), I hereby consent to the use of my name and any references to me as
a person nominated to become a director of American Residential Services, Inc.
("ARS") in the Prospectus constituting a part of ARS's Registration Statement on
Form S-1 to be filed with the Securities and Exchange Commission pursuant to the
Act.
Dated:
/s/ RANDALL B. HALE
Name: Randall B. Hale
EXHIBIT 23.7
CONSENT OF PERSON NAMED TO BECOME A DIRECTOR
Pursuant to Rule 428 under the Securities Act of 1933, as amended
(the "Act"), I hereby consent to the use of my name and any references to me as
a person nominated to become a director of American Residential Services, Inc.
("ARS") in the Prospectus constituting a part of ARS's Registration Statement on
Form S-1 to be filed with the Securities and Exchange Commission pursuant to the
Act.
Dated:5-27-96
/s/ ROBERT J. CRUIKSHANK
Name: Robert J. Cruikshank
EXHIBIT 23.8
CONSENT OF PERSON NAMED TO BECOME A DIRECTOR
Pursuant to Rule 428 under the Securities Act of 1933, as amended
(the "Act"), I hereby consent to the use of my name and any references to me as
a person nominated to become a director of American Residential Services, Inc.
("ARS") in the Prospectus constituting a part of ARS's Registration Statement on
Form S-1 to be filed with the Securities and Exchange Commission pursuant to the
Act.
Dated:5-28-96
/s/ DONALD D. SYKORA
Name: Donald D. Sykora
EXHIBIT 23.9
CONSENT OF PERSON NAMED TO BECOME A DIRECTOR
Pursuant to Rule 428 under the Securities Act of 1933, as amended
(the "Act"), I hereby consent to the use of my name and any references to me as
a person nominated to become a director of American Residential Services, Inc.
("ARS") in the Prospectus constituting a part of ARS's Registration Statement on
Form S-1 to be filed with the Securities and Exchange Commission pursuant to the
Act.
Dated:6-11-96
/s/ FRANK N. MENDITCH
Name: Frank N. Menditch
EXHIBIT 23.10
CONSENT OF PERSON NAMED TO BECOME A DIRECTOR
Pursuant to Rule 428 under the Securities Act of 1933, as amended
(the "Act"), I hereby consent to the use of my name and any references to me as
a person nominated to become a director of American Residential Services, Inc.
("ARS") in the Prospectus constituting a part of ARS's Registration Statement on
Form S-1 to be filed with the Securities and Exchange Commission pursuant to the
Act.
Dated:May 21, 1996
/s/ THOMAS N. AMONETT
Name: Thomas N. Amonett
